Course: Quality Management

Unit 2 Total Quality Management and Benchmarking

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Table of Contents
2.1. Introduction .................................................................................................................................... 4 2.2. Learning Objectives ....................................................................................................................... 5 2.3. An Overview of Total Quality Management ............................................................................... 5 2.3.1. Definition of TQM ................................................................................................................... 6 2.3.2. Evolution of TQM .................................................................................................................... 6 2.3.3. TQM Concepts ......................................................................................................................... 6 2.4. TQM Philosophy, Principles, and Critical Success Factors .................................................... 7 2.4.1. TQM Philosophy ...................................................................................................................... 7 2.4.2. TQM Principles ........................................................................................................................ 8 2.4.3. Critical Success Factors for TQM ............................................................................................ 8 2.5. Quality-Focused vs. Traditional Management Practices ........................................................... 8 2.6. TQM and Competitive Advantage ............................................................................................... 9 2.7. TQM in Service Delivery ............................................................................................................. 10 2.7.1. Need for TQM in Service Delivery ........................................................................................ 10 2.7.2. Differentiators in Service Delivery ........................................................................................ 10 2.7.3. Service Expectations .............................................................................................................. 11 2.7.4. Factors Influencing Perceived Quality of Service .................................................................. 12 2.7.5. Barriers to Service Quality ..................................................................................................... 13 2.8. TQM and Process Improvement ................................................................................................. 13 2.8.1. Steps for Process Improvement .............................................................................................. 13 2.8.2. TQM Process in an Organisation ........................................................................................... 14 2.9. Cost of Quality .............................................................................................................................. 16 2.9.1. Analysing Impact of TQM on Cost ........................................................................................ 17 2.10. Impact of TQM on Production Planning and Control ........................................................... 18 2.11. Benchmarking An Overview .................................................................................................. 20 2.11.1. Definitions of Benchmarking ............................................................................................... 20 2.12. Concepts of Benchmarking ....................................................................................................... 22 2.12.1. Benchmark............................................................................................................................ 23 2.12.2. How to do Benchmarking? ................................................................................................... 23 2.13. Importance of Benchmarking ................................................................................................... 24 2.13.1. Limitations of Benchmarking ............................................................................................... 25 2.13.2. Application Areas for Benchmarking................................................................................... 25
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2.13.3. Aspects needed for Effective Benchmarking ....................................................................... 25 2.14. Benchmarking Cycle .................................................................................................................. 26 2.15. Approaches to Benchmarking ................................................................................................... 26 2.16. Types of Benchmarking ............................................................................................................. 28 2.17. Critical Success Factors for Benchmarking ............................................................................ 30 2.18. Seven Step Benchmarking Model ............................................................................................. 30 2.19. Summary ..................................................................................................................................... 31 2.20. References ................................................................................................................................... 33

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2.1. Introduction
If you have world-class quality products, services and people, you will also generate world-class profits - V. Daniel Hunt Why spend all this time finding, fixing and fighting when you could have prevented the problem in the first place? - Phil Crosby Total Quality Management is not a destination but a journey towards improvement - V. Daniel Hunt In the previous unit, you have studied about the concept of quality and also studied how Japan emerged as a super power with its quality mantra. In this unit, we will discuss Total Quality Management (TQM) and its impact on organisations. Total Quality Management (TQM), is a proven management strategy that has been successfully implemented in organisations across the world. To understand TQM better, let us discuss a scenario where a bank deploys a TQM approach for the loan payment process.

A Business Case on Total Quality Management (TQM) This is a case of the loan department of the branch of a large bank offering loans for small business. Caselet -1 The bank had an automatic loan payment program that provided many advantages to the customer. However, the bank was surprised to know that customers were not enrolling for this program as expected.

The bank did not want to just ignore this as a marketing problem. They decided to dig deep into the process related to the loan payment program. This helped them to identify various problems which were relatively easy to fix. It was critical to identify the problem correctly. The bank found that the application of classic Total Quality Management (TQM) analysis tools worked extremely well in identifying and fixing the problems. It was inferred that even in a nonmanufacturing situation (that is, in a service scenario), the work process had to be scrutinised in order to improve.
Source: Richard A Reid and Catherine Chesterson, Applying Demings Process Improvement Techniques to Banking, Journal of Organisational Excellence, 26 Nov 2001

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2.2. Learning Objectives

By the end of this unit, you should be able to: Recognise the importance of the Total Quality Management (TQM) concept in improving companys business processes List the principles of TQM List the differences between traditional and quality-focused management approach Recall the role of TQM in providing a competitive advantage Recall how customer satisfaction could be achieved as part of competitive strategy using TQM Analyse the TQM processes in an organisation Recognise the impact of TQM on different functions of business organisations Recall the impact of TQM on cost Recognise the need of benchmarking List the approaches and types of benchmarking List the critical success factors for benchmarking

