Quality System

Management:
Bench mark
 Benchmarking is…

Measuring your performance against that of

the best-in-class companies, determining
how the best-in-class achieve those
performance levels, and using the
information as a basis for your own
company’s targets, strategies, and
implementation.
L.Pryor, “Benchmarking: A Self Improvement Strategy,” Journal of Business Strategy, Nov.-
Dec. 1989.
 Benchmarking Concept
What is our What are others’
performance level? performance levels?
How do we do it? How did they get there?

Creative
Adaptation

Breakthrough Performance
 Benchmark: Main Objectives

• To understand the competitors’

strengths and how they operate

and wherever it is beneficial

• To adapt and build upon their excellent

practices for our company’s use
 Benchmarking: What it can do?
• In contrast to the traditional method of extrapolating next year's goal
from last year's performance, benchmarking allows goals to be set
objectively, based on external/internal information.
• Benchmarking is a tool to achieve business and competitive objectives
– Compare and measure your business performance against world class companies.
– Highlight areas where your business performance is sub-optimal.
– Highlight worldwide best practices that lead to superior performance.
– Help to continuously improve your performance.
– Introduce new ideas.
• Benchmarking is a continuous process and it leads to openness to new ideas.
• Benchmarking can be applied to both the manufacturing and the service industries .
 Benchmark Key Elements
• Define performance measurement of units of measure.
– These are called metrics and are expressed numerically.
– The numbers achieved by the best-in-class benchmark are the target.
– An organization seeking improvement then plots its own performance against
the target.
• Understand the reason for performance differs.
– Benchmarkers must develop an in-depth knowledge of both their own
processes and the processes of the best-in-class organization.
– An understanding of the differences allows managers to organize their
improvement efforts to meet the goal.
– Benchmarking is about setting goals and objectives and about meeting them
by improving processes.
 Weakness of Benchmark

• The primary weakness of benchmarking,

– best-in-class performance is a moving target.

• For functions that are critical to the business mission,

organizations must continue to innovate as well as
imitate.
 Benchmark Process Steps
• Benchmarking enhances innovation by requiring organizations to constantly
scan the external environment and to use the information obtained to
improve the process.
• Potentially useful technological breakthroughs can be located and adopted
early.
• General steps in benchmarking process
1. Decide what to benchmark.
2. Understand current performance.
3. Plan
4. Study others
5. Learn from the data
6. Use the findings
 What to Benchmark
• Start from the company mission and critical success factors.
– Most organizations have a strategy that defines how to position itself and compete
in the marketplace.
– This strategy is usually expressed in terms of mission and vision statements.
– Supporting these statements is a set of critical activities, which the organization
must do successfully to realize its vision.
– They are often referred to as critical success factors.
– Example:
• Insurance organization A’s vision is to become the speediest in the industry to do
business with.
– Critical success factors in this case could include a, fast payment of claims, database systems
that can relate information on all policies held by each customer, and reduced cycle time.
– Benchmarking customer service processes would have a substantial impact on the vision.
• Insurance organization B’ vision is to be the best in investment performance and reduce
the cost of insurance.
– The critical success factors for this firm could include hiring and training good financial
managers, using telecommunications to track and act on developments in global money
markets, development of on-line, real-time information systems, and expert forecasting.
– Benchmarking investment processes would be appropriate in this case.
 What to Benchmark (cont’d)
• Some other questions that can be raised to decide high impact
areas to benchmark are:
– 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 pressured impacting the organization the most?

