Six Sigma Bench Marking
Transcript of Six Sigma Bench Marking
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Six Sigma
Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
IXCUSTOMER & COMPETITIVE INTELLIGENCE
FOR S YSTEMS INNOVATION & DESIGNS IGMA S
DEPARTMENT OF STATISTICS
DR. R ICK EDGEMAN, PROFESSOR & CHAIR SIX SIGMA BLACK [email protected] OFFICE: +1-208-885-4410
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
IXS IGMA SDEPARTMENT OF STATISTICS
Benchmarking
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
IXS IGMA SDEPARTMENT OF STATISTICS
a highly structured strategy for acquiring, assessing, andapplying customer, competitor, and enterprise
intelligence for the purposes of product, system orenterprise innovation and design.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Six Sigma Strategy and Methods
Managing Six Sigma Projects:Benchmarking from a Six Sigma Perspective
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
The Analyze Phase of DM A IC:Define Performance Objectives
Defects
p(x) Benchmark
Z short-termBaseline
Benchmark:World-class
performance
Z short-term:The level of performance abusiness should be able toachieve giventhe investmentsalready made
Baseline:The current level of performance
Benchmarking sets the ultimate goal, while baselining takes current measurements to monitor a process
Benchmarking sets the ultimate goal, while baselining takes current measurements to monitor a process
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Define Improvement Objective For Y Z Short-term: Short-term performance of the process
Benchmarking: Get to best-in-class
Learning Curve-Based: Get to 6 Sigma across all processes in 5 years
Defect Reduction: e.g., eliminate 90% of defects
Sigma Scale of Measure
1
10
100
1000
10000
100000
1000000
Your Process
ImprovementObjective
1 2 3 4 5 6
The Basic Objective
The Basic Objective
Six Sigma Teams Set Aggressive, but Achievable Objectives .
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Actual (LT)Potential (ST)
0.7700.7690.7680.7670.766
Process Performance
USLLSL
Actual (LT)Potential (ST)
1,000,00 0
100,00 0
10,000
100 0
100
10
1
3002001000
Potential (ST) Actual (LT)
Sigma
PPM
(Z.Bench)
Process Benchmarks
0
3.42
309
6.00
Process Demographics
Opportunity:
Nominal:
Lower Spec:
Upper Spec:
Units:
Characteristic:
Process:
Department:
Project:
Reported by:
Date:
Report 1: Executive Summary
Process Capability
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
BenchmarkingBenchmarking is the process of continually searching for the bestmethods, practices and processes, and either adopting or adapting theirgood features and implementing them to become the best of the best.
How is benchmarking used? Compare performance of an existing process against other companies 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 to understand the potential for improvement
Use benchmarking both for comparison of performance as well as to understand the potential for improvement
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Six Sigma
Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Types of BenchmarkingCompetitive Benchmarking
Functional BenchmarkingInternal BenchmarkingProduct BenchmarkingProcess Benchmarking
Best Practices BenchmarkingStrategic Benchmarking
Parameter Benchmarking
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Competitive Industry leaders Top performers with
similar operatingcharacteristics
Functional Top performersregardless of industry
Aggressive innovatorsutilizing new technology
Internal Top performers
within company Top facilities
within company
Best PracticeOverlap
B enchmarking M ethodology
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking Is A continuous process
A process of investigation that provides valuableinformation A process of learning from others; a pragmatic searchfor ideas A time-consuming, labor-intensive process requiringdiscipline A viable tool that provides useful information forimproving virtually any business process
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
B enchmarking Methodology Checklist
1. Identify Process to Benchmark
Select process and define defect and opportunitiesMeasure current process capability and establish goal
Understand detailed process that needs improvement
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
B enchmarking Methodology 2 . Select Organization to Benchmark
Outline industries/functions which perform yourprocessFormulate list of world class performersContact the organization and network through to key contact
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
B enchmarking Methodology 3 . Prepare for the Visit
Research the organization and ground yourself intheir processesDevelop a detailed questionnaire to obtain desiredinformation
Set up logistics and send preliminary documents toorganization
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
B enchmarking Methodology 4 . Visit the Organization
Feel comfortable with and confident about your homework Foster the right atmosphere to maximize resultsConclude in thanking organization and ensure follow-up if necessary
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
B enchmarking Methodology 5 . Debrief and Develop an Action Plan
Review team observations and compile report of visitCompile list of best practices and match toimprovement needs
Structure action items, identify owners and move intoImprove phase
