Benchmarking

Contents 1 Applications 2 Procedures 3 Instructions 4 References

Benchmarking determines where the enterprise is in relation to performing activities with "best-of-breed" or world-class companies. It measures the performance or the degree of success that has been realized in comparison to other companies for a given activity, value stream, or other factors of interest. These measures then become the basis for analysis and redesign.

Applications

• Used for comparative analysis of a company's performance vis-a-vis its competitors or vis-a-vis other companies in other industries.
• Also used to determine how supplier performance compares to sales material/promises, a company's own performance, or that of other suppliers.
• To understand the difference between the enterprise's current performance and the optimum performance of a world-class enterprise.
• To discover the differences between customers' expectations and the enterprise's performance.
• Also used to test proposed redesign solutions with the external world.
• Also used to measure & compare enterprise application's (hardware and/or software) performance parameters (like transactions per second, concurrency, batch processing capabilities etc), version-on-version or with competitors' product, given all other parameters are same.

Procedures

1. Confirm objectives.
2. Identify benchmarking partners.
3. Collect data on the activity(ies) being analyzed for the enterprise from internal and external sources.
4. Analyze the data.
5. Identify opportunities for narrowing the gap between current and desired measures.
6. Implement activities recommended to close the gap.
7. Measure progress towards achieving targets, evaluate and re-calibrate measures, adjust activities as required, and repeat the process.

Instructions

Before proceeding with benchmarking, the activities of the enterprise must be defined and analyzed in detail. A topic or area of interest for the benchmark is chosen generally based on activities with weaknesses, a high potential for improvement, or the source of a specific problem. The team will develop the benchmarking proposal and integrate the recommended actions into the action plan.

It is important to educate the people that will use the results of the benchmark. They must have a clear vision of how the benchmark will help them develop world-class activities. They will be responsible for applying what has been learned through the benchmark process and supporting the implementation of the recommended changes. It's also critical to educate these people about the long-term damage that can be done if benchmark results are used to judge the performance of individual contributors.

Objectives of the benchmarking effort must be understood by those involved:

1. Benchmarking can be earmarked internally to explore how a given activity is performed and to adopt the "best" implementation. For example, a transnational shipping company may benchmark customer service call response tracking across its operating units to determine variances in performance and quality.
2. Benchmarking can be performed to assess an enterprise's performance relative to its competitors' products, services and/or activities.
3. If extended to companies in other industries, and not necessarily direct competitors, benchmarking can be used to document an enterprise relative to world-class operations. For example, a manufacturing firm may benchmark a mail-order company for customer service or logistics.
4. Benchmarking can also be used to analyze performance of specific activities to determine how an activity could be performed relative to how others are performing it.
5. Once re-engineering solutions have been proposed (during a re-engineering or redesign effort), benchmarking can be used to test solutions against other companies' experiences. In this case of benchmarking, it is important to examine problems with implementation, identifying lessons learned, and/or discovering potential ideas for improving the solution. Figure 1 shows a method for graphically depicting potential solutions and how many benchmark companies have chosen that solution. First, the team decides on the type of benchmarking to be performed, develops a list of activities to be analyzed, and develops a list of questions. Benchmark performance criteria (measurements) are identified relative to the processes under investigation. For example, the comparative firm will have a client base of "X", activity volume of "Y", and product types of "ABC", and so on.

The team will document (in detail) the activities to be benchmarked and supporting information required. This is necessary to determine where the enterprise is in relation to performing the process with the "best of breed" or world-class companies. It will identify the gap that the company needs to close and exceed.

Another key step in the benchmarking process is the identification of who has the best practices. For an internal or external benchmark, a list of the groups or organizations with the best practices must be developed. This information can be gathered from market surveys, books, trade magazines, peers, professional associations, and consultants. Based on this information, companies are selected to be benchmark partners. The companies must then be contacted to obtain agreement to participate.

There are several ways to collect the data needed from the benchmark partner. Surveys can be developed to be conducted on the phone, by mail or in a face-to-face interview. A visit to benchmarking sites is key to understanding how the best practices are performed. The benchmarking partner can be sent an agenda and a script to help prepare for the visits. During the visit, the team should not challenge the current way of doing business, but listen and collect the information required, making sure that each question is answered.

Perform a team review of the information collected immediately following a site visit. It is critical that the results of the site visits, as well as any data collection efforts, are formalized and documented in flowcharts, matrices, and/or narrative text.

A very effective way of comparing your enterprise to the benchmark organization is to use the chart shown in Figure 2. The horizontal axis shows a particular time period while the vertical axis represents the activity being benchmarked. This type of chart will also enable you to measure the success of the changes you make. Over time, the gap will narrow, widen or stay the same. This information is then used to determine where improvements can be made. The end results are recommendations for improvement and an action plan. The recommendations must be synthesized into the business activities of the enterprise, at the appropriate level.

Actions should be assigned and a sponsor identified so that progress can be tracked. If the benchmarking objective is similar to objective number 5 described above, benchmarking will be essential to show that ideas which may be radical for the enterprise may be considered reasonable and implemented in other companies. It can also serve as a check by allowing the reengineering team to see and read about the viability of their work and credibility with company management. Surveying other companies can result in the discovery of other ideas to include in the reengineered value stream. The new ideas can then be benchmarked within the framework of the reengineered value stream.

References

1. Karen Bernowski. The Benchmarking Bandwagon. Quality Progress Magazine, January 1991.
2. Dr. H. J. Harrington. Business Process Improvement, The Breakthrough Strategy for Total Quality, Productivity, and Competitiveness. McGraw-Hill, Inc., 1991.