Benchmarking

Operational Definition of Benchmarking

Benchmarking is a process of continuous measuring and comparing a companys business processes against its competitors to obtain information what will help to identify its strengths and weaknesses and then to take appropriate measures, eliminate weaknesses.

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Operational Definition of Benchmarking
Benchmarking is: A structured process

Comparing business processes not only performance measures

External focus (competitor, customer, industry) Learn from others (best in class, world class, award winners) Change / Re-engineering

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Benchmarking and TQM
Best Practice
Quality Tools
Internal

P C

D A

Benchmarking
External

Zero Defect

Efficient vs. Effective

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Why use Benchmarking
An effective wake up call and helps to make a strong case for change. Practical ways Learning from others Not re-inventing the wheel Promotes a receptive culture Opportunities to learn new skills and be involved in the transformation process from the outset

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Benchmark Metrics Standards & Perfor. Meas.

How much to improve

Gain / Sustain

Competitiveness

Benchmark

Metrics

Best Practices

How to improve

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Proactive vs. Reactive Benchmarking
Scanning Trends Industry Investors Technology Understand specific customer requirement Understand the best practice Reactive (Problem based approach) Yesterday

Proactive

(Process based approach)

Today

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Measuring vs. Learning

Measuring The continuous process where we compare our Products, Services and Processes with those of our stiffest competitors Leading companies

Learning Find & implement best practice for high performance process that fully satisfy customer needs

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Learning from Others
Functional Best - Worldwide Functional Best - Country Best in industry Competition Internal

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Benchmarking for Strategic Planning
Secret of success is to focus on understanding the processes that drive the numbers and performance Company should go beyond simple number crunching and make it more strategically useful

Activities of a companys value chain should be regularly benchmarked

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Have a close look @ your Value Chain
Determine your core value chain processes that needs measured Determine which specific core processes need to be improved on to maintain minimum competitiveness standards and which processes can be further developed into competitive strengths

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Types of Benchmarking

1. 2. 3. 4. 5.

Strategic Benchmarking Performance /Competitive Benchmarking Process Benchmarking Functional /Generic Benchmarking Internal / External / International Benchmarking

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What to Benchmark

Choose BM Function

KBF

Strategic Intent

Importance & contribution

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Whom to Benchmark
1. 2. 3. Identify the target Process model to develop a candidate list Develop candidate selection criteria

4.
5. 6. 7. 8.

Create a preliminary list

Getting started Do systematic search Refine list Prepare a request for site visit

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Whom to Benchmark
1. 2. 3. 4. Consider candidates that best fit the type of BM Look for opportunity areas comparable operations (same or dissimilar industry) Search for proven sources that have been successful Search for public domain information

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Internal
Good starting point Important step in documenting, data internal so metrics similar, also correctness of processes is verified

Competitive
Comparison within direct (better) competitors Sharing info. Not easy so. Contact associations MBNQA, CII etc.. Businesses processes can be Bmkd as they tend to be generic Choose carefully .. There may be practices worth not emulating

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Functional
Compare similar processes intense searching required Willingness to share data is high, site visit to see practice firsthand & gain acceptance Dont miss breakthrough . Too much concentration on function and not the process

Generic
Comparison or work processes to others who are judged to have innovative processes can be very dissimilar industry

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Various External Sources

1. American Productivity & Quality Center (APQC) 2. Asian Benchmarking Clearinghouse, Hongkong Productivity 3. Council 4. Benchmarking Automotive Suppliers benchmarking Association 5. Benchmarking & Performance Improvement Resource (BIPR)

6. Benchmarking & OFD

7. Benchmarking Best Practice Best in Class

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Data Collection

Technology Frost & Sullivan Yankee Group Paul Budde Communication Espicom Business Intelligence Ltd.

Heavy Industry
Freedonia Group Inc. Global Industry Analysts IBIS World Impact Marketing Consultants Marketing Jupiter Media metrix Aberdeen Group emarketer Gale Research International Ltd

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Decide what practice produce the best results

1. What is the impact on the business 2. How easy is it to implement the practice 3. Are results short term or long-term 4. Are the results tactical or strategic in nature 5. Do the results tie directly to company goals 6. Do the results provide competitive advantage to the company 7. Do the practices complement other initiatives

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Use of Benchmarking

1. Improve profits and effectiveness 2. Accelerate and manage change 3. Set stretch goals 4. Achieve breakthroughs and innovations 5. Create a sense of urgency 6. Overcome complacency or arrogance 7. Understand world class performance 8. Make better informed decision

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Performance Area Commonly accepted role models

Innovation & NPD Brand Management JIT Mfg

3M Disney Toyota

Logistics
Speed of Product development Quality Mgmt Franchising Strategic Planning

Wal Mart
Former Netscape Corp Motorola McDonalsd General Electric

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Top 10 Process Improvement Tools in Use

Benchmarking Cause and Effect analysis Change managemetn

Control Charts
Decision making Customer driven processes

Design of experiments
Knowledge management Performance measurement Process mapping

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Indicative list

a. Financial Perspective

Total assets Revenues / total assets (%)

Total assets / employee Profits employee

Market value
Return on capital employed Cash flow Total cost

Value added / employee

Profit margin Return on investment

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Indicative list

b. Customer Perspective

Number of customers Annual sales / customer

market share annual sales / customer

Customer / employee
Customer loyalty index No. of complaints Brand image index

sales closed / employee

no. of visits to customers marketing expenses average customer size

average time taken from customer contact to sales response

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Indicative list

c. Process Perspective

Administrative expense / total revenues On time delivery

Lead time from order to delivery

Lead time production Average time for decision making Inventory turnover Improvement in productivity IT capacity / employee

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Indicative list d. HR Perspective Leadership index

Motivation index
No. of employees Employee turnover

Average employee years of service with company

Average of emplyuees Time in training Average absenteeism No. of women managers Per capita annual cost of training No. of part time employee / contractual