Module III

Benchmarking - Definition Reasons for benchmarking Types of benchmarking Process of benchmarking what to benchmark, understanding current performance, planning, studying others Using findings Xerox model of benchmarking Advantages and pitfalls of benchmarking Concept of Kaizen and its applications

Systematic search for best practices, innovative ideas, and highly effective operating procedures Powerful tool and extremely effective when used for the right reasons and aligned with organization strategy Considers the experience of others and uses it Benchmarking measures performance against that of best-in-class organizations, determines how the best in class achieve those performance levels

What is our performance level? How do we do it?

What are others performance levels? How did they get there?

Creative Adaptation

Breakthrough Performance

To achieve business and competitive objectives Help organizations develop strengths and reduce weaknesses An external outlook through benchmarking greatly reduces the chance of being caught unaware by competition Benchmarking can notify the organization if it has fallen behind the competition or failed to take advantage of important operating improvements developed elsewhere

Can inspire managers to compete Allows goals to be set objectively, based on external information Is time and cost efficient because the process involves imitation and adoption rather than pure invention Reduces planning, testing and prototyping effort Why reinvent the wheel?

Three major types 1. Performance benchmarking or operational benchmarking 2. Process benchmarking or functional benchmarking and 3. Strategic Benchmarking

Involves pricing, technical quality, features and other quality or performance characteristics of products and services Usually performed by direct comparisons or reverse engineering in which competitors products are taken apart and analyzed Also called as competitive benchmarking which involves studying of products and processes of competitors in the same industry

Centers on work processes such as billing, order entry or employee training Identifies the most effective practices in companies that perform similar functions, no matter in what industry For example, The warehousing and distribution practices of L.L. Bean were adapted by Xerox for its spare parts distribution system

Examines how companies compute and seeks the winning strategies that have lead to competitive advantage and market success One way to determines how well a company is prepared to compete in a segment and to help define a best-in-class competitor is to construct a key success factor (KSF) matrix

Competitive Analysis Computer Industry Segment Performance Rating

Key Success factor Sales force Distribution Suppliers R&D Service Weight Our company Competitor A Competitor B Competitor C

Cost structure

Customer Service levels Inventory management Inventory control (extent of automation) Purchasing Billing and collection Purchasing practices Quality process Warehousing and distribution and Transportation

Six steps contain the core techniques

1. 2.

3.
4. 5.

6.

Decide what to benchmark Understand current performance Plan Study others Learn from the data Use the findings

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3. 4.

Which processes are causing the most trouble? Which processes contribute most to customer satisfaction and which are not performing up to expectations? What are the competitive pressures impacting the organizations the most? What processes or functions have the most potential for differentiating our organization from the competition?

Techniques like flow diagrams and causeand-effect diagrams and understanding Attention must be paid to inputs and outputs Careful questioning is necessary to identify circumstances Benchmarking tam should be comprised of those who won or work in the process to ensure suggested change are actually implemented

Documenting the process and quantify the same Units of measure must be determined Key metrics like unit costs, hourly rates, asset measures and quality measures Special care should be taken when using accounting information

Once internal processes are understood are documented, it possible to make decisions about how to conduct the study A benchmarking team, candidates should be chosen Timetables should be agreed upon for each benchmarking tasks and desired output from the study Planning process should result in a Short list of possible benchmark partners

The scope of study and the type of benchmarking may require examination of several outside organizations When a process is broken into sub-processes, it is common to discover that a single organization is not best-in-class for all subprocesses In such case, Study multiple organizations ensures that the best practices are discovered

Three techniques for conducting original research are questionnaires, site visits and focus groups (people brought together to discuss areas of mutual interest)
Questionnaires useful to ensure respondent

confidentiality Mail survey, telephone survey, checklist can be sued Face-to-face interviews with best-in-class people

Is there a gap between the organizations performance and the performance of the best-in-class organizations? What is the gap? How much is it? Why is there a gap? What does the best-inclass do differently that is better? If best-in-class practices were adopted, what would be the resulting improvement?

Benchmarking studies can reveal three different categories

External processes may be significantly better

than internal processes (a negative gap) Process performance may be approximately equal (parity) Or the internal processes may be better than that found in the external organizations (positive gap)

Negative gap all for the major improvement effort

There are two ways to prove that one practice is superior to other
1. Analyzing quantitatively return on assets,

defect rates, customer satisfaction levels 2. Market analysis Consumers of products and services give their feedback, how may customers will we have if we deliver our product in 24 hrs instead of five days, Price outside services

The generic steps involved in development and execution of the plan are:
1. Specify tasks

2. Sequence tasks
3. Determine resource needs 4. Establish task schedule 5. Assign responsibility for each task 6. Describe expected results 7. Specify methods for monitoring results

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2.
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Determine who the clients are who will used the information to improve their processes Advance the clients from the literacy stage to the champion stage Test the environment. Make sure the clients can and will follow through with benchmarking findings Determine urgency. Panic or disinterest indicate little change for success

5. Determine scope and type of benchmarking needed 6. Select and prepare the team 7. Overlay the benchmarking process onto the business planning process 8. Develop the benchmarking plan 9. Analyze the data 10. Integrate the recommended action 11. Take action 12. Continue improvement

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2. 3. 4. 5.

6.

Identify what is to be benchmarked Identify comparative organizations Determine data-collection method and collect data Determine current performance gap Project future performance levels Communicate benchmarking findings and gain acceptance

7. Establish functional goals 8. Develop action plans 9. Implement specific actions and monitor progress 10. Recalibrate benchmarks

It promotes a through understanding of the companys own processes, strengths and weaknesses
Involves limitation and adaptation of the practices of superior competitors rather than inventions, thereby saving time and money Intensive studies of existing practices often lead to identification of non-value-added activities an d plans for process improvement

Enables comparison of performance measures in different dimensions like assets, percentage of on-time delivery, proportion of defects etc. Focuses on performance measures and processes and not on products, thus not restricting to which the company belongs Allows organizations to set realistic, rigorous new performance targets and helps convince people of the credibility of these targets. Tends to overcome not invented here, we are different

Helps organizations to define specific gaps in performance and to select the processes to improve. Helps company to redesign its products and services
Provides a basis for training human resources

Synergy between organizational activities is improved through cross-functional cooperation

Best-in-class performance is not a static but a moving target Benchmarking may not be successful if proper infrastructure of a total quality program is not in place Copying of others instead of innovating It do not work if the owners or managers feel threatened or do not accept and act on findings

The potential pitfalls of benchmarking include the failure to do the following:

Involve the employees who will ultimately use the information and improve the process Relate process improvement to strategy and competitive positioning Define the firms process before gathering data for the purpose of comparison Perceive benchmarking as an ongoing process and not as an one-time project with start and completion dates

Set goals for closing the gap between the existing performance (what is) and the benchmark (what can be) Empower employees to achieve improvements that they identify and for which they solve problems and develop action plans