– What processes or functions have the most potential for differentiating

our organization from the competition's
 What to Benchmark (cont’d)
• A benchmarking study should be done in timely manner.
– Limit the scope of a study to choose a broad and shallow scope or a narrow and deep scope.
– Broad and shallow studies ask, “'What is done” and span many functions and people and do
not go into detail in any one area.
• useful in developing strategies, setting goals. and reorganizing functions to be more effective.
– Narrow and deep studies ask, “How is it done” and explore into a few aspects of a process
or function.
• useful in changing how people perform their jobs.
• Some benchmarking teams start with a broad-and-shallow scope and identify a few
areas of particular interest to do a narrow and deep study.
• Other benchmarking teams identify the narrow and deep target immediately, based on
existing data or experience.
 Understanding current performance
• Prerequisite to benchmark process against external organizations is to
thoroughly understand and document the current internal process.
– Several techniques, such as flow diagrams and cause-and-effect diagrams.
– Pay attention to inputs and outputs.
– Identify circumstances that result in exceptions to the normal routine.
• Exceptions commonly consume a good deal of the process resources however
• Team members
– Should be comprised of those who own or work in the process to ensure suggested
changes are actually implemented.
• the content expert in that area
• Documentation
– Outputs & inputs must be quantifiable, units of measure must be determined.
– Common examples include unit costs, hourly rates, asset measures, and quality
measures. In some cases, important measures are not available or are unclear.
 Planning
• Once internal processes are understood and documented, it is possible to make
decisions about how to conduct the study.
– A benchmarking team should be chosen.
– The team should decide what type of benchmarking to perform,
– What type of data are to be collected, and the method of collection.
– Organizations that are candidates to serve as the benchmark need to be identified.
– Finally, timetables should be agreed upon for each of the benchmarking tasks and the desired
output from the study
• Benchmark planning is a learning process. …… the entire purpose of benchmarking is
to learn.
– There is a tendency to want to call several organizations immediately and schedule visits.
– This activity is usually a waste of time. It is better first to use information in the public
domain to focus the inquiry and to find appropriate benchmark partners.
• Three main types of benchmarking processes
– Internal, competitor, process
 Planning: Internal benchmarking
• Internal benchmarking
– Similar activities are performed in different operating divisions.
– Bell Labs :
• Trained engineers to copy the work and social habits of the best performers.
Some of these habits were as simple as managing work in-baskets, accepting
constructive criticism, and seeking help instead of wasting time.
• Engineers who went through the Bell Labs program boosted their productivity
by ten percent in eight month's.
– Internal comparisons have several advantages.
• Data are easy to obtain
• Generates immediate improvement ideas or defines common problems that
help to focus external inquiries.
 Planning: Competitor benchmarking
• Competitor Benchmarking
– Organization's survival depends on its performance relative to the competition.
– In most cases, products and processes are directly comparable.
– Some competitors do share information.
• mortgage bankers compare their product types, service fees, and interest rates on a
weekly basis.
– Some organizations would never share proprietary information. However, there
are several ways to obtain data.
• Good sources are information in the public domain and third parties.
– Consumer Reports evaluates the features of various products,
– Morningstar evaluates the financial performance of various stocks
– J.D. Powers evaluates automobile customer-satisfaction levels.
– Buying a competitor's product to take apart and test is another common practice.
 Planning: Process benchmarking
• Process benchmarking
– Process benchmarking is also known as functional or generic benchmarking.
– The idea is that many processes are common across industry boundaries, and
innovations from other types of organizations can be applied across industries.
• For example, every industry has payroll and accounts receivable functions.
• All kinds of organizations design new products and have logistics functions.
• A classic examples
– When Southwest Airline was unhappy with the airplane turnaround time, it benchmarked auto-
racing pit crews and implemented many new ideas.
– Motorola looked to Domino's Pizza and Federal Express for the best ways to speed up delivery
systems.
– Remington Rifle Co. used Maybelline cosmetics' shiny lipstick cartridge production process
techniques to produce shinier rifle shells
– Process benchmarking has several advantages.
• it is much easier to get organizations to share information.
• It is relatively easy to find organizations with world-class operations through published
information and through discussions with suppliers and consultants who specialize in the
field.
 Planning : Identifying best-in-class
• It needs research
– no preexisting magic list of best-in-class companies;
– Find organizations that are the best performers relative to the defined measures established
by using the critical success factors.
• Best practices can be found internally, in a competitor, in the industry,
• Where to search
– starts with publicly-available information, such as that in trade journals and on the internet.
– Magazines are published for industries, occupations, and functions
– There are also numerous benchmarking databases, such as The Industry Week Survey of
Manufacturers Benchmarking Database.
– Government agencies also compile large quantities of industry information. This data can
be acquired through government publications and by talking directly to government experts.
– Business contacts, including suppliers, consultants, customers, and people within the
organization, can be a gold mine of information.
• The planning process should result in a short list of possible benchmark partners.
 Studying Others
• Benchmarking studies look for two types of information:
– Description of how best-in- class processes are practiced
– Measurable results of these practices.
• In seeking this information, benchmarking can use internal sources, data
in the public domain, original research, or most likely a combination of
sources.
– Considerations include the cost and time involved in gathering data and the need for
appropriate data quality and accuracy.
– Internal and public sources should have been examined during the planning process,
so benchmarking will have a good idea as to what additional information should be
collected.
 Studying Others (cont’d)
• Three techniques for conducting original research are
– Questionnaires by mail, by telephone, or in person.
• when data are desired from many external organizations, using a third party to collect
information.
• questionnaires can be developed as preparation for a site visit, as a checklist during a site
visit, or as a follow-up device.
• Careful design and interpretation are essential, especially when questionnaires are
administered by mail or phone.
– Site visits
• provide the opportunity to see processes in action and for face-to-face contact with best-in-
class operators.
• usually involve a tour of the operation followed by a discussion period.
• Pre-visit work is essential - visiting and the host organizations devote time
• Should establish a basis of mutual learning and information sharing as well as rapport.
 Studying Others (cont’d)
– Focus groups.
• Focus groups are panels of benchmarking partners brought together to
discuss areas of mutual interest.
• Most often the panels are comprised of people who have some previous
joint benchmarking activity.
• Alternatively, panels can be comprised of customers, suppliers, or
members of a professional organization.
 Learning from Data
• Learning from the data collected in a benchmarking study involves answering a
series of questions:
– Is there a gap between the organization's 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-in-class do differently that is better?
– lf best-in-class practices were adopted, what would be the resulting improvement?
• Three different outcomes.
– External processes may significantly better than internal processes (a negative gap).
• Negative gaps call for a major improvement effort
– Process performance approximately equal (parity).
• Parity requires further investigation to determine if improvement opportunities exist.
• Break down into sub-processes, some aspects are superior and represent significant
improvement opportunities.
– Internal process may be better than that in external organizations (positive gap).
• Finding of a positive gap should result in recognition for the internal process
 Learning from Data (cont’d)
• There are at least two ways to prove that one practice is superior to
another.
– lf the processes being compared are clearly understood and adequate
performance measures are available, the practices can be analyzed
quantitatively.
• Summary measures and ratios, such as activity costs, return on assets, defect rates,
or customer satisfaction levels, can be calculated and compared. It is fairly simple
to determine superior practices, as the numbers speak for themselves, provided
relevant measures are used.
– A second way to prove superiority is through market analysis.
• Consumers of products and services vote with their checkbooks.
• Does the market prefer one process over be others? If so, it can be judged superior.
• How many more customers would we have if we delivered in 24 hours instead of
five days?
• Another way to use market analysis is to price outside services. If we had excess
capacity, could we sell this service to others? For how much?
 Learning from Data (cont’d)

