Benchmarking: Best Practices

Benchmarking

• Benchmarking is a systematic method organizations use to measure themselves against industry best practices.
• It serves as a continuous improvement tool, widely used in manufacturing and service sectors.
• Borrowing and adapting ideas to gain a competitive edge is the essence of benchmarking.
• Benchmarking is a common element in maintaining quality standards.
• The process involves understanding an organization's performance level and how it operates, then comparing this to the performance level and methods of others, and adopting creative adaptation to breakthrough performances.

Benchmarking Defined

• Benchmarking is a systematic search for the best practices, innovative ideas, and highly effective operating procedures.
• It considers others' experiences, learning from what they do right and imitating it to avoid "reinventing the wheel."
• In the 1800s, Francis Lowell studied British textile mills, importing ideas and improvements for American textile mills.
• Measuring performances requires some sort of units to measure.
• Managers must understand why performance differs.
• Benchmarking requires in-depth knowledge of both own and best-in-class organization processes.

Reasons to Benchmark

• It is a valuable tool for achieving business and competitive objectives.
• Benchmarking is powerful and effective when aligned with organizational strategies.
• Benchmarking helps organizations develop strengths and reduce weaknesses.
• Because benchmarking involves imitation and adaptation rather than pure invention, it is time and cost-efficient.

Benchmarking Process

• Organizations adapt the benchmarking process to fit their culture and needs.
• Six core techniques are involved:
  • Decide what to benchmark.
  • Understand current performance.
  • Plan.
  • Study others.
  • Learn from the data.
  • Use the findings.

Approaches to Benchmarking (AT&T vs. XERO)

AT&T's 12-Step Process:

• Determine who the clients are that will use the information to improve their processes.
• Advance clients from the literacy stage to the champion stage.
• Ensure the environment allows clients to follow through with benchmarking findings.
• Assess urgency, panic, or disinterest, and that urgency and panic indicate little chance for success.
• Determine the scope and type of benchmarking needed.
• Select and prepare the team.
• Overlay the benchmarking process onto the business planning process.
• Develop the benchmarking plan.
• Analyze the data.
• Integrate the recommended actions.
• Take action.
• Continue improvement.

XERO's 10-Step Process:

• 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 benchmark findings and gain acceptance.
• Establish functional goals.
• Develop action plans.
• Implement specific actions and monitor progress.
• Recalibrate benchmarks.

Deciding What to Benchmark

• Benchmarking can apply to any business or production process.
• Improving to best-in-class levels contributes to market and financial success.
• Critical success factors typically consist of a number of sub-processes.
• Start by considering the mission and critical success factors when deciding what to benchmark.

Examples of Benchmarking

• Functional Benchmarking
• Process Benchmarking
• Performance Benchmarking
• Strategic Benchmarking
• Internal Benchmarking
• External Benchmarking
• Collaborative Benchmarking
• Financial Benchmarking

Planning in Benchmarking

• Once internal processes are understood and documented, decisions can be made about how to conduct the study.
• A benchmarking team should be selected if it hasn't been already.
• Decide what type of benchmarking will be performed, the data collected, and the collection method.
• Benchmarking planning should be a learning process.

Studying Others

• Benchmarking studies seek information about best-in-class processes:
  • Descriptions of how they operate.
  • Measurable results of these processes.
  • Internal sources, public domain data, original research, or a combination of sources can be used.
  • Considerations include the cost, time, data quality, and accuracy.
• It is not always necessary to conduct original research through site visits and interviews.
• Needed information that is easier and faster to obtain may be available internally or publicly.
• Internal and public sources should be examined during the planning process, to better understand what additional information to collect.

Learning From The Data

• Key questions to answer during data analysis:
  • Is there a gap between the organization's performance and best-in-class organizations?
  • What is the size of the gap?
  • Why does the gap exist?
  • What do best-in-class organizations do differently?
  • What would be the resulting improvement if best-in-class practices were adopted?
• Benchmarking studies may reveal three outcomes:
  • Negative gap: external processes better than internal ones, which indicates a need for improvement.
  • Parity: process performance is approximately equal, which requires further investigation to determine if improvement opportunities exist.
  • Positive gap: internal processes are better than external ones.
• Practices can be analyzed quantitatively if processes adequately understood with sufficient performance measures.

Using The Findings

• If a negative performance gap is revealed by a benchmarking study, the objective is to change the process to close the gap.
• To effect change, the findings must be communicated to and enable improvements within the people in the organization.
• The findings must translate into goals, objectives, and actionable plans.
• Two groups must agree on change: the process owners and upper management.
• Can enable the process by incorporating changes into the planning process and providing the necessary resources.
• Fully describe how the results were obtained from studied external organizations, as process owners may discount the findings if the gap is large.
• Current practices cannot generate best-in-class results, but changing the process can.

Pitfalls and Criticism

• The basic idea of benchmarking is to find someone who performs a process better and imitate them.
• Copying others is a frequent criticism of benchmarking.
• There is concern that an organization cannot be truly superior without innovation.
• The reverse may be asked regarding the viability of organizations that loss track of of the external environment.
• Benchmarking is not a panacea, strategy, nor a business philosophy, but rather an improvement tool that must be used properly.
• Benchmarking is unhelpful if processes do not possess much opportunity for improvement.
• Falls apart should process owners and managers feel threatened or do not accept and act on findings.
• Some processes may have to be benchmarked repeatedly due to factors changing over time.
• While it is not a substitute for innovation, it is a source of ideas from outside the organization, allowing and organization to set goals and objectives based on external reality.
• Consumers are more concerned with quality, cost, and delivery than internal productivity gains.

TQM Exemplary Organization

The Centre for the Development of Advanced Computing (C-DAC)

• The Pune-based center catapulted India into a supercomputing power.
• A young team battled odds through the late-1980s and 1990s to craft Param, India's first supercomputer.
• Bhatkar quit permanent jobs to be on contract for three years.
• The first set of 20 people worked without pay for six months due to procedural delays in receiving the government funds.
• It attracted best talent with its open, non-hierarchical approach and unconventional management.

Summary of Benchmarking

• Organizations intending to grow and perform well should measure against industry best practices.
• Benchmarking provides a systematic approach, involving comparative performance measurement and understanding performance differences.
• Benchmarking is adaptable to any business process.
• An organization must identify critical processes or business measures to benchmark.
• Business ethics must be maintained when obtaining data, and processes copying should be avoided blindly.