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Benchmarking & Best Practice

If you don’t measure it, you don’t manage it.

 

Contents

1.1 What is Benchmarking?

  • Benchmarking is the search for the implementation of best practices.

  • A continuous systematic process for evaluating the products, services and work processes of organizations that are recognized as representing best practices for the purpose of organizational improvement.

  • Benchmarking allows your organization to see what others are doing, what is working for them, and what to avoid.

  • The American Productivity & Quality Center defines benchmarking as:
    "'the process of identifying, understanding, and adapting outstanding practices and processes from organizations anywhere in the world to help your organization improve its performance."

  • Xerox Corporation defines benchmarking as follows:
    The search for industry best practices which lead to superior performance.

  • An ongoing process of measuring and improving business practices against the companies that can be identified as the best worldwide.

1.2 Key Elements of Benchmarking

  • Continuous systematic process.

  • Involves internal and external measurement of products, services and processes.

  • Leads to better practice and improved performance.

  • Helps to establish realistic improvement goals.

  • Links with TQM – Tool of TQM & Strategic Management

1.3 Why Benchmarking?

  • Provide a measure for the benchmarked process. This allows for and “Apples to Apples” comparison

  • Clearly describe the organization’s performance gap when compared to the measure

  • Clearly identify the Best Practices and enablers that produced the superior performance observed during the benchmarking project

  • Set performance improvement goals for the benchmarked processes and

  • Identifies problems and opportunities.

  • Identify actions that must be taken to improve the process

  • Creates shared vision.

  • Defines accountable to stakeholders.

  • An activity or procedure that has produced outstanding results in another situation and could be adapted to improve effectiveness, efficiency, ecology, and/or innovativeness in another situation.

  • They must:

    • Drive a measurable change in performance

    • Be Proven in practice

    • Apply to a broad spectrum of organizations

    • Exploit proven technologies

    • Ensure effective control and risk management

    • Produce superior results. Superior is defined as 25 percent of higher results than the normal output.

    • Be a new or innovative use of manpower or technology.

    • Be recognized by at least three different references as a best practice (that is, three or more
      public domain sources have referenced this practice).

    • Have received an external award for this practice.

    • Be recognized by their customers, suppliers, and industry experts.

  • Best Practices allow companies to outperform their competitors and peers in specific operational areas…and deliver more value at less cost.

  • They are practices that enable a company to become a leader in its respective marketplace.

  • Best Practices are not the same for all situations; it is determined by business conditions, not by a fixed set of business practices.

  • Best practice could mean:

    • Most efficient?

    • Most cost effective?

    • Most customer service oriented?

    • Most profitable?

  • Best practices evolve over time. What was once a best practice in the past may only be a good practice now, and perhaps
    in the future even a poor practice.

  • No single best practice company will be found. All companies have strengths and weaknesses.

  • Because the processes that are in need of improvement through benchmarking vary, the companies identified as the Best will also vary.

  • "Relates to a company's particular areas of skill and competence that best contribute to its ability to compete"

http://www.yellowpencil.co.nz/brand%20sharpening/brand%20glossary

  • In the American Productivity and Quality Center’s text The Benchmarking Management Guide, core competencies are identified as business processes that should impact the following business measures:

    • Return on net assets

    • Customer satisfaction

    • Revenue per employee

    • Quality

    • Asset utilization

    • Capacity

5.1 Definition

  • Activities, transactions and attributes that are selected from accepted benchmarking practice measurements and from unique internal operations that represent the performance of the operation and which are used to compare and measure performance toward achieving the department’s vision and best practice.

5.2 Types of KPI's

  • Quantitative

    • Economies and efficiencies indicators that are easily quantifiable and lend themselves to statistical measurement and reporting.

  • Qualitative

    • Effectiveness indicators

    • Identifiable operation's attributes can impact its success.

    • These can include: Customer satisfaction levels, defined skill sets, training, documented procedures, etc.

