Chapter 8, Bench Marking

Chapter 8Chapter 8

BenchmarkingBenchmarking

Define the following words:Define the following words:

AdoptionAdoption

Adoption means using or following Adoption means using or following someone’s idea or suggestion.someone’s idea or suggestion.

AdaptationAdaptation

Adaptation is the process of adapting to fit Adaptation is the process of adapting to fit a changed environment or situation.a changed environment or situation.

What is Benchmarking?What is Benchmarking?

Benchmarking is a way to go backstage and watch another Benchmarking is a way to go backstage and watch another company’s performance from the wings, where all stage tricks and company’s performance from the wings, where all stage tricks and hurried realignments are visible.hurried realignments are visible.

In Joseph Juran’s 1964 book Managerial Breakthrough, he asked In Joseph Juran’s 1964 book Managerial Breakthrough, he asked the question:the question:

What is that organizations do that gets result so much better than ours?What is that organizations do that gets result so much better than ours?

The answer to this question opens door to The answer to this question opens door to benchmarkingbenchmarking, an approach , an approach that is accelerating among many firms that have adopted the total that is accelerating among many firms that have adopted the total quality management (TQM) philosophy.quality management (TQM) philosophy.

What is Benchmarking?What is Benchmarking?

Benchmarking has been defined as the practice of being humble enough to admit that someone else has a better way to get work done and clever enough to learn how to surpass them.

Hence, benchmarking involves both adopting and adapting the best practices of someone else.

Benchmarking ConceptsBenchmarking Concepts

What is our performance level?How do we do it?

What are others’performance levels?

How did they get there?

Creative Adaptation

Breakthrough Performance

The Essence of BenchmarkingThe Essence of Benchmarking

The essence of benchmarking is the continuous process of The essence of benchmarking is the continuous process of comparing a company’s strategy, products, processes with those of comparing a company’s strategy, products, processes with those of the world leaders and best-in-class organizations.the world leaders and best-in-class organizations.

The purpose is to learn how the achieved excellence, and then The purpose is to learn how the achieved excellence, and then setting out to match and even surpass it.setting out to match and even surpass it.

The justification lies partly in the question: “Why reinvent the wheel The justification lies partly in the question: “Why reinvent the wheel if I can learn from someone who has already done it?”if I can learn from someone who has already done it?”

However, Benchmark is not a panacea that can replace all other However, Benchmark is not a panacea that can replace all other quality efforts or management processes.quality efforts or management processes.

The Evolution of BenchmarkingThe Evolution of Benchmarking

The method may have evolved in the early 1950s, when W. Edward The method may have evolved in the early 1950s, when W. Edward Deming taught the Japanese the idea of quality control. Other Deming taught the Japanese the idea of quality control. Other American management innovations followed.American management innovations followed.

The idea took ground in US during 1980s when Xerox, Ford and The idea took ground in US during 1980s when Xerox, Ford and Motorola became the pioneers. Motorola became the pioneers.

Robert Camp, the logistics engineer who initiated Xerox’s benchmarking program and who is generally regarded as the guru of the benchmarking movement, defines it:

“Benchmarking is the search for industry best practices that lead to superior performance”.

Xerox’s CaseXerox’s Case

The company invented the photocopier in The company invented the photocopier in 1959 and maintained a virtual monopoly for 1959 and maintained a virtual monopoly for many years thereafter.many years thereafter.

““Xerox” became a generic name for all Xerox” became a generic name for all photocopiers.photocopiers.

By 1981, however, the companies market By 1981, however, the companies market shrunk to 35% as IBM and Kodak developed shrunk to 35% as IBM and Kodak developed high-end machines and Canon, Richo and high-end machines and Canon, Richo and Savin dominated the low-end segment of Savin dominated the low-end segment of market.market.

The company instituted the quality The company instituted the quality improvement plan, which resulted in improvement plan, which resulted in tremendous progress and survival of the tremendous progress and survival of the organization.organization.

Xerox’s CaseXerox’s Case

This quality improvement plan was later known to the world as Benchmarking Program.

Xerox’s approach focused on key processes, rather than simply on finished products, and highlighted distinctive elements of those processes that accounted for product superiority.

Xerox’s benchmarking strategy recognized that many processes are not unique to a single industry and that comparisons need not be confined strictly to one’s competitors.

Xerox and other benchmarkers now believe that breakthrough advances are more likely to occur by adapting lessons learned from leaders operating in entirely different industries.

Xerox’s CaseXerox’s Case

Xerox benchmarked companies both, in and outside the industry. Xerox benchmarked companies both, in and outside the industry. The particular example is L.L.Bean, catalog seller of outside The particular example is L.L.Bean, catalog seller of outside equipment for improving distribution system based on the same.equipment for improving distribution system based on the same.

