Bench Marking Considerations

8/14/2019 Bench Marking Considerations

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ONSIDERATIONS

CUSTOMER&COMPETITIVEINTELLIGENCE FORPRODUCT, PROCESS, SYSTEMS & ENTERPRISE EXCELLENCE

C

DEPARTMENT OFSTATISTICS

DR. RICKEDGEMAN, PROFESSOR& CHAIR SIX SIGMABLACKBELT

[email protected] OFFICE: +1-208-885-4410

ENCHMARKING

B


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Customer Expectation Dilemma

Time

Performanc

e

Expe

ctatio

ns

Continuo

usImprovement

PerformanceGap


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BenchmarkingBenchmarking is the process of continually searching for thebest methods, practices and processes, and either adoptingor adapting their good features and implementing them to

become the best of the best.

How is benchmarking used?

Compare performance of an existing process against othercompanies best-in-class practices Determine how those companies achieve their performance

levels

Improve internal performance levels

Use benchmarking both for comparison of performance as well as tounderstand the potential for improvement


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Types of BenchmarkingCompetitive BenchmarkingFunctional Benchmarking

Internal BenchmarkingProduct BenchmarkingProcess Benchmarking

Best Practices Benchmarking

Strategic BenchmarkingParameter Benchmarking


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Competitive

Industry leaders Top performers with

similar operatingcharacteristics

Functional

Top performers

regardless of industry Aggressive innovators

utilizing newtechnology

Internal

Top performerswithin company Top facilities

within company

Best PracticeOverlap

Benchmarking

Meth

odology


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Benchmarking

MethodologyChecklist

1. Identify Process to Benchmark

Select process and define defect and opportunities

Measure current process capability and establishgoals

Understand detailed process that needs

improvement


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BenchmarkingMethodology2. Select Organizations to Benchmark Outline industries/functions which perform your

process

Formulate list of world class performers

Contact the organization and network through to

key contact


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Benchmarking

Methodology3. Prepare for the Visit Research the organization and ground yourself

in their processes Develop a detailed questionnaire to obtain

desired information

Set up logistics and send preliminary documentsto organization


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BenchmarkingMethodology4. Visit the Organization

Feel comfortable with and confident about

your homework Foster the right atmosphere to maximize

results

Conclude in thanking organization and ensurefollow-up if necessary


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Benchmarking

Methodology5. Debrief and Develop an Action Plan Review team observations and compile report of

visit Compile list of best practices and match to

improvement needs

Structure action items, identify owners andmove into Improve phase


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BenchmarkingMethodology6. Retain and Communicate

Report out to business management and 6

leaders

Post findings and/or visit report on localserver/6 bulletin board

Enter information on benchmarking projectdatabase


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Library Database Internal Reviews

Internal Publications Professional Associations

Industry Publications Special Industry Reports

Functional Trade Publications Seminars

Industry Data Firms Industry ExpertsUniversity Sources Company Watches

Newspapers Advertisements

Newsletters Original Research

Customer Feedback Supplier Feedback

Telephone Surveys Inquiry Service

Networks World Wide Web

Sources of Information


13/52Benchmarking Compliance

Policy regarding benchmarking protocol should becommunicated to all employees involved, prior to

contacting external organizations. Guidelines shouldaddress the following areas:

Misrepresentation do not misrepresent your identityin order to gather information

Informationrequests a request should be made onlyfor information your organization would be willing to share withanother company

Sensitive/proprietaryinformation avoid directbenchmarking of sensitive or proprietary information

Confidentiality treat all information as confidential


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Benchmarking Compliance

Avoiding inappropriate communication andcontacts with competitors.

Never propose, enter, or engage in a discussionrelated to any agreements with a competitor to fixprices, in terms or conditions of sale, costs, profitmargins, or other aspects of the competition.