2.3. An Overview of Total Quality Management

Total Quality Management (TQM) is the management process that is used to make continuous improvements to all functions of an organisation. TQM helps an organisation to grow at faster pace. The good practices of various organisational theories have been incorporated in TQM. TQM is a systematic and integrated approach, with a focus on the following. Delivering quality service as specified by the customer Incorporating quality awareness in all processes of the organisation Achieving continuous improvement in the organisation TQM requires that the company maintain the quality standard in all aspects of its business. This requires ensuring that things are done right the first time and the defects and wastes are eliminated from operations. Why is it called as Total Quality Management (TQM)? The word Total indicates that everybody in the organisation needs to be involved in the continuous improvement initiative. The word Quality denotes a focus and emphasis on customer satisfaction. The word Management has a reference to processes and people required for achieving quality.

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2.3.1. Definition of TQM Let us have a look at some of the definitions of TQM. According to ISO, TQM is a management approach for an organisation, centered on quality, based on the participation of all its members and aiming at long-term success through customer satisfaction, and benefits to all members of the organisation and to society as a whole. TQM is also defined as a quality-centered, customer-focused, fact-based, team-driven, seniormanagement-led process to achieve an organisations strategic imperative through continuous process improvement. 2.3.2. Evolution of TQM The concept of TQM has evolved during the period of the quality revolution. The aspect of quality was initially limited to inspections, and later the focus shifted to quality control. As the quality revolution progressed, the focus was on Quality Assurance (QA) which looked at defect prevention and a proactive approach to quality. This paved the way for the birth of TQM principles. Figure 2.1 displays the evolution of TQM.

Inspection

Quality Control

TQM

Quality Assurance Figure 2.1. Evolution of TQM

2.3.3. TQM Concepts A few concepts relating to TQM are given below. TQM is a management system with a people-oriented focus It is a complete system approach and an integral component of high-level strategy It looks at a continued enhancement in customer satisfaction at a continued lower cost
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TQM is applicable in both manufacturing and service sectors and also for all types of organisations (small, medium, and large organisations) It is an effort across the organisation and it is to be reflected in what is said or performed in an organisation It operates horizontally within the organisation, that is, across departments and functions All employees from the highest to lowest levels need to be involved It could be extended to include the customer chain and the supply chain in an organisation TQM emphasises that learning and adapting to continual change are vital for the success of an organisation TQM requires substantial amount of changes in organisational design, culture and workrelated processes TQM principles are also known as total quality improvement, total service quality, total quality leadership, and so on. Figure 2.2 represents the aspect of a complete integrated approach in TQM. TQM

Systems

Organisational Strategy

People

Figure 2.2. Integrated Approach to TQM

2.4. TQM Philosophy, Principles, and Critical Success Factors

2.4.1. TQM Philosophy The key aspects behind the TQM philosophy are: 1. 2. 3. 4. 5. 6. 7. 8. Focus on Customers and Stakeholders Commitment from Top Management Supplier Relationship Process-oriented Approach Zero Defects Benchmarking Learning and Continuous Improvement Empowerment, Motivation and Teamwork
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9. Measurement of Quality 10. Management Approach based on Facts 11. Leadership with a Vision 2.4.2. TQM Principles The principles of TQM are given below. 1. 2. 3. 4. 5. 6. 7. 8. Quality can be managed and must be done Everyone has a customer who is to be delighted Processes, and not people are the problem Every employee has a responsibility for quality Problems have to be prevented, and not just fixed Quality has to be measured so that it could be controlled Quality improvements have to be on a continuous basis Quality goals have to be on the basis of customer needs

2.4.3. Critical Success Factors for TQM The following are some of the factors that are critical for the success of TQM. 1. Commitment and involvement of the top management 2. Involvement of the customer 3. Design of products with a focus on quality 4. Design of production processes to facilitate quality 5. Control of production processes to ensure quality 6. Developing partnerships with suppliers 7. Service provided to customer 8. Leadership 9. Recognition 10. Ethics and Integrity 11. Adequate training for employees 12. Communication 13. Building teams of employees with empowerment 14. Benchmarking and focusing on continuous improvement

2.5. Quality-Focused vs. Traditional Management Practices

The traditional management practices have undergone a radical transformation due to Total Quality Management. Table 2.1 displays the comparison between quality-focused management with reference to traditional management practices.

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Table 2.1. Comparison between Quality-focused and Traditional Management Practices S. Parameter Traditional Management Quality-focused No. Management 1. 2. 3. Focus Responsibility for quality Team work Focus on internal activities of the organisation Workers Less degree of team work Focus on the customer Middle level management (in the operational roles) High degree of team work, and focus on aspects such as team building, team motivation Quality Assurance (building quality into the system) Decisions based on facts and figures Incremental improvement that is stable and continuous (kaizen)

4.

