Benchmarking final

Module 1

BENCHMARKINGBy

Sanjeev Rathod.

What is Benchmarking?

• Benchmarking can somewhat philosophically be defined as follows.

• Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to match them and even surpass them at it.

• This definition captures the essence of benchmarking, namely learning from others. The core of the current interpretation of benchmarking is:

• • Measurement, of own and the benchmarking partners’ performance level, both for comparison and for registering improvements.

• • Comparison, of performance levels, processes, practices, etc.

• • Learning, from the benchmarking partners to introduce improvements in your own organization.

• • Improvement, which is the ultimate objective of any benchmarking study.

WHAT IS BENCHMARKING?

The continuous process of measuring our products, services and practices against our toughest competitors of those renowned as leaders.

WHY BENCHMARK?• To effect radical improvements and not just

incremental ones.• Exposing managers to practices that they

would never have developed on their own.• Accelerating change and enhancing an

awareness of world standards.• Benchmarking offers a goal. After all your

benchmark partner has achieved it.

BENCHMARKING ENCOURAGES MANAGED CHANGE

The gap between internal and external practices creates the need for change.

Understanding industry best practices identifies what must change

Externally benchmarked practices provide a picture of the potential results from change.

WHAT TO BENCHMARK?

• Key business priorities• Performance improvement areas• Process outputs• Topics successfully benchmarked

TEN STEP BENCHMARKING PROCESS

• STEP - 1 IDENTIFY SUBJECT FOR BENCHMARKINGA product or service you produce or purchase; a work or business practice you use; or a factor which is critical to the success of your operation.

• STEP - 2 IDENTIFY BENCHMARKING PARTNERSBEST COMPANY: A company with which you are directly competing with or a company which is' considered an industry leader in a specific area.

• STEP - 3 DETERMINE METHODOLOGY FOR DATA COLLECTION AND COLLECT DATA

• STEP - 4 DETERMINE CURRENT PERFORMANCE GAPCURRENT COMPETITIVE GAP : The difference

between your performance and that of the best in the Industry.

• STEP - 5 PROJECTION OF FUTURE PERFORMANCE LEVEL

TEN STEP BENCHMARKING PROCESS (CONTD..)

• STEP - 6 COMMUNICATION OF BENCHMARKING FINDINGS

Presentation of the findings of the analysis

• STEP - 7 ESTABLISHMENT OF FUNCTIONAL GOALS

Statement of planned performance relative to the benchmarked subjects.

• STEP - 8 DEVELOPMENT OF ACTION PLANS

• STEP - 9 IMPLEMENTATION OF ACTION PLANS AND MONITORING PROGRESS

• STEP - 10 RECALIBRATION OF BENCHMARKS

STEP – 1: IDENTIFY SUBJECT FOR BENCHMARKING

• SUBJECT FOR BENCHMARKING: A product or service you produce or purchase; a work or business practice you use; or a factor which is critical to the success of your operation.

• GUIDELINE – A : Prepare a list of subjects to be benchmarked by brainstorming

Some of the questions that may be asked. for facilitating brainstorming are:

• What products or services are you providing to your customer?• What factors are responsible for customer satisfaction?• What problems have been identified in your operation?• In what areas are you feeling competitive pressure?• What process measurements are you tracking?• What areas are your major cost of quality expenditures?• What subjects have been Benchmarked by departments similar

STEP - 1 : IDENTIFY SUBJECT FOR BENCHMARKING (Contd..)

GUIDELINE – B : SELECTION OF SUBJECT

Selection of the topic for benchmarking may be done by answering the following questions:

• How critical is it to achieving customer satisfaction?• How applicable is it to the decisions I make? How important are my decisions?• How significant is the problem to be solved?• How important is it the development of plans &. strategy for my area?