• Identifiable benchmark gaps must be described and

quantified.
– The level of detail must be sufficient to allow eventual
quantification.
• Processes determined to be superior should be described using words
and graphics to the level of detail necessary so that each step can be
understood and emulated.
• Processes should have inputs, activities, and outputs
– Describing best-in-class processes in detail is the primary
way to determine why there is a gap and how to close it.
 Learning from Data (cont’d)
• Once best-in-class practices are described and understood, key
process measures should be quantified.
– Determine in summary form the overall effect on the internal operation of
adapting the best-in-class practices.
• what is the size of the gap and what are the appropriate benchmark metrics
and objectives.
– The summary measures are synthetic or derived rather than directly
measured from external processes
• When a process is broken down to its component steps, a single external
operation may not be the best in all sub-processes. Numbers may come from
several organizations and then be combined to arrive at a combined best-in-
class projection.
• Even if a single best-in-class benchmark exists, there will be situational
differences to require adjustments in the measures such as differences in
industry, operation size and scale.
 Learning from Data (cont’d)
• When best-in-class processes have been described and quantified,
additional analysis is necessary to determine the root causes of the gaps.
– Gaps are a result of process practices themselves, general business practices, and the
organizational and operational structure.
– Judgment is needed to determine what can be done in the relevant planning period to
arrive at an appropriate benchmark goal or objective.
• The gap might requires the changes in Process Practices or General
Business Practice and Organizational and Operational Structure
– Process practices are generally the easiest to change.
– Changing general business practices and organizational and operational structure
will often be long-term projects and will almost certainly affect other processes.
• However, objective information developed through benchmarking studies can offer
compelling reasons to make changes.
 Learning from Data (cont’d)
• Process practices are the methods that make up the process
itself.
– An example is a customer-fulfillment process that consists of
receiving an order, selecting it from the warehouse, packing the
order, shipping it, billing it, collecting payment, and updating the
customer record for each transaction.
• Business practices are more general in nature and may
apply to many or all of the organization's processes.
– These include personnel policy and procedures, accounting
practices, and measurement and reward systems.
• Organizational and operational structure has to do with the
location of activities, the organization chart, separation of
responsibilities, and information system capabilities.
 Using the Findings