Quality mechanism Basis for decisionmaking Improvement

Inspection/checking

5.

6.

Facts and figures did not play a major role in decisionmaking Improvement was ad-hoc; Concept of continuous improvement was not in practice

2.6. TQM and Competitive Advantage

TQM enables achievement of customer satisfaction as part of competitive strategy. The contribution of TQM in providing a competitive advantage is highlighted below. TQM is driven by customer needs and requirements It contributes significantly to the success of the business It maps the unique resources of the organisation with opportunities in the environment Provides basis for further improvements Provides motivation and direction to the whole organisation The quality of a product is a critical determinant of the profitability of a business Products and services of high quality generally have a large market share Products of high quality consistently give improved ROI (return on investment) Improved level of quality causes a reduction in the direct cost related to poor quality Quality improvements have a tendency to enhance productivity Continuous improvement in quality and product design, along with reduction in cost will enhance competitive advantage TQM enables performance-related data to go beyond just financials or productivity information
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A method such as Balanced Scorecard looks at multiple perspectives such as Customer, Financials, Internal processes, and Innovation and Learning TQM enables establishment of systems for planning, strategising, and implementing processes and their improvements In TQM, the indicators for performance span from customers to suppliers, and also from frontline workers to the Top management

2.7. TQM in Service Delivery

Service quality is concerned with delivering superior or excellent service relative to the expectations of customers. The intangible nature of services causes difficulty in the measurement of quality. The setting of standards for quality characteristics that are intangible poses a problem. They need to be set based on judgment, and subsequently tested for levels of satisfaction. An end-user of services considers a few features for deciding among alternative service providers. Two of the important factors that influence perceived system quality are: 1. Employee performance and behavior 2. Speed of service transaction 2.7.1. Need for TQM in Service Delivery The following are some of the key aspects relating to the need for TQM in a service delivery scenario. The quality of a service is determined based on the extent to which it meets the expectations The manner in which a service is provided could be as important as the service itself from the consumers perspective The two levels of service quality are: Normal service quality relates to the level of quality of delivering regular service Exception service quality relates to the level of quality of handling problems or exceptions

2.7.2. Differentiators in Service Delivery Service quality is a function of several factors, namely: 1. 2. 3. 4. Adequacy of service Price of service Timeliness of service Manner in which service has been performed
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Some of the aspects that differentiate service delivery from product delivery are: 1. 2. 3. 4. 5. 6. Behaviour of the person who delivers the service Perceived image of the service provider Difficulty in measurement of output Presence of customer while delivering the service Performance of final inspection by the customer Non-applicability of variance, tolerance/acceptance ranges

2.7.3. Service Expectations The expectations of a customer serve as a reference point, which is used to judge performance. This places greater emphasis on the need to understand customer expectations. There are two levels of service expectations, namely: 1. Adequate level of service 2. Desired level of service An adequate level of service is the service which will be accepted by the customer. This is a lower level expectation of the customer. The customer will be dissatisfied in case an adequate level of service is not provided. A desired level of service is at a higher expectation level and the customer hopes to avail this level of service. Table 2.2 depicts the impact on customer satisfaction based on the level of service provided. Table 2.2. Impact on Customer Satisfaction based on the Service Level of Service Satisfaction Level of Customer Desired level Satisfied Adequate level Not dissatisfied Inadequate level Dissatisfied

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Service Levels An Illustration in a Banking Scenario

Here is an illustration of a banking scenario to depict levels of service and its impact on customer satisfaction.

Caselet -2

A bank branch has displayed a notice that the preparation of Demand Drafts would take 15 minutes. A customer walks into the bank branch and wants a Demand Draft to be made.

The customer provides all the information required for preparation of the Demand Draft and waits. His expectation is that the Demand Draft would be made ready in a maximum time of 15 minutes. Let us now look at three different scenarios: Inadequate level of service Even after 15 minutes of waiting by the customer, the Demand Draft is not ready. The customer is dissatisfied with the inadequate level of service. Adequate level of service The bank makes the Demand Draft ready in 15 minutes as expected, and hands over to the customer. The customer has received an adequate level of service and he is not dissatisfied. Desired level of service After the customer hands over the application for the demand draft, the bank does very quick processing, and the Demand Draft is made ready in less than 10 minutes. Now, the customer is satisfied to a great extent.