GUIDELINE –C : DETERMINE THE MEASUREMENTS

It is important to select measurements that are true indicators of performance. Developing good measurements is key to successful Benchmarking. Many of them' are expressed in terms of a ratio :

• Defects per machine • Percentage on time delivery. • Percentage yield• Order lead time• Return on assets

STEP – 1: IDENTIFY SUBJECT FOR BENCHMARKING (Contd..)

Measurements are to be customers measures of success. These measures provide the basis for determining how well one is meeting customers expectations. They are typically grouped into three categories

• Quality ( error rates, Number of complaints)• Cost ( Labour cost, Material supply cost)• Cycle Time ( Production time, Delivery time)• In case of absence of appropriate numerical

measurement use case study approach. Case study is simply a method of evaluating a subject in a manner that will allow you to draw lessons for application to your operation -eg Planning Process.

STEP – 1: IDENTIFY SUBJECT FOR BENCHMARKING (Contd..)

GUIDELINE - D : SUMMERISE THE PURPOSE OF STUDY• Prepare a brief statement of the

• Purpose of the project• Subject of the study• Measurements involved

• Indicate how the output will help you run your-business• What possible

• Decisions will be made.• Action taken• Strategies developed.

GUIDELINE E : Review the subject of study with your internal customer and management

• Obtain agreement with the customer at the early stage of the process.• A benchmarking study must have clear accurate objectives based on

customer requirements.• Another advantage of involving customers is that when it's time to

implement the teams recommendations they are based on clear, accurate customer requirements.

• Important to obtain management involvement and commitment to the study.

STEP – 2 : IDENTIFY BENCHMARKING PARTNERSWHO ARE THE BEST COMPANIES?

• Customers• People in your

department• Other members in your

company with similar functions

• Members of your Trade association

• Trade journals from companies who have received recognition or Industry awards.

• Consultant

• Companies with excellent financial Reports

• Companies with many patent awards

• Business Directories• Trade Shows & Seminars• Newspapers magazine

articles • Reports from Securities

analysis.• Top rated firms in

industrial surveys.

BEST COMPANY: A company with which you are directly competing with or a company which is' considered an industry leader in a specific area.

GUIDELINE A : Prepare a list of companies whom you consider competitors or industry leaders. For this you may ask

STEP – 2 : IDENTIFY BENCHMARKING PARTNERSWHO ARE THE BEST COMPANIES? (contd..)

•GUIDELINE B: Shortlist and Cross check based on following criteria

How reliable is the information about the competitor?

Is the competitor really in a business similar to mine?

Is he willing to share?

STEP – 3 DATA COLLECTION METHODOLOGY

The way by which one will collect the Data for the subject of study.

GUIDELINE A : Preparation of a list of questions that will be used to gather the data required. The questions should be clear with the units of measurement clearly defined.

GUIDELINE B : Prepare the answers for your own operation.

Answering the questions for ones own organization, will provide a validation of the questions and a base for initial analysis.

STEP – 3 DATA COLLECTION METHODOLOGY (contd..)

GUIDELINE C : Search for existing dataBefore conducting original research one should search thoroughly for existing data that is from data from

studies already completed. Data may be:

Internal to your companySalesmen , Customer service Personnel , Suppliers

Public Domain

• Newspapers. Magazines• Trade publications• Trade shows• Professional Organizations • User Groups

• University Research Papers

• Government Documents• Annual Reports• Patent records• Internet

STEP – 3 DATA COLLECTION METHODOLOGY (contd..)

• Mail Survey• Personal Interviews • Telephone Interviews • Focus Groups

• Reverse Engineering • Plant Tours• Quotations

GUIDELINE D : Review the methods for conducting original research

GUIDELINE E : Select the method for conducting research ReviewThe purpose of the project List of questions

Considering the relevance of the project, a balance sheet of each of thedifferent methods is to be prepared as addressed below:

Time availability for the projectComplexity of information to be gatheredAvailability of specialized skills

STEP – 3 DATA COLLECTION METHODOLOGY (contd..)