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
B enchmarking Methodology 6 . Retain and Communicate
Report out to business management and 6 leadersPost findings and/or visit report on local server/6
bulletin boardEnter information on GE Intranet benchmarking projectdatabase
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking CompliancePolicy regarding benchmarking protocol should be communicated to all
employees involved, prior to contacting external organizations. Guidelinesshould address the following areas:
Misrepresentation do not misrepresent your identity in order togather information
Information requests a request should be made only for information your organization would be willing to share with another company
Sensitive / proprietary information avoid direct benchmarking of sensitive or proprietary information
Confidentiality treat all information as confidential
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking ComplianceAvoiding inappropriate communication and
contacts with competitors
Never propose, enter, or engage in a discussionrelated to any agreements with a competitor to fix prices, in terms or conditions of sale, costs, profit margins, or other aspects of the competition
Keep communications with competitors to aminimum make sure there is a legitimate businessreason for all such communications
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking ComplianceConsult with business legal counsel before initiating any
contact with competitors regarding Six Sigma (or any other
topic):Benchmarking
Training of suppliers and customers they may also becompetitors
Comply with GECS guidelines for:Documenting competitor contacts check with legal counsel
first.
Participating in trade associations and standards - setting groups.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking
Best Practices, Processes & Products
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Six Sigma
Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of IdahoCustomers are I ncreasingly D emanding
Customer expectationsare simple. They want more goods
and services at a lower cost, in ashorter time frame, with
more information!
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of IdahoCustomer E xpectation D ilemmaTime
Performance Gap
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking(A) The process of identifying and learning from best practices anywhere in
the world is a powerful tool in the quest for continuous improvement.
(B) The systematic process of searching for best practices, innovative ideas,and highly effective operating procedures that lead to superior performance.
Learning by borrowing from the best and adapting their approaches to fit your own needs is the essence of benchmarking. It has broad applications inproblem solving, planning, goal setting, process improvement, innovation,reengineering, and strategy setting. It is a fundamental business skill thatsupports quality excellence.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
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 G oal : Identification of best operating practicesW hen Implemented : 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.
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Six Sigma
Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of IdahoB est P ractices - the E nds
E nablers - the Means to the E nds
SOFT MEDIUM HARD
Training
Communication
E mpowerment
Attitude
ManagementInvolvement
Goals & Objectives
Sequence
Controls
Measures
Policies &Procedures
Plant
Suppliers
Money
Technology
E quipment
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarks & Benchmarking:Managing Change
Best Practices Benchmarking can 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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Six Sigma
Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of IdahoB enchmarking for B est P ractices
Metrics
Benchmarks
OperatingStatistics
Processes
Best Practices
Benchmarking
Practices
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Process BenchmarkingProcess benchmarking focuses on discrete work processesand operating systems, such as the customer complaintprocess, the order-and-fulfillment process, or the strategicplanning process.Process benchmarking seeks to identify the most effectiveoperating practices from many companies that perform
similar work functions. Its power lies in its ability to produce bottom-line results. If an organization improves a core process, for instance, it canthen quickly deliver process improvement
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Performance BenchmarkingPerformance benchmarking enables managers to assesstheir competitive positions through product and servicecomparisons.Performance benchmarking usually focuses on elementsof price, technical quality, ancillary product or servicefeatures, speed, reliability, and other performance
characteristics. Reverse engineering, direct product or service comparisons,and analysis of operating statistics are the primary techniquesapplied during performance benchmarking.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Strategic Benchmarking S trategic benchmarking examines how companies
compete and is seldom industry-focused. It roves acrossindustries seeking to identify the winning strategies that have enable high-performing companies to be successful in their marketplaces.