2.7.4. Factors Influencing Perceived Quality of Service The following are the factors that influence the quality of service as perceived by the customer. 1. Service Encounters A service encounter occurs when an interaction happens between the customer and the service provider. This could be said to be a moment of truth in the service delivery process. 2. Service Evidence Customers attempt to identify evidence of service in the interactions that they have with the service provider. For example, the attitude of the person responding to the query, the length of waiting time of customer in queue, and so on. contributes to the evidence of service. 3. Reputation of Service Provider
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The reputation or image of the service provider also influences the perceptions of the customer. The association that a customer has with an organisation influences the perception. Such associations could be concrete and measurable (for example, operational hours) or it could be abstract and intangible (for example, trustworthiness). 4. Price The price charged for the service influences the perception of value by the customer. The customer does an assessment of benefits vs. cost of service on completion of the service.

Service Encounters in a Service Scenario An Example The importance of service encounters in a service scenario is provided through the Disney example. Caselet - 3 According to Disney Corporation, it has estimated that there are 74 service encounters experienced by each of its customers, and any negative experience in any of these could result in a negative overall experience.

2.7.5. Barriers to Service Quality The following are some of the barriers that impact service quality. Mind-set of employees Coordination issues Communication issues Issues relating to systems and Processes in the organisation Training and behaviour of employees

2.8. TQM and Process Improvement

The initiative for improvement of operational or management processes need to be done in a focused manner. 2.8.1. Steps for Process Improvement The following steps are involved in a process improvement scenario. 1. 2. 3. 4. 5. Selection of the process Understanding of the process Performance of the process Review of the process Process change
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6. Capturing the changes Let us discuss each step involved in process improvement in detail. 1. Selection of the Process The processes that need to be improved are identified. The processes that are chosen for improvement are those that have a direct influence on the achievement of organisational goals and objectives 2. Understanding of the Process Understanding of the process involves defining the scope of the process, and an understanding of the scope inclusions and exclusions. Understanding the key sub-processes is also necessary. 3. Performance of the Process Performance of the process involves recording and outlining the historical performance of the process and obtaining information on the current performance. It also involves definition of the level of performance required in the new improved process in future. 4. Process Review Process review involves review of the information that has been gathered and analysed. Recommendations are also suggested for the improved process. 5. Process Change Process change involves development of detailed project plans indicating objectives, milestones, performance measures and targets, roles and responsibilities, deliverables, benefits, change management, training, and so on. 6. Capturing the Changes Process improvements are integrated into the business system. This would enable process improvements to be integrated into the business management system 2.8.2. TQM Process in an Organisation Figure 2.3 illustrates the process of TQM in an organisation. The figure 2.3 highlights the planning and implementation processes, and the expected outcome.

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TQM PLANNING Vision, Mission, and Objectives

Arriving at a Strategic Plan Leadership with Quality focus TQM Information Gathering and IMPLEMENTATION Analysis

Human Resources and Organisation Development

Management of Processes

OUTCOME Customer Satisfaction

Financial Results

Competitive Advantage

Improvement in Operational processes

Figure 2.3. Process of TQM in an Organisation

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2.9. Cost of Quality

Cost of Quality is the overall business cost involved in the achievement of quality.

The Cost of Quality measure helps to specify the impact of quality on a business. Cost of quality is a combination of multiple costs, namely, the cost of failure in a product or service, the cost of detecting defects, and the cost involved in prevention of defects. We can also say that the total quality cost includes the cost involved in conforming to quality, and the cost of non-conformance. In other words, cost of quality comprises of both the cost involved in adhering to quality as well as cost involved in not adhering to quality. We can compute cost of quality as follows. Cost of Quality = Actual Cost of Product or Service Reduced Cost where, Reduced Cost is the cost that would have been possible without failure or defects of products or without poor quality of service

Cost of Quality An Example in a Banking Scenario Whenever a rework is carried out in any organisation, there is an increase in the cost of quality. As an example, correcting a bank statement increases cost of quality. Similarly, rework on a service, such as, processing a transaction again leads to an increase in cost of quality. Figure 2.4 depicts the total quality cost and the costs contributing to it, namely, conformance cost and non-conformance cost.

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Figure 2.4. Cost of Quality

Source: http://www.iseeiknow.com

2.9.1. Analysing Impact of TQM on Cost Quality costs could absorb almost 20% to 30% of the revenue of an organisation. The objective of TQM is to reduce the cost of quality by half and to reduce it by half again over a period of time. In the preliminary stages of setting up development of a product or delivering a service, cost of preventing defects is high since various mechanisms need to be set up to prevent defects. When a lot of inspection and verification of work becomes necessary, there is an increase in the cost of detecting defects. When the process matures and the delivery of goods or services happens without defects/tends towards zero defects, the cost of detecting defects decreases. With the deployment of TQM, the concepts of zero defects, doing the things right the first time, and continuous improvement enable reduction in cost of inspection/verification of work, thus result in a faster reduction in the cost of detecting defects. Benefits of Reduction in Cost of Quality The benefits through reduction in cost of quality are not immediate. Achieving a reduction of 50% in the cost of quality may take two to four years. In the initial two years, the cost of prevention may increase. However all the costs contributing to the Cost of Quality (including prevention) could be brought down to half of the original values. There could be a further reduction in costs by almost 50% and the process could be repeated again and again.