• When a benchmarking study reveals a negative gap in

performance, the objective is to change the process to
close the gap.
– Benchmarking is a waste of time if change does not occur
as a result.
– To effect change, the findings must be communicated to the
people within the organization who can enable
improvement.
– The findings must translate to goals and objectives, and
action plans must be developed to implement new
processes.
 Using the Findings (cont’d)
• Two groups must agree on the change.
– The first group consists of the people who will run the process, the process owners.
• Process owners may be inclined to disbelieve the findings, particularly if the gap is large.
– it is important to completely describe how the results were obtained from the external organizations
studied.
– current practices can't generate best-in-class results, but changing the process can
– The second group consists of upper management who can enable the process by
incorporating changes into the planning process and providing the necessary resources.
• Process changes are likely to affect upstream and downstream operations as well as suppliers and
customers.
– senior management has to know the basis for and payoff of new goals and objectives in order to support
the change.
• Changes in business practices and in organizational and operational structure may be indicated.
– These changes have to be considered and incorporated into the strategic planning process.
– Because findings are objective, the benchmarking process helps make the case to both
groups. The effect of change can be predicted quantitatively and the process fully
described.
 Using the Findings (cont’d)
• The generic steps for the development and execution of action plans 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.
• Benchmarking is a continuous improvement tool. It is not to be done once
to create one permanent improvement and thereby miss the opportunity
for future improvements. In order to avoid complacently benchmarking
must be used continuously to pursue emerging new ideas.
 Pitfalls and Criticisms of Benchmarking
• The basic idea of benchmarking can be summed up quite simply. Find someone who
executes a process better than you do and imitate what he or she does.
• The most persistent criticism of benchmarking comes from the idea of copying others.
– How can an organization be truly superior if it does not innovate to get ahead of competitors?
– One can also ask the reverse: How can an organization even survive if it loses track of its
external environment?
– It is not a strategy, nor is it intended to be a business philosophy. It is an improvement tool.
• To be effective, it must be used properly.
• Bench marking isn't very helpful if it is used for processes that don't offer much opportunity for
improvement.
• It breaks down if process owners and managers feel threatened or do not accept and act on the findings.
– Benchmarking is also not a substitute for innovation, however, it is a source of ideas from
outside the organization.
• Business success depends on setting and achieving goals and objectives.
• Benchmarking forces an organization to set goals and objectives based on external reality.
 Attributes of Benchmarking Studies:
Success vs. Failure
Success Failure
Process Owner Involvement Sponsorship Uncertain

Customer Driven Objectives Amorphous Objectives

Linked to Strategic Plan No Strategic Integration
Best Practices & Enablers Performance Metrics Only

Consider Cultural Attributes “Hard” Data Only

Disciplined Methodology Arbitrary / Casual Approach

Quantum Change Incremental / No Change

Clear Project Life Cycle Keep Going and Going and …..
Example of benchmarking process
AT&T Benchmarking Process
 Example of benchmarking process
Xerox 12-Step Benchmarking Process
 Phase 1: Planning
 1. Identify what to benchmark;
 2. Identify comparative companies;
 3. Determine data collection method & collect data.
 Phase 2: Analysis
 4. Determine current performance gap;
 5. Project future performance levels.
 Phase 3: Integration
 6. Communicate finding and gain acceptance;
 7. Establish functional goals.
 Example of benchmarking process
Xerox 12-Step Benchmarking Process (cont’d)

 Phase 4: Action
 8. Develop action plans;
 9. Implement specific actions & monitor progress;
 10. Recalibrate benchmarks.

 Phase 5: Maturity
 11. Attain leadership position ;
 12. Fully integrate practices into processes.
END