  • Values Based Indicators

    • These relate: to areas that define the core activities, values and belief system of an organization and can represent a broad range of subject matter anywhere from business priorities and innovation through to social responsibilities and ethics.

    • These can include: values of an organization that distinguish it or make it stand out from other organizations
      codes of conduct, quality of work life statements, statements of moral responsibility and positions on social and environmental issues as well as organizational emphasis on such things as the value and access to education, corporate contribution to the community, strategic business direction etc.

6.1 General Classification

  • Strategic

    • Seek to improve the overall performance

    • Covers high level aspects:

      • Competition

      • Customers

      • Core competencies

  • Internal

    • Within a single institution

    • Across Departments

  • Competitive (or Performance)

    • Peer Institutions form the same sector

  • Functional

    • Similar to competitive

    • Larger group of institutions

  • Process

    • Focus is on improving specific critical processes and operations

    • Involves producing process maps to facilitate comparison and analysis

  • Generic

    • BEST in class

    • Other industries

    • Expand horizons

  • International

    • Too few benchmarking partners within the same country

International Benchmarking Methodology Framework and Aide Memoire by PSBS

When to use these types of benchmarking?

Types of Benchmarking (according to National Productivity Council)

  • Result Benchmarking: Provides:

    • Performance gaps

    • Benchmarks for improvement and target setting.

    • Basis for performance monitoring.

  • Process Benchmarking: Provides:

    • Best practices of the process

    • Process performance measures (quality, time and cost).

    • Organizational enablers like technology, systems and structure facilitating the process.

    • Lean and effective processes.

  • Customer Satisfaction Measurement : Provides:

    • Gaps in perception of customers and company management.

    • Basis for improvement leading to higher customer satisfaction.

    • Basis for product and process related improvement like benchmarking and re-engineering.

Descriptive Benchmarks or Practices

Any work process is made up of an input, repeatable process based on a method or practice, and an output. The practices deliver the output. If the practices are the best in the industry they will most fully satisfy customers.

Quantitative Benchmarks or Performance Measurements

Benchmark metrics are the conversion of benchmark practices to operational measures.