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2.10. Impact of TQM on Production Planning and Control

Production System A production process involves the conversion of organisational resources into products such as goods or services. In a production system, various activities and operations are involved. Figure 2.5 illustrates the primary components in a production system.

Inputs Processes

Outputs

Figure 2.5. Primary Components in a Production System

The primary components in a production system are: 1. Inputs: Inputs are the resources such as capital, equipment, people, physical facilities and so on, that are required for production. 2. Processes: The processes deal with the mechanism used for conversion of the inputs into outputs. 3. Outputs: Outputs are the goods or services generated by the system Traditionally, manufacturing organisations considered production systems to comprise with only the above mentioned three components. Deming illustrated an enhanced view of a production system bringing in TQM concepts. This enhanced view of a production system comprised of the following. Input-Process-Output relationships Roles of suppliers and customers Interlinks among the processes in an organisation Importance of consumer research Significance of continuous improvement in all elements constituting a production system Demings enhanced view of production system emphasised the following. Planning for production of high quality products / generation of high quality services requires a good understanding of customers and suppliers A better understanding of customer requirements facilitates continuous improvement of products and production processes, which in turn translates to increased market share
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TQM and Production Planning and Control An organisation needs to produce products conforming to customer requirements, and hence the design and building of production processes have to be aligned to this objective. This depicts the quality capability of a production process. The traditional way of thinking considered that the higher the product quality required higher would be the cost of production. With the evolution of TQM, the concept of quality in production planning and control underwent a transformation. The manufacturers in Japan implemented the concept that the productivity machine is driven by quality. The productivity during the manufacturing process could be adversely impacted if parts are defective and a lot of rework or scrap is involved. The adoption of a TQM approach in Production planning and control system helps the operations managers to prevent defects, thus improving product quality. This ultimately leads to cost reduction due to elimination of waste (for example, fewer products returned for rework, avoidance of scrap, lesser warranty claims, and so on). A TQM approach enhances involvement of the whole organisation in continuous quality improvement. Each worker has the responsibility for quality control and also for disrupting production when a manufacturing problem occurs. TQM also looks at encouraging workers to determine mechanisms for enhancing product and process quality. Hence, many organisations consider the modern approaches to quality such as TQM to be programs for productivity improvement. TQM and JIT (Just-in-Time) In a JIT (Just-in-time) approach, the production of parts happen just-in-time to meet the manufacturing needs. This is different from the traditional approach wherein items were produced in lots or batches, stored and utilised when required in the stages of production or in the work centers. Thus, JIT systems facilitate inventory reduction, cost reduction, and quality improvement. JIT involves the production to be run on a demand-pull basis. It also places production control with the workers, and helps to streamline the process of production. JIT and TQM are improvement efforts that are closely linked together. Both these approaches enable placing production under the control of workers. The workers are encouraged to carry out problemsolving on their own and to do improvisations when required. Both these approaches try to completely use the talents of the workers on the shop floor. JIT could evolve from a company-wide quality improvement (CWQI) program. It is one of the goals of a CWQI program, and the successful achievement of JIT is dependent on CWQI.

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Service Productivity and TQM In a service scenario, poor quality of service would cause the service to be redone and result in a reduction of service productivity. Hence, productivity is positively impacted by improving and maintaining good quality, and this can be achieved through TQM.

2.11. Benchmarking An Overview

Here is a proverb to set the tone for the topic of benchmarking.

If you know your enemy and know yourself, you need not fear the results of a hundred battles
- Sun Tzu, a Chinese General in 500 B.C.

2.11.1. Definitions of Benchmarking Benchmarking is the search for the industry best practices that lead to superior performance Robert Camp According to American Productivity and Quality Centre (APOC), Benchmarking is defined as the process of improving performance by identifying, understanding, and adapting the best practices and processes found inside and outside the organisation.

Let us look at a business case to help you in understand the benchmarking process.

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Benchmarking - A Business Case Xerox is known for its invention of the photocopier. It almost had a monopoly in the photocopying business for a long period since its invention in 1959. In 1981, the market share of Xerox reduced to 35%.