Keep communications with competitors to aminimum make sure there is a legitimatebusiness reason for all such communications


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Benchmarking

Best Practices, Processes & Products


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Benchmarking(A)The process of identifying and learning from bestpractices anywhere in the world is a powerful tool in the questfor continuous improvement.

(B) The systematic process of searching for best practices,innovative ideas, and highly effective operating procedures thatlead to superior performance.

Learning by borrowing from the best and adapting their

approaches to fit your own needs is the essence ofbenchmarking. It has broad applications in problem solving,planning, goal setting, process improvement, innovation,reengineering, and strategy setting. It is a fundamentalbusiness skill that supports quality excellence.


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Benchmarks & Benchmarking:Ideas & Definitions

Benchmarking: is the on-going search for best practices that producesuperior performance when adapted and implemented in ones ownorganization.

Emphasis: On-going outreach activity Goal: Identification of best operating practices

WhenImplemented: Produces superior performance.

Benchmarking: is the actual process of investigation and discovery thatemphasizes the operating procedures as the things of greatest interest and

value. Benchmarks: are measurements to gauge the performance of a function,

operation, or business relative to others.


18/52Best Practices - the Ends

Enablers - the Means to the Ends

SOFT MEDIUM HARD

Training

Communication

Empowerment

Attitude

Management

Involvement

Goals&Objectives

Sequence

Controls

Measures

Policies &

Procedures

Plant

Suppliers

Money

Technology

Equipment


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Benchmarks & Benchmarking:Managing Change

Best Practices Benchmarkingcan be described asthe process of seeking out and studying the best internal andexternal practices that produce superior performance.

Dont reinvent what others have learned to do better!

Borrow shamelessly!

Adopt, adapt, advance!

Imitate creatively!

Adapt innovatively!


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Process Benchmarking Processbenchmarking focuses on discrete work processes

and operating systems, such as the customer complaint

process, the order-and-fulfillment process, or the strategicplanning process.

Processbenchmarking seeks to identify the most effectiveoperating practices from many companies that performsimilar work functions.

Its power lies in its ability to produce bottom-line results. Ifan organization improves a core process, for instance, it canthen quickly deliver process improvement


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Performance Benchmarking Performancebenchmarking enables managers to assesstheir competitive positions through product and servicecomparisons.

Performancebenchmarking usually focuses on elementsof price, technical quality, ancillary product or servicefeatures, speed, reliability, and other performancecharacteristics.

Reverse engineering, direct product or service comparisons,and analysis of operating statistics are the primary techniquesapplied during performance benchmarking.


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Strategic Benchmarking Strategicbenchmarking examines how

companies compete and is seldom industry-focused. It roves across industries seeking to

identify the winning strategies that have enablehigh-performing companies to be successful in theirmarketplaces.

Strategicbenchmarking influences the longer-term competitive patterns of a company.Consequently, the benefits may accrue slowly.


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Benchmarking

Code of Conduct

h ki h &


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enchmarking hys &

Hows Benchmarking represents a versatile process managementtool that helps organizations identify and understand what

constitutes best operating practices.

Benchmarks are the operating statistics or measures that

define the achievement level of any given practice or system.

These are not in and of themselves enough since theyprovide no insightinto the root causes of performancedifferences.

Aflexible set of benchmarks reflects full process orsystem capabilities. Performance indicators may includedimensions such as cost, productivity, cycle time, yields,error rates, waste and turnover.


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Range ofBenchmarks

FOCUS Benchmark Levels Type Improvement

Benefit

STRATEGIC Best-in-World 7 Generic Processes 30%

* Product / Services* Business Processes

* Business Function

Best-in-Country 6 Functional Areas 30%-40%

PERFORMANCE Industry Leader 5 Direct Competitor 15%-20%* Customer Satisfaction Norm 4

* Output : Standard 3--Products & Services

PROCESS Best-in-Company 2 Internal 15%* Practices & Capability

* Inputs:

-- Material/Supplier Baseline 1


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Benchmarking Architecture

Performance Measures


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DashboardofNewPerformance

Measures

CapitalExpenditures

Costs

Profitability

Cashflow

SalesLiabilities

Assets

Debt

QualityCustomerRetention

Training

CustomerSatisfaction

DefectRates

CycleTime

Referral

Rates

EmployeeRetention


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Designing Successful Benchmarks:Effective Performance Benchmarks Reflect the Most Important

Operating Dimensions of a Business Process, System, or Function.

