Benchmarking
Benchmarking is the continuous process of measuring products, services
and practices against the strongest competitors or companies recognized
as world leaders.
When should we use benchmarking?
Benchmarking is use by organizations in searching for industry best
practices that will lead to superior performance. It is only through
a change of current practices, or methods of performing the business
processes, that effectiveness will improve. It is therefore not good
enough just to know that another company is better at performing a certain
activity - it is a matter of addressing the problem and learning from
that organization or similar organizations on how to improve your processes.
There are two main types of benchmarking:
- Competitive benchmarking - this is benchmarking
against direct competitors in the market. This may involve benchmarking
of strategic measures (e.g., market share, return on assets or customer
satisfaction), functions or processes. If companies can get detailed
information on their competition this can be good for stimulating
an improvement project but typically this information is hard to get.
- Non-competitive benchmarking - this is benchmarking
of strategic measures, functions or processes of non-competing companies
or of functions/processes within the same organization (internal benchmarking).
Frequently, surprising similarities in processes are found between
companies in different industries. Learning from companies in other
industries can lead to innovative approaches to old problems and lead
to significant process improvements while learning from companies
in your own industry, by definition, means that you are only likely
to become as good as your competition.
Another advantage of this approach is that it is easier to gain access
into non-competitive organizations as it is less threatening and there
is also a greater likelihood that a two-way partnership can be forged
with a greater potential for learning.
Companies can obtain benchmarking information from a variety of sources:
- Financial analysis of publicly available information;
- Reverse product engineering to highlight effective product designs,
their costs, and the process technology necessary to produce them;
- Interviews with suppliers, distributors and customers;
- Benchmarking surveys on performance indicators (e.g. turnover, absenteeism,
accident rates) or on business processes (e.g., recruitment methods,
training, use of new technology). Usually many companies collectively
form a database and the responses to a questionnaire are aggregated;
and
- Process studies - this usually involves detailed studies of processes
within different organizations. These findings are then compared and
improvements made towards best practice.
The reasons for benchmarking are simple. Often there are a tenfold
differences between the best and the average quality or responsiveness
in a single industry. A study by McKinsey and Company Incorporated frequently
identified cost gaps of 30 to 50% for functionally indistinguishable
products. If the performance of similar processes between different
industries is then considered the potential for improvement increases
even further.
How do we conduct benchmarking?
As implied in the various definitions offered, benchmarking is a continuous
process. It follows the P-D-C-A (plan, do,
check, act) cycle:
- Plan phase focuses on the various up-front decisions
such as the selection of functions/processes to benchmark and the
type of benchmarking study on which to embark.
- Do phase, one delves in a self-study to characterize
the selected processes using metrics and documenting business practices.
Furthermore, data (metrics and business practices) are collected on
the company that is the benchmarking partner.
- Check refers to the comparison of findings via
a gap analysis to observe whether negative or positive gaps exist
between the benchmarking company and the benchmarking partner.
- Act refers to the launching of projects either
to close negative gaps or maintain positive gaps. This is the stage
that distinguishes benchmarking from "organized industrial tourism".
With an external focus, a company may enjoy meaningful and continuous
improvements over the long term through working with benchmarking partners.
Why would any company share its sensitive information with others?
Some are expected to do so such as those that have won the Malcolm
Baldrige National Quality Award (MBNQA). Others may share information
in one area for reciprocal information from the benchmarking partner
in another. Still others may do it as service to industry or community.
Some see it as part of professional relations with peers. Whatever the
reason is, our experiences show that it works if the two parties are
not involved in a competitive business.
Practical Tips and Conclusion
Although it seems that benchmarking is a structured process, it is
more of an art than a science. There are many issues that require daily
management. The mere fact that it requires cooperation among various
companies brings issues concerning the management of proprietary information
and anti-trust laws. Management of third-party information needs attention
also. In multi-facility organizations, co-ordination of site visits
presents a major problem. If not planned properly, external visitors
may inundate a company. Another issue is the identification of best-in-class
companies. A company that is considered best in class in a given function
in one year may not be so the next year.
It is highly recommended that a "mission" statement and
a "script" be developed before external benchmarking. The
mission statement focuses on the objectives of the desired exchange.
An example may be: "...objective is to benchmark our quality awareness
communication modes against other companies' similar processes. We hope
to evaluate our program’s effectiveness against others and make
modifications if necessary." A script should follow the mission
statement.
The script is a set of questions, which focus on the other's business
processes. These are the elements of the process that we are interested
in learning. There are two cautions with respect to the script. First,
do not ask questions that you are not willing to answer. Second, keep
the question set to a minimum; no more than 10 to 12 questions. This
will show others that you will not take too much of their time, although
during the site visit many other questions may be asked.
Hence, a short initial question set facilitates the progress of the
exchange. If possible, the mission and the script should fit one page.
It is also important that answers to the questions contained in the
script be developed and sent to the benchmarking partner, if requested,
prior to the partner's answering of the questions. A review of the partner's
response to the script may be beneficial prior to the site visit.
As stated before, benchmarking offers unique opportunities to an engineer
to make improvements in process quality and productivity. However, it
is a tool that requires careful application. A benchmarking study must
be performed by trained personnel and process owners who can effect
change. A typical study takes six months and consumes significant financial
and personnel resources. Hence the decision to embark on benchmarking
studies is an important one.
Identification of the processes to be benchmarked is also critical.
In this step, one determines the functions that will get notable attention.
A litmus test here is to consider the processes that provide a critical
customer service and in which the company's performance is significantly
short of customer expectations. An automatic expectation from this is
that if these processes can be improved then customer satisfaction will
be enhanced significantly.
Another motivation for engaging in benchmarking studies is to establish
a pool for continuous improvement ideas. Any trip to any other company
will generate a number of ideas. Some of these can be implemented for
process improvements. If there is a continuous exchange between a benchmarking
company and benchmarking partners, then improvements are expected to
continue and all parties benefit from this relationship.
Sources:
Process improvements through benchmarking
Pulat, B Mustafa. The
TQM Magazine. Bedford: 1994. Vol. 6, Iss. 2; pg. 37, 5 pgs
What is benchmarking?
By: Mann, Robin. Food Manufacture, May96, Vol. 71 Issue 5, p32, 2p,
1 diagram, 1 graph; (AN 9607032882)
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