Caselet - 4

What did Xerox do when faced with this scenario? Xerox initiated the benchmarking process but faced resistance from employees. The employees resisted since they did not believe or accept the fact that anybody else could do it in a better way. When they were presented with facts, a sense of desperation and frustration prevailed and then the focus shifted to action. During the benchmarking process, Xerox benchmarked almost every task and function in terms of quality, cost, and productivity. Benchmarking involved comparing organisations within the industry and also outside it. Outcome of the benchmarking process at Xerox The benchmarking process enabled achievement of the following: Reduction in suppliers from 5000 to 300 Reduction in manufacturing cost by 50% Reduction in direct labour by 50% Reduction in corporate staff by 35% Two-third reduction in quality problems Two-third reduction in development time Increase in commonality of parts from around 20% to 60-70% Establishment of cross-functional teams and compacting the hierarchical organisation structure Deployment of Concurrent engineering How were all these achieved at Xerox? All the improvements mentioned above were not a direct outcome of benchmarking. The adoption of the benchmarking process by Xerox resulted in a positive climate for continuous improvement and change. According to Xerox, if it had not adopted a benchmarking approach, it is probable that it may not have survived in the copier business.

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2.12. Concepts of Benchmarking

Here are a few points to enable a better understanding of benchmarking. Benchmarking is a systematic method by which organisations could measure themselves against the best practices in industry. It is the aspect of moving to where we want to be from where we are. It involves systematic searching of best practices, innovative ideas, and efficient operating procedures. It enables borrowing of ideas and adapting them as required in obtaining a competitive advantage. This is achieved through continuous improvement resulting in an enhanced level of performance. Figure 2.6 is the pictorial representation of the concept of benchmarking.
Creative thinking, innovation, and adaptation to best practice

Our current level of performance Figure 2.6. Concept of Benchmarking

Performance level of others

Early examples of Benchmarking

The practices followed for replenishing goods in supermarkets in the US influenced the JIT (Just-in-time) production system of Toyota.

Caselet - 5

Organisations such as IBM, Motorola, and Xerox were the pioneers in the establishment of the process of benchmarking. Page 22 of 34

2.12.1. Benchmark A reference point that is used to measure a particular aspect is known as a benchmark.

Establishing a benchmark helps in setting new goals and looking at the adaptation of best practices. This facilitates customer satisfaction since the benchmark could be set in terms of quality, cost, service performance, and so on, which are drivers of satisfaction levels of customers. Benchmarking practices generate exceptional results and also have an element of innovation in them. These practices are also considered as superior practices by customers or by experts from industry. 2.12.2. How to do Benchmarking? In benchmarking, an organisations strategy, processes and products are compared with organisations that are established global leaders and best-in-class. This is done with the objective of understanding how such organisations attained excellence and then attempting to equal or exceed their level of performance. Benchmarking can be done by comparing the business performance with that of others who are: Within the organisation From another organisation Belonging to the same domain/business sector From other business sectors Across global boundaries Performance Measures for Comparison Examples Some examples of performance measures that could be used for comparison during benchmarking include: ROA (Return on Assets) On-time delivery percentage Percentage of defects

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Benchmarking in a Banking Scenario

ASB Bank, a retail bank based in New Zealand, performed a benchmarking of cost income ratio while reviewing its operational efficiency.

Caselet -6

In the benchmarking activity, cost income ratio was the primary metric. The objective was not to identify best practices related to minimising the cost income ratio, but to determine ideal ratios and cost structures existing in the successful banking institutions

Source: Kurt Hess, Graham Francis, Cost income ratio benchmarking in banking: a case study, Benchmarking: International Journal, Vol. 11, Issue 3

2.13. Importance of Benchmarking

The importance of benchmarking is highlighted below from two perspectives, the business perspective and people perspective. From the business perspective, benchmarking is important as it: Enables achieving a competitive position in the industry / business Enables organisations to compare themselves against best practices in industry Enables objective setting of goals on the basis of external information Enhances focus on superior levels of performance Helps an organisation to understand its strengths, weaknesses, and non-value added activities Enables achievement of business objectives Is an effective tool when used appropriately and with alignment to business strategy Is vital for organisational sustenance and growth in terms of technologies Enables an organisation to redesign its products and services Facilitates meeting customer needs From the people perspective, benchmarking is important as it: Is a good technique for positive change Facilitates in quickly adapting to the best practices rather than reinventing the wheel, thus saving time and cost Is a foundation for the training of employees since they need to be trained to be able to close performance gaps Is a motivational factor for creative thinking and innovation Enhances professional growth

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2.13.1. Limitations of Benchmarking The following are the limitations of benchmarking. If benchmarks are poorly defined, it could result in a waste of effort and meaningless outcome Incorrect comparisons could lead to wrong results The best practice for one company or industry may not be suitable for implementation in some other companys or industrys case 2.13.2. Application Areas for Benchmarking Benchmarking could be applied in varied areas of operation in a business or industry. The following are some of the examples. Customer service Procurement processes Management of inventory Invoicing and receivables Quality processes Warehousing and distribution 2.13.3. Aspects needed for Effective Benchmarking The following aspects need to be taken care for effective benchmarking. Process improvement should be in alignment with strategy and competitive positioning Benchmarking should be considered as a continuous process and not a one-time activity Clear goals should be defined to close the gap between the current performance and the benchmark The organisational process should be defined clearly before collecting data for comparison Employees who will utilise the information need to be involved Employees need to be empowered as required A corporate quality culture and elements of TQM need to be in place

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2.14. Benchmarking Cycle

Figure 2.7 represents the benchmarking cycle which comprises a set of four major activities.