MEASUREMENTFOCUS Determine where in a work area or process that value for the

customer is created;

Determine where value is detracted through high costs,errors, rework, or accidents; and

Target benchmarks in areas where performance divergesfrom designated standards, or where variation above andbelow standards is greatest.

MEASUREMENTPERSPECTIVE Leadingindicators foreshadow or anticipate future system

outcomes. Leading indicators are thus proactive orpreventative.

Laggingindicators such as traditional financial measures arereactive or descriptive of the actual results of a system

or process in a given time period. -


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MEASUREMENT CONTROL People are always the principal factor affecting the degreeof measurement control. Managers fail at performanceimprovement when they evaluate individual or systemperformance using benchmark measures that areuncontrollable by the people overseeing the process.

Therefore benchmarks that are designed for performanceimprovement must be crafted to reflect the individual levelof authority, responsibility, and skills of those peopleexpected to work with the benchmarks.

DATACOLLECTION After defining performance measures, managers must be

able to readily collect the data from which performancebenchmarks are constructed.

Many organizations develop interesting performancemeasures only to discover that they currently do not collectthe required information and do not have the resources todo so.

Designing Successful Benchmarks


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ABenchmarkDesignArchitecture

The first step in designing a performancebenchmark system is to create measures that willenable management to achieve the organizationsstrategic objectives.

The second step in designing a benchmarkarchitecture requires managers to create anagreed upon vocabulary describing performancemeasurement in your organization.

The third step is to develop plans to collect,process, and analyze the performance measures.


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Designing a BenchmarkArchitecture:Ten Generic BenchmarkCategories

Customer-service performance;

Product / service performance;

Core business process performance;

Support processes and services performance;Employee performance;

Supplier performance;

Technology performance;

New product/service development and innovation performance;

Cost performance;

Financial performance.


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Customer-Service Performance Measures:The Best Customer-Related Measures Come from Objective and

Valid Data Collected Directly from CustomersCustomer-service performance measures typically probe

organizational performance in the following areas: Overall Customer Satisfaction with Products & Services;

Customer Evaluations of Sales & Service Representatives; Customer Assessments of Your Organizations Understanding of Customer Needs;

Customer Ratings ofHow Clearly Your Organization Communicates Cost Information& HowWell the OrganizationSuggestsCustomer Solutions

Customer Appraisals of Delivery Timeliness;

Customer Impressions About the Usefulness of Your Organizations Product &

Service Documentation; Customer Feelings Concerning How Easy it is to Conduct Business with Your

Organization;

The Value Customers Place on Your Organizations Products & Services.


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Product/Service

Performance MeasuresProduct & Service Performance Benchmarks

Include Measures of:

Accuracy, Reliability, Timeliness, Order Ease, Delivery,Packaging, Ease of Assembly & Use, Documentation, Billing,After-Sales Service, and Effective Complaint Management.

These May Also Include:Warranty Exchanges and Returns,

Unit Productivity & Cost, Cycle Time for Key Intervals,and Market Share.


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Business Process Performance Measures

A simple process analysis model can help identify your

organizations most important workflows. This modelreveals that all work can be viewed in

four sequential stages:

1.Inputs(including those from both employees & suppliers);

2.Processes (including internal operations & support services);3. Outputs (your organizations products, services, and

documentation); and4.Customer Satisfaction.