GUIDELINE F : Determine the team to conduct research

• Cross functional Team • Consultant

GUIDELINE G : Check the legal requirements of collecting Data

There are certain ethical and legal codes of conduct• Do not misrepresent yourself• Do not obtain competitive products illegally• Do not provide proprietary data• Do not entice suppliers to divulge information by promising business• Do not discuss pricing• Do not ask or check proprietary data

Note: Many BM efforts fail because teams don’t understand the company process first.

STEP –4: DETERMINE THE CURRENT COMPETITIVE GAP

CURRENT COMPETITIVE GAP : The difference between your performance and that of the best in the Industry. It is generally expressed in terms of percentage.

• GUIDELINE A : Tabulate the Data• Review the Data to ensure that it is complete and consistent with

the questions asked during the process of data gathering.• Tabulate the Data & calculate appropriate statistics• . Mean . Maximum . Minimum . Range

• In case of large volumes of data one may develop the appropriate graphs.

• In case the purpose of study was to gather information on business practices and methods as opposed to quantitative data, one will need to synthesize the raw data to capture the key messages.

STEP –4: DETERMINE THE CURRENT COMPETITIVE GAP (Contd..)

GUIDELINE B : Analysis of the Data• Identity those statistics that are related to the original

purpose of study • Do not over analyze or be over precise. .• Cross check in case of significant differences

• unusual business conditions• change in accounting methodology

• Estimate the relative value of impact of these unique factors.

GUIDELINE C : Determine the benchmark• The benchmark should represent a level of

performance which is clearly the hest in the industry

GUIDELINE D : Determine the Gap• Compare your own internal data against the

benchmark.

STEP –4: DETERMINE THE CURRENT COMPETITIVE GAP (Contd..)

GUIDELINE E: Determine the reasons for the gap

• This should be evident provided the study has been properly done.

• In case our performance is superior to that of the benchmark the cost of exceeding the benchmark is to be evaluated. This may need a cost benefit analysis.

GUIDELINE F : Develop a list of benchmark drivers.• From the information gathered develop a list

of factors that appear to be driving the benchmark performance. This list is helpful for establishment of functional goals.

• Business Practices; Work processes• Standards; Environment• Economics; Culture•

STEP 5 : DETERMINE THE PROJECTED COMPETETIVE GAP

PROJECTED COMPETETIVE GAP: The difference between ones expected future performance and that of the best in the industry. It relates to observed trends & is generally expressed in terms of percentages.

• Estimate what will be the Benchmark level for the next 3 to 5 years.

• Project ones own expected performance over the same period based on knowledge of ones own plans and goals.

• Document all assumptions.

• Determine whether the gap is widening or closing. Estimate size of the gap

STEP 6 : COMMUNICATE BENCHMARK FINDINGS

This involves presentation of the findings of the analysis.The goal is to obtain approval/acceptance of the analysis

by the directly impacted management.

GUIDELINE A : AUDIENCE FOR COMMUNICATION• Develop a list of all parties who need to accept the

results of your analysis • . Management . Customers . Employees

• . Suppliers: Since they often impact ones ability to achieve the benchmark.

GUIDELINE B : METHOD OF COMMUNICATION

• . Report .Presentation

STEP 6 : COMMUNICATE BENCHMARK FINDINGS (Contd..)

GUIDELINE C : ORGANISING THE ANALYSIS• The report should be structured as• Summary

Key Results; Conclusion; Recommendation

• Study ProcessRespondent Selection; Methods employed to gather data Analysis Techniques

• AttachmentQuestionnaire; Data Base (Raw Data) Glossary; Exhibits

• For the report• Provide Key Results & Conclusion at the beginning• Maintain an objective point of view throughout the

communication.• Analysis should be based on data and not on opinion.

GUIDELINE D : OBTAIN ACCECPTANCE

STEP 7 : DETERMINE THE FUNCTIONAL GOALS

Functional goal: This is a statement of planned performance relative to the benchmarked subjects.

• Eg: Reduce order lead time by 10 days.