Identification of critical success factors

Monitoring of performance

BENCHMARKING

Determination of bestin-class performers

Creation of programmes to achieve best-in-class targets Figure 2.7. Concept of Benchmarking

As illustrated in the figure 2.7, once the critical success factors have been identified, the best-in-class performers need to be determined. Based on this, programmes are created to achieve the best-in-class targets and the performance of these programmes is monitored. It is depicted as a cycle to denote that benchmarking is a continuous process.

2.15. Approaches to Benchmarking

Figure 2.8 displays some of the important approaches to benchmarking.

Figure 2.8. Approaches to Benchmarking

Table 2.3 displays explanation of each of the four approaches to benchmarking.

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Table 2.3. Explanation of the Different Approaches to Benchmarking

Benchmarking Approach

External Benchmarking

Explanation Involves benchmarking with other organisations that are recognised as being best-in-class Helps in learning from the leaders, but substantial time and effort is required for comparison and adaptation Applicability: External benchmarking is applicable when best practices do not exist internally but are available in other organisations. This is a type of external benchmarking and is concerned with the comparison of a related process with a company that is not a direct competitor It could also be the comparison of a related or unrelated process in a different industry Applicability: Non-competitive benchmarking is applicable when an organisation intends to look at best practices outside the industry/segment and not purely from a competition perspective Internal benchmarking is the comparison within the organisation (for example, with another branch or division or department) Internal benchmarking may be easier to implement since it may be less difficult to transfer practices and processes within the same organisation The limitation in this approach is that it is possible to miss out on innovation and superlative performance in external organisations Applicability: Internal benchmarking is applicable when good practices exist within the same organisation and the management wants to disseminate this quickly across the organisation.
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Non-competitive Benchmarking

Internal Benchmarking

Table 2.3. Explanation of the Different Approaches to Benchmarking (Continued)

Benchmarking Approach

International Benchmarking

Explanation This involves comparison with an organisation/industry outside national boundaries It has gained significance due to globalisation and the growth of information and communication technologies The limitation is that it could consume more time and effort. It is also possible that differences at the national level could cause difficulty in replication of results Applicability: International benchmarking is applicable when organisations aim at competing at the global level. It is also applicable when an adequate number of organisations within the country are not available for benchmarking.

2.16. Types of Benchmarking

Figure 2.9 displays some of the important types of benchmarking.

Figure 2.9. Types of Benchmarking Page 28 of 34

Let us have a look at each of these types of benchmarking. 1. Product Benchmarking Product benchmarking is concerned with the practice of dismantling a competitors product to view and learn the aspects of how it has been designed and constructed. This concept is also known as reverse engineering. 2. Performance Benchmarking Performance benchmarking is concerned with the study of processes and products relating to competitors in the same industry. The objective of performance benchmarking is to be better than the best competitor. The aspects considered in performance type of benchmarking are features, price, quality, and other characteristics related to performance. Performance benchmarking is known by other names such as operational benchmarking and competitive benchmarking. It is termed as competitive benchmarking, since it involves comparing organisational practices and performance with those in other companies who are direct competitors and are the best-in-class. Applicability: Performance benchmarking is applicable when there is a need to assess the performance level of an organisation in specific areas in comparison with others in the same industry. The objective is to identify methods to close performance gaps. 3. Process Benchmarking The focus in process benchmarking is on the improvement of critical processes. It involves identification of the best practices in organisations performing similar functions. It involves the utilisation of process maps for comparison and analysis. Process benchmarking is also known as functional benchmarking. Process benchmarking requires investigation regarding the extent to which the core business functions perform. Here, the focus is on benchmarking a specific function with the aim of improving the operation of that function. Applicability: Process benchmarking is applicable when there is a need for process improvement to yield benefits quickly. 4. Strategic Benchmarking Strategic benchmarking involves evaluating and comparing the long-term strategies of successful and high-performing organisations. The aspects that could be benchmarked from a strategic point of view include strategic objectives, strategic alliances, core competencies, development of new products and services and so on.
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Applicability: Strategic benchmarking is looked at when the overall business performance needs to be improved, and the existing business strategies need realignment.

Competitive Benchmarking - Business case

A competitive benchmarking message displayed by Heinz in an advertisement: While others use starch to thicken their tomato ketchup, Heinz just uses tomatoes. Let us consider British Airways as a case to discuss Competitive benchmarking.