In the following graphic (the input-output process model) we begin withinputs that can be tangible (such as supplies, raw materials, and

component products) or intangible (such as information) which aredelivered to theworkprocess, which transforms them into some finaloutput which might be a product or service. The goal of the output is to

create satisfied andloyalcustomers.


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Input-Output Process Model

Products

Services

Documentation

Results

Design ofProducts/Services

Production of

ProductsPerformance

of Services

Delivery ofProducts/

Services

People

Raw Materials

Components

CustomerRequirements

Capital

CustomerNeeds

Satisfied

CustomerProblemsSolved

CustomerRequirements

Met

Inputs Processing Outputs Customers


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Common Performance Measures ofthe

Input-Output Process Analysis ModelEnhanced customer value - often observed through added product features or

reduced costs;

Production costs, frequently described as cost per hundred, thousand, or

million;

Responsiveness and/or process cycle time;

Defect, error, waste, problem, or failure rates, often formatted as defects per1000 or million output units;

Productivity & resource utilization, often reflected in transactions per person,inventory turn rates, or projects operating within budget;

Public safety and / or legal responsibilities, sometimes observed in accidentrates, employee absentee rates, regulatory citations, or litigation rates.


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Examples ofKeyBusiness Processes

IBM Xerox BritishTelecomMarketing Information Capture;

Marketing Selection;Requirements;

Hardware/Software Development;

Service Development;

Production;

Customer Fulfillment/ Relationship;

Service Customer Feedback;

Marketing;

Solution Integration;

Financial Analysis;

Plan Integration;

Accounting;

Human Resources

IT Infrastructure

Customer Engagement;

Inventory Mgt. & Logistics;Product Design / Engineering;

Product Maintenance;

Technology Maintenance;

Production & Operations Mgt.

Marketing Management;

Supplier Management;

Information Management;

Business Management;

Human Resources Management;

Leased & Capital Asset Mgt.

Legal;

Financial Management.

Direct Business;

Plan Business;Develop Processes;

Manage Process Operations;

Provide Personnel Support;

Market Products & Services;

Provide Customer Service;

Manage Products & Services;

Provide Consultancy Services;

Plan the Network;

Operate the Network;

Provide Support Services;

Manage Information Resource;

Manage Finance;

Provide Technical R&D


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Support Processes / ServicesPerformance Measures

Support services are activities and operations thatenable your organizations core production and

delivery processes.

Theyincludefunctionssuchasfinance, softwareservices, marketing, public relations, information

services, purchasing, legal services, and facilitiesmanagement.

Examples for various areas follow.


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Performance Measure Examples

AccountingPercentage of Late Payments

Time to Respond to

Customer Requests

Number of Billing ErrorsNumber of Payroll Errors

PurchasingPurchase Order Errors

Downtime Due to Shortages

Excess Inventory

Cycle Time (from start of

purchase to receipt in-house)

Information ServicesNumber of Errors / Code Line

Percent of Reports Received

on Schedule

Number of Rewrites

Number of Errors Found After

System Accepted by Customer

Product EngineeringProject Completion Cycle Times

Engineering Changes/ Document

Number of Errors Found During

Design Review

Number of Errors Found in

Design Evaluation

Quality ControlPercentage of Lots Rejected

in ErrorNumber of Engineering Changes

Detected After Design Review

Errors in Reports

Cycle Time for Corrective Action

MarketingAccuracy of Forecast

Assumptions

Number of Incorrect

Order Entries

Overstocked Field Supplies

Contact Errors


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Employee Performance Measures Employee Performance Benchmarks Cover a Wide

Range of Employee Activities that May Include:

Employee Development; Employee Education;Employee Empowerment; EmployeeRecognition;Employee Recruitment; EmployeeAbsenteeism;

Employee Turnover; Employee Grievances;Employee Safety/Accidents; EmployeeInvolvement;Employee Morale; EmployeePerformance Appraisal;

Employee Promotion;Employee Succession Planning.