S trategic benchmarking influences the longer-termcompetitive patterns of a company. Consequently, thebenefits may accrue slowly.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
A pplications & BenefitsSetting & Refining Strategy;
Reengineering Work Processes & Business Systems;Continuous Improvement of Work Processes & BusinessSystems;Strategic Planning & Goal Setting;
Problem Solving;Education and Idea Enrichment;Market Performance Comparisons & Evaluations;Catalyst for Change.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Widely AcknowledgedBenchmarking Benefits
Improves organizational quality; Leads to lower cost positions; Creates buy-in for change; Exposes people to new ideas; Broadens the organizations operating perspective; Creates a culture open to new ideas; Serves as a catalyst for learning; Tests the rigor of internal operating targets; Creates an external business view; Raises the organizations level of maximum potential performance.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
B enchmarking
Code of Conduct
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
The B enchmarking Code of Conduct: Adopted by The Council on B enchmarking of
The Strategic Planning Institute
Successful Benchmarking Includes Personal Interaction, Openness,Sharing and the Transfer of Information.
Trust Between Benchmarking Parties is Fundamental.
To Respect the Rights and Prerogatives of Others and Reflect LegalConsiderations and Limitations, the Following Guidelines are
Suggested for any Benchmarking Interaction.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking:Legal & Ethical Guidelines
Ethics Principles, guidelines, or standards that determine a protocol of
interaction between individuals and organizations. Deal in a forthright & above board manner. Provide for a clear understanding of the intended use of information.
Consult your partner(s) should your intent change. Conduct benchmarking activities with integrity and in a professional
manner. Establish specific ground rules in advance, particularly when benchmarking with a competitor.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking:Legal & Ethical Guidelines
L egality Never misrepresent yourself or your organizations interest in a
benchmarking exchange. Treat information obtained from a benchmarking partner as
privileged. Identify all parties who will have access and the extent of that access.
Comply with antitrust laws; be aware of potentially sensitive issuesand consult with legal counsel if gathering procedure is in doubt,particularly if dealing with current or potential competitors.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Legality: Proprietary Information Any information (in tangible or intangible form) created, acquired or
controlled by the company that has not been published or released withoutrestriction of a type the company wishes to maintain confidential.Proprietary information includes various kinds of technical, information perSecurities & Exchange Commission requirements. Request and accept only the types and levels of information that you and
your organization are willing to share. Understand your and your partner organizations definitions, restrictions,
and controls on proprietary information. Respect the sensitivity of partner organizations in areas that you might
not consider proprietary. Seek prior understanding about what can be shared and / or how it
might be used. Consult legal counsel on restrictions or rights regarding proprietary
information.
Benchmarking : Legal & Ethical Guidelines
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
L egality: Intellectual Property Refers to the kind of property created from intellectual activities in the
industrial, scientific, literary, or artistic fields. It includes business andtechnical information (e.g. scientific works, inventions, industrial designs,computer programs) and the material that might lead to patents, copyrights,trademarks, service marks, and commercial names or designations. Know the internal organization source for any information that your
organization plans to provide in a benchmarking exchange. Understand the nature and value of your organizations intellectual
property. Respect the values of your benchmarking partner. Seek prior understanding about what can be shared and how it might be
used. Consult legal counsel on restrictions or rights regarding intellectual
property.