Caselet -7

British Airways (BA) utilises competitive benchmarking while trying to deliver the best quality service to its customers.

Benchmarking was used in cases when the comparisons would become an initiator of action. Liam Strong, the Director of Marketing and Operations at British Airways highlighted that Japanese engineers took only 40 minutes to turn a jumbo jet around, whereas the engineers at British Airways needed 3 hours to perform the same task.
Source: John Bank, The Essence of Total Quality Management

2.17. Critical Success Factors for Benchmarking

The following factors are critical for the success of a benchmarking exercise. Commitment, support, and involvement of the top management Adequate training for the team involved in benchmarking Team composition to include management experts, consultants, and the end users who would be involved in the process or impacted by it Effective teamwork Adequate planning and monitoring Avoiding complacency

2.18. Seven Step Benchmarking Model

Table 2.4 represents the seven step benchmarking model. Table 2.4. Benchmarking Model Activity Methodology Identification of what is Clarification of benchmarking objective to be benchmarked Decision on who is to be involved Process definition Scope consideration
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S. No. 1.

Setting the boundaries Agreement on what occurs in the process Process flowcharting 2. Determination of what is to be measured Flow chart evaluation Establishment of process measures Verification of measures in terms of set objectives Conducting general research Selection of benchmarking approach Questionnaire Benchmarking site visit Quantitative data Qualitative analysis Setting performance goals Creation of action plan Tracking the changes Making benchmarking as a habit

3.

Identification of whom to benchmark Data collection

4.

5.

Data analysis and gap identification Goal-setting and creation of action plan Process monitoring

6.

7.

Source: Richard Y. Chang, P. Keith Kelly, Improving through Benchmarking, Wheeler publishing, p.15.

2.19. Summary
Here is a quick recap of what you have learnt in this unit. Total Quality Management is a management strategy that has been successfully implemented in organisations. Quality Assurance looked at defect prevention and a proactive approach to quality, and this paved the way for the birth of TQM principles. TQM involves customer focus, process orientation, and people-related aspects such as teamwork, motivation, and empowerment. TQM is driven by customer needs and expectations. It also provides a competitive advantage and contributes significantly to organisational success.

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TQM is applicable for various functions of an organisation such as Production planning and control. It is also very much relevant in a service delivery environment. The TQM process in an organisation involves appropriate planning and implementation to achieve the expected outcome. The total cost of quality includes the cost involved in conforming to quality, and the cost of non-conformance. Benchmarking is a systematic method by which organisations could measure themselves against the best practices in industry. A reference point that is used to measure a particular aspect is known as a benchmark. Benchmarking can be done within or across organisations, within or across business sectors, and within or across countries. Benchmarking could be applied in varied areas of operation in a business or industry. Some of the approaches to benchmarking are: External Benchmarking Non-competitive Benchmarking Internal Benchmarking International Benchmarking

The types of benchmarking that could be adopted in organisations are: Product Benchmarking Performance Benchmarking Process Benchmarking Strategic Benchmarking

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2.20. References

Book References

Gryna, Chua, Defeo, Juran`s Quality Planning & Analysis for Enterprise Quality, 5th Edition, Tata McGraw Hill, 2008 Gitlow, Oppenheim, Levine, Quality Management, 3rd Edition, Tata McGraw Hill, 2009 Kanishka Bedi, Quality Management, 3rd Edition, Oxford University Press, 2006 Debashis Sarkar, Quality in Business, 2003, Sage / Response Books

Articles / Information for additional reading

Arthur M. Schneiderman, Are there limits to Total Quality Management, Strategy & Business, Issue 11, Second Quarter 1998, http://www.schneiderman.com/AMS_publications/Limits to TQM/Limits.pdf H.J. Bajaria, Effective TQM implementation: Critical Issues, http://www.multiface-com-tqm-pdf.pdf Asia Microfinance Analysis and Benchmarking Report 2008 Report dated March 2009, http://www.microfinancegateway.org/gm/document-1.9.34329/56857.pdf Neil Jones, Benchmarking for Competitive advantage, 2004, http://www.training-management.info/PDF/benchmarking-training.pdf

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Web References

http://www.financialexpress.com/printer/news/73056/ http://www.asq.org/learn-about-quality/benchmarking/overview/overview.html http://www.benchmarkingplus.com.au/nuts&bolts.htm http://www.benchmarkingplus.com.au/mistakes.htm http://bpmmag.net/mag/7-steps-better-benchmarking-0507/ http://managementhelp.org/quality/bnchmrkg/bnchmrkg.htm

Video References

http://www.authorstream.com/Presentation/puneit-157007-total-quality-management education-ppt-powerpoint/ http://www.learnetindia.com/content/government/Total_Quality_Mgt/ui.swf http://www.metacafe.com/watch/787307/what_is_a_benchmark/

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