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Technology & Innovation RelatedPerformance Measures

Technology-related measures reflect the productivity,deployment, and effective use of computers and othertechnology in an organization.

Measure range broadly from processing speeds,deployment percentages, network down time and errorrates.

In turn, innovation-related performance indicators reflectissues such as product development times, employeessuggestion rates, new product sales as a percent of totalsales, and process improvement rates.


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Supplier Performance MeasuresSupplier performance measures help an organization

qualify or certify the vendors with which it will work.

These benchmarks then help the organization monitor

and manage on-going supplier performance.

Supplier performance metrics often include measures ofcost, quality, reliability, speed or responsiveness, agreed-

upon service levels, and product specifications.


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Cost Performance Measures

Cost performance measures are broad and flexible. Theyinclude balance sheet liability requirements andinformation drawn from cost centers throughout theorganization.

Companies can develop useful benchmarks by producingcost ratios for specific products, services, organizationalunits, processing steps, inputs, and labor.

A mortgage company, for instance, might use suchmeasures as cost per loan application, cost per loanprocessing,human resources cost per loan, data processingcosts per 100 bills, and service cost per loan.


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Financial Performance Measures

Financial measure include performance indicatorsrequired by stock exchanges, security analysts, publicaccounting firms, regulatory agencies, and otherorganizations that may oversee reporting standards in

your organizations industry.

Many of these measures make up the items on incomestatements, balance sheets, and cash flow statements,

including measures such as revenue, gross profit,operating income, net income, earning per share, long-term debt, book value, cash flow, debt/equity ratio,days/ receivables ratio, current ratio, and so on.


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Benchmarking

Critical Success FactorsAdopt, Adapt, and Advance: A well-designed

performance measurement and benchmark system is

essential, but there are other critical success factors:

Senior management support;

Benchmarking training for the project team;

Useful information technology systems; Cultural practices that encourage learning;

Resource dedication - especially in the form oftime, funding, and useful equipment.


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Selected

Benchmarking Processes

A eneric Benchmarking


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A eneric BenchmarkingProcess:

The Simple, ConsensusModelFrom the Strategic Planning Institutes (SPI)

Council on Benchmarking has developed the

following model:

1. Launch

2. Organize

3. Reach Out4. Assimilate

5. Act


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Xerox12-StepBenchmarkingProcessPhase 1: Planning

1. Identify what to benchmark;2. Identify comparative companies;

3. Determine data collection method & collectdata.

Phase 2: Analysis

4. Determine current performance gap;

5. Project future performance levels.

Phase 3: Integration

6. Communicate finding and gain acceptance;

7. Establish functional goals.


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The Xerox 12-Step Benchmarking Process(continued)

Phase 4: Action

8. Develop action plans;

9. Implement specific actions & monitor progress;10. Recalibrate benchmarks.

Phase 5: Maturity

11. Attain leadership position ;12. Fully integrate practices into processes.


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Attributes ofBenchmarking Studies:

Success vs. FailureSuccess Failure

Process Owner Involvement

Customer Driven Objectives

Linked to Strategic Plan

Best Practices & Enablers

Consider Cultural Attributes

Disciplined Methodology

Quantum Change

Clear Project Life Cycle

Integrated with ExistingQuality Efforts

Sponsorship Uncertain

Amorphous Objectives

No Strategic Integration

Performance Metrics Only

Hard Data Only

Arbitrary / Casual Approach

Incremental / No ChangeKeep Going and Going and ..

A la carte Program


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Managements

Benchmarking ChallengeCommit required resources to key projects;

Provide focused training / facilitation to projectparticipants;

Proactively manage the direction and momentum ofbenchmarking within the organization;

Create visibility of the benchmarking process;

Recognize benchmarking team efforts.


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ONSIDERATIONSC

DEPARTMENT [email protected] OFFICE: +1-208-885-4410

ENCHMARKING

BEndofSession

Bench Marking Considerations

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