GUIDELINE A : Prepare a list of current functional goals

• Review your current goals• Prepare a list of your current functional goals by

referring to• Statement of annual objectives . • Operating Plans• Strategic Plans• Departmental standards.

STEP 7 : DETERMINE THE FUNCTIONAL GOALS (Contd..)

GUIDELINE B : Determine what changes should be made to the goals

• Determine changes in functional goals to achieve benchmark

• Evaluate the, following prior to establishment of new goals

• Effect on other parts of the organisation. • Cost• Importance of achievement of goals to

Customers; Management• Based on assessment of impact set new goals if

necessary

GUIDELINE C : REVISE COMPETITIVE GAP• In case goals are revised the competitive gap

projection is to be revised based on current. plan.

Guideline D : Obtain Commitment for your goals• Management; Employees

STEP 8 ACTION PLANS

DESCRIPTION OF SPECIFIC EVENTS THAT ARE REQUIRED TO TAKE PLACE IN ORDER TO ACHIEVE FUNCTIONAL GOALS

• Each item requiresDescription; Timeframe; Responsibility Resource Required

GUIDELINE A: PREPARATION OF ACTION PLANS TO SUPPORT GOALS

• Review data of Step -3 On Business practices & work processes understand the way the Benchmarked partner is achieving the results.

• Develop a Force Field: which defines the areas that influence the achievement of the goals

• Determine the Key Drivers• Use brainstorming to develop a list of possible actions

STEP 8 ACTION PLANS (Contd..)

Develop weighing factors.Importance to achieving the goals; Time requiredResources required; Probability of successDegree of control over the action

Preparation of action plan for each event• Timeframe ( When the action will be completed)• Responsibility(Who will act)• Resources (What is required to complete the action)• Impact on gap closure

GUIDELINE B : ORGANISE THE ACTION PLAN• Use GNATT, PERT charts etc as required.

STEP 8 ACTION PLANS (Contd..)

GUIDELINE C : OBTAIN APPROVAL FOR ACTION PLANS

• Review with management & obtain approval

Proposal should include• Statement of Goals• Specification of Deliverables• Milestones

Accountability• Budgetary requirements• Dependencies• Contingency plan / alternatives.

STEP 9 : IMPLEMENTATION OF ACTION PLANS AND MONITORING

PROGRESS

GUIDELINE A : IMPLEMENTATION OF ACTION PLAN

• Ensure that all concerned parties understand the role that they will play in implementation of action plan.

GUIDELINE B : MONITORING RESULTS

• Review progress versus milestone on a periodic basis.

STEP 10 : PLAN FOR RECALIBRATION

Competition is constantly changing. Re- calibration is the process of re evaluating the benchmarks to determine their validity.

GUIDELINE A : DETERMINE THE PLAN FOR RECALIBRATION

• Determine how often and how extensively you will recalibrate

GUIDELINE B : RECALIBRATE

• Revisit each of the 9 Steps and update• Cycle through the entire process• Do not skip any step

QUESTIONS TO PONDER BEFORE

BENCHMARKING

• What is our organisational strategy?• Who are our customers? • What do they want?• Which processes have the latest

impact on increasing customer satisfaction?

• How does that process support organisational goals?

Note• Benchmarking by itself does not improve performance

• It provides information, one can use to improve

• It is a discovery process aimed at exceeding customer requirements.

• Considered a powerful tool for quality,

• Benchmarking is an indispensable tool for the Learning Organisation.

• Without it one will never know where he stands relative to competitors and world class performers are.

• One will have no way of gauging the effectiveness of his process or imaging how good they are.

• One may miss out on new ways of thinking needed to achieve breakthrough improvements

Legal Aspects of BM study

Still, it might be pertinent to display some caution, especially when benchmarking using suppliers, customers, or competitors as benchmarking partners. In the latter case, under no circumstances should the benchmarking study focus on issues like:

Prices or pricing policies. Marketing strategies. Production capacities. Product standards. Other commercial or sensitive

information.