  • Three-phase program

    1. Analysis (define project, form team)

    2. Discovery (identification of best practices, recommendations for improvement)

    3. Implementation

  • Four-phase program

    1. Identify activities/processes to benchmark

    2. Study/measure processes in your own company and other companies

    3. Learn how to close the gap between your present and desired levels of performance

    4. Develop and implement an improvement plan

  • Six-phase program

    1. Decide what to benchmark

    2. Plan the benchmarking project

    3. Determine your own performance level

    4. Determine the performance of others

    5. Analyze the findings

    6. Use the results

  • Six-phase program

    1. Define the benchmarks.

    2. Map the process.

    3. Develop survey instruments.

    4. Gather data.

    5. Measure performance.

    6. Use findings for continuous improvement.

  • Eight-phase program

    1. Determine which activities will benefit from benchmarking

    2. Determine the key factors driving those activities

    3. Identify companies with best practices in those activities

    4. Study and measure those best practices

    5. Measure your own performance and compare with best practices

    6. Develop plans to meet or exceed best practices

    7. Obtain commitment to implement plans

    8. Implement plans and monitor results

  • Nine-phase program

    1. Select practice or process

    2. Identify performance

    3. Train benchmarking teams

    4. Measure performance

    5. Identify benchmarking partner

    6. Measure partner's performance

    7. Identify performance gaps and priorities

    8. Recommend and implement new practices

    9. Determine results and re-measure

  • Ten-phase program

    1. Identify what is to be benchmarked

    2. Identify comparative companies

    3. Determine data collection method and collect data

    4. Determine current performance gap (locate deficiencies)

    5. Project future performance levels (future trends)

    6. Communicate benchmark findings and gain acceptance

    7. Establish functional goals (Achieve consensus on revised goals)

    8. Establish procedures and Develop action plans

    9. Implement specific actions and monitor progress

    10. Recalibrate benchmarks

  • Twelve-phase program

    1. Determine who will use the information (clients)

    2. "Sell" the clients on value of benchmarking

    3. Test client commitment

    4. Determine urgency

    5. Define scope and type of benchmarking needed

    6. Select and train benchmarking team

    7. Coordinate benchmarking process with business plan

    8. Develop and execute benchmarking plan

    9. Analyze the data

    10. Integrate recommended actions into business plan

    11. Execute the plan

    12. Implement continuous improvement

  • Twelve-phase program

    1. Establish the scope

    2. Develop the project plan

    3. Select the key performance variables to benchmark

    4. Identify potential participants

    5. Measure your own performance

    6. Measure performance of benchmarking participants

    7. Compare current data

    8. Identify best practices and enablers

    9. Formulate your strategy

    10. Implement the plan

    11. Monitor results

    12. Plan for problem solving

7.1  Benchmarking Element (University of Calgary)

  • Knowing what you want to be (vision) – environmental scan and search for best practices – external benchmarking and translate to fit your organization

  • Knowing what you want to do to get there (goals) - environmental scan and search for best practices – external benchmarking and translate to fit your organization

  • Knowing where you have been and where you are now (past and current state assessment) – internal scan and identify key performance indicators that can be tracked historically

  • Measuring your performance historical to current and between organizations - internal and external – to let you know how you are doing and making adjustments where necessary

  • Continuous Improvement – exercising Self-discipline – in analyzing, interpreting, sharing data and information and implementing improvements

7.2 Benchmarking Methodology by APQC

  • Plan

    • Focus area, key measures, and definitions are established and clearly documented.

    • Data collection tools are refined and finalized,

    • Research is conducted to identify the best-practice organizations to study.

    • The best-practice organizations are selected.

  • Collect

    • collect qualitative data

    • Learn from the best.

    • The study questionnaire is administered to all participants, and the site visits are conducted at the best-practice organizations selected in phase one.

  • Analyze

    • Analyzing trends and identifying practices that enable and hinder superior performance.

    • Final report containing key findings and insights

  • Adapt

    • Create action plans based on the study findings.

  • Refining the Process

    • Organizations refine this model to meet their needs as they become more experienced in benchmarking.

7.3 Benchmarking Six Steps recommended by GOAL/QPC.
     
(keyed to the Deming Cycle of continuous improvement):

  • Step 1: Plan

  1. State the mission, purpose or goal of the function or department.

  2. List the outputs and customers for each.

  3. Identify major customers by value or volume.

  4. List the major customers' needs and complaints.

  5. Identify which processes affect these needs or complaints.

  6. Identify which processes add the most value and which add the most cost.

  7. (For competitive benchmarking) Identify which areas are subject to competition.

  • Step 2: Research

  1. Establish the metrics to be used.

  2. Identify the benchmark candidate.

  3. Collect public data.

  • Sources to identify benchmarking partners:

  1. Quality award winners (Malcolm Baldrige Award, for example)

  2. Business newspaper and magazine articles

  3. Trade journal articles

  4. Conference speakers

  5. Industry and professional associations

  6. Books on well-run companies

  7. Consultants and Big 6 accounting firms who work in your industry

  • Sources of public information used to select possible candidates :

  1. Internal resources (other departments in your organization)

  2. Benchmarking services: e.g. The American Productivity and Quality Center maintains an office of the Director, International Benchmarking Clearinghouse

  3. Data base services: Literature search data bases, Dunn & Bradstreet, Dow Jones,

  4. 10K, 10Q and other public financial data. Most of this data is available on one or the other of the financial data bases.