Benchmarking :Le al & Ethical Guidelines
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking :Legal & Ethical Guidelines
ConclusionK nowing the nature of the benchmarking topic, dealing ethicallyand legally, understanding information exchange latitudes, and
following the Benchmarking Code of Conduct
will contribute to a successful and mutually beneficial benchmarkinginterchange.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
PRINCIP L ES To contribute to efficient, effective and ethical benchmarking, individuals
agree for themselves and their organization to abide by the followingprinciples for benchmarking with other organizations:
LEGALITY: Avoid discussions or actions that might lead to or imply aninterest in restraint of trade: market or customer allocation schemes,price fixing, dealing arrangements, bid rigging, bribery, ormisappropriation. Do not discuss costs with competitors if costs are anelement of pricing.
EXCHANGE: Be willing to provide the same level of information that yourequest, in any benchmarking exchange.
The B enchmarking Code of Conduct: Adopted by The Council on B enchmarking of
The Strategic Planning Institute
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
PRINCIP L ES CONFIDENTIALITY: Treat benchmarking interchange as something confidential
to the individuals and organizations involved. Information obtained must not becommunicated outside the partnering organizations without prior consent of participating benchmarking partners. An organizations participation in a study should not be communicated externally without their permission.
USE: Use information obtained via benchmarking partnering only for the purpose of improvement of operations within the partnering companies themselves. Externaluse or communication of a benchmarking partners name with their data or observedpractices requires permission of that partner. Do not, as a consultant or client,extend one companys benchmarking study findings to another without the firstcompanys permission.
The B enchmarking Code of Conduct: Adopted by The Council on B enchmarking of
The Strategic Planning Institute
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
PRINCIP L ES FIRST PARTY CONTACT: Initiate contacts, whenever possible, through a
benchmarking contact designated by the partner company. Obtain mutualagreement with the contact on any hand off of communication orresponsibility to other parties.
THIRD PARTY CONTACT: Obtain an individuals permission beforeproviding their name in response to a contact request.
PREPARATION: Demonstrate commitment to the efficiency andeffectiveness of the benchmarking process with adequate preparation ateach process step; particularly at initial partnering contact.
The B enchmarking Code of Conduct: Adopted by The Council on B enchmarking of the Strategic Planning Institute
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
The B enchmarking Code of Conduct: Adopted by The Council on B enchmarking of
The Strategic Planning Institute
Remember 1. Keep it legal; 2. Be willing to give what you get; 3. Respect confidentiality; 4. Keep information internal; 5. Use benchmarking contacts; 6. Dont refer without permission; 7. Be prepared at initial contact.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Etiquette & Ethics In actions between benchmarking partners, the emphasis is on openness andtrust. The following guidelines apply to both partners in a benchmarkingencounter. In benchmarking with competitors, establish specific ground rules up
front, e.g. We dont want to talk about those things that will give eitherof us a competitive advantage, rather, we want to see where we both canmutually improve or gain benefit.
Do not ask competitors for sensitive data or cause the benchmarkingpartner to feel that sensitive data must be provided to keep the process
going. Use an ethical third party to assemble and blind competitive data, withinputs from legal counsel, for direct competitor comparisons.
The B enchmarking Code of Conduct: Adopted by The Council on B enchmarking of
The Strategic Planning Institute
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Etiquette & Ethics Consult with legal counsel if any information gathering procedure is
in doubt, e.g., before contacting any direct competitor. Any information obtained from a benchmarking partner should be
treated as internal, privileged information. DO NOT:
Disparage a competitors business or operations to a third party. Attempt to limit competition or gain business through the
benchmarking relationship. Misrepresent oneself as working for another employer.
The B enchmarking Code of Conduct: Adopted by The Council on B enchmarking of
The Strategic Planning Institute
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking Exchange Protocol As the benchmarking process proceeds to the exchange of information,
benchmarkers are expected to: Know and abide by The Benchmarking Code of Conduct. Have basic knowledge of benchmarking and follow a benchmarking process. Have determined what to benchmark, identified key performance variables,
recognized superior performing companies, and completed a rigorous self-assessment .