The benchmarking process resulted in:The benchmarking process resulted in: Quality problems cut by two-thirdsQuality problems cut by two-thirds Manufacturing costs cut in halfManufacturing costs cut in half Development task cut by two-thirdsDevelopment task cut by two-thirds Direct labor cut by 50% and corporate staff cut by 35% while increase in Direct labor cut by 50% and corporate staff cut by 35% while increase in

volume.volume. It should be noted that all these improvements were not direct result It should be noted that all these improvements were not direct result

of benchmarking rather it became the cause climate for change and of benchmarking rather it became the cause climate for change and continuous improvement followed as a natural result.continuous improvement followed as a natural result.

Levels of BenchmarkingLevels of Benchmarking

There are three levels of benchmarking:There are three levels of benchmarking:

1. Internal benchmarking (within the company)1. Internal benchmarking (within the company)

2. Competitive or strategic benchmarking (Industry and 2. Competitive or strategic benchmarking (Industry and competitors)competitors)

3. Benchmarking outside the industry3. Benchmarking outside the industry

The benefits of BenchmarkingThe benefits of Benchmarking

There are three sets of benefits:There are three sets of benefits:

1.1. Cultural ChangeCultural Change

2.2. Performance ImprovementPerformance Improvement

3.3. Human ResourcesHuman Resources

The benefits of BenchmarkingThe benefits of Benchmarking

1.1. Cultural Change:Cultural Change: Benchmarking allows organizations to set realistic, Benchmarking allows organizations to set realistic, rigorous new performance targets, and this process helps rigorous new performance targets, and this process helps convince convince peoplepeople of the credibility of these targets. It helps people to understand of the credibility of these targets. It helps people to understand that there are other organizations who know and do job better than their that there are other organizations who know and do job better than their own organization.own organization.

2.2. Performance Improvement:Performance Improvement: Benchmarking allows the organization Benchmarking allows the organization to to define specificdefine specific gaps gaps in performance and to select the processes to in performance and to select the processes to improve. These gaps provide objectives and action plans for improve. These gaps provide objectives and action plans for improvement at all levels of organization and promote improved improvement at all levels of organization and promote improved performance for individual and group participants.performance for individual and group participants.

3.3. Human Resources: Human Resources: Benchmarking provides basis for training. Benchmarking provides basis for training. Employees begin to see gap between what they are doing and what best-Employees begin to see gap between what they are doing and what best-in-class are doing. Closing the gap points out the need of personnel to be in-class are doing. Closing the gap points out the need of personnel to be trained to learn techniques of problem solving and process improvement. trained to learn techniques of problem solving and process improvement.

The Process of BenchmarkingThe Process of Benchmarking

Organizations that benchmark, adapt the process to best fit their Organizations that benchmark, adapt the process to best fit their own needs and culture. Although number of steps in the process own needs and culture. Although number of steps in the process may vary from organization to organization, the following six steps may vary from organization to organization, the following six steps contain the core techniques:contain the core techniques:

What to Benchmark

Use Findings

Understand Current

PerformancePlan

Study Others

Learn From Data

Some prominent beneficiaries of Some prominent beneficiaries of BenchmarkingBenchmarking

Within a decade following its introduction, benchmarking had distinguished itself as an important tool for performance improvement in corporate America.

In several highly publicized cases, benchmarking corporations were

learning and benefiting from what would have seemed unlikely partnerships in the pre-benchmarking era.

Xerox learned from L.L. Bean, a clothing store catalogue retailer Motorola from Domino’s Pizza Digital Equipment Corporation (DEC) from a seemingly illogical

set of partners that included Scott Paper, Campbell Soup, Whirlpool, Boeing, Hewlett-Packard, and Apple.

Selected Best-Practices CompaniesSelected Best-Practices Companies American AirlinesAmerican Airlines Information systems (long line)Information systems (long line) American ExpressAmerican Express BillingBilling AMPAMP Supplier managementSupplier management BenettonBenetton AdvertisingAdvertising Disney WorldDisney World Optimum customer experienceOptimum customer experience Domino’s PizzaDomino’s Pizza Cycle time (order and delivery)Cycle time (order and delivery) Dow ChemicalDow Chemical SafetySafety Federal ExpressFederal Express Delivery timeDelivery time General ElectricGeneral Electric Management ProcessManagement Process Hewlett-PackardHewlett-Packard Order fulfillmentOrder fulfillment HondaHonda New product developmentNew product development 3M3M Technology transferTechnology transfer MotorolaMotorola Flexible manufacturingFlexible manufacturing Ritz-CarltonRitz-Carlton TrainingTraining Wal-MartWal-Mart Information systemsInformation systems XeroxXerox BenchmarkingBenchmarking

END OF END OF CHAPTER 8CHAPTER 8