  • Step 3: Observe

  1. Establishing a benchmarking agreement with a partner organization.

  2. Establishing a data collection plan and method.

  3. Becoming experts in the measurement of their own system.

  4. Preparing themselves by absorbing and cataloging all relevant public information.

  5. Review the Benchmarking Code of Conduct

  • Step 4: Analyze 

  1. Summarize and interpret the data.

  2. Analyze the gap between your process and your partner's process.

  3. Project where future gaps will be.

  4. Analyze things that were not on the agenda.

  5. Develop key findings into new operational goals.

When cost, productivity or quality is the metric under study, sometimes it is useful to look at the historical trend as well as the current gap. Projecting future performance levels of your productivity and the benchmark partner's, given the current rate of improvement for each, creates what we call the "Z Chart" of productivity improvement required to attain parity with your benchmark partner.

  • Step 5: Adapt

  1. Communicate the benchmark findings widely.

  2. Involve a broad cross-functional team of employees.

  3. Translate the findings to a few core principles.

  4. Work down from principles to strategies to action plans.

  • Step 6: Improve

    The final step in any benchmarking activity is to complete the Deming Cycle of continuous improvement; that is, to plan for the next benchmarking project. Lessons learned in the benchmarking activity become the source for continuous improvement of the benchmarking process. These lessons should be documented and used as the basis for the new planning cycle.

  • Benchmarking alone will not tell you what customers actually want. If your product or service is obsolete, no amount of improvements in production processes will make it competitive.

  • Benchmarking is only of benefit if the improvement actions are implemented.

  • Always seek to find out "how" a company has improved its performance, this normally comes from the people not the management (who will tell you "how much" performance has improved but not necessarily "how").

  • Always clearly identify your specific key areas of interest and stay focused on them.

  • Plan thoroughly in advance - prepare detailed questionnaires to ensure that none of the key elements are missed.

  • Be prepared to give a benchmarking partner more information than you receive.

  • Remember improvements are continuous and benchmarks go out-of-date quickly. Your competitors' performance will probable continue to improve in advance of you own.

  • Always remain honest and thoroughly professional - and you will be welcome to return for more information in the future.

  • An extension of traditional benchmarking

  • Focuses on a trio of elements:

    • Competition

    • Customers

    • Core competencies

Benchmarking against Competitors

  • Most consistent with traditional benchmarking

  • when deciding how to attack the “composite competitor,” cost effectiveness is an issue

Benchmarking against Customers

  • The business must first determine the importance that customers place on each of the components of the business

  • Then it must determine the level of satisfaction tat the customers feel for each of these components

  • A customer satisfaction grid can be established

 

Benchmarking against Core Competencies

  • A key issue is determining what constitutes core competencies

  • Criteria for scoring for the Malcolm Baldridge award have been widely used

  1. Keep it legal.

  2. Be willing to give any information you get.

  3. Respect confidentiality.

  4. Keep the information internal.

  5. Use benchmarking contacts.

  6. Don’t refer without permission.

  7. Be prepared from the start.

  8. Understand your expectations.

  9. Act in accordance with your expectations.

  10. Be honest.

  11. Follow through with commitments.

    While this list of suggestions for the code of conduct may seem to be common sense, it is surprising the number of companies that fail to apply them. This results in everything from minor disagreements between individuals to major legal battles. Recognizing that the other companies are your partners and treating them as such is key to successful benchmarking relationships.

  • Using benchmarking data as a performance goal.

For example, they focus all of their efforts on cutting costs to reach a certain financial indicator, losing focus on the real goal.

  • Premature benchmarking.

When a company attempts to benchmark before the organization is ready, it may not have the data to compare with its partners. Therefore, someone makes a “guesstimate” that does the company no good.

  • Copycat benchmarking.

Imitation benchmarking occurs when a company visits its partners and, rather than learning how the partners changed their businesses, concentrates on how to copy the partners’ current activities.

  • Unethical benchmarking.

Sometimes a company will agree to benchmark with a competitor and then try to uncover proprietary information while on the site visit or by use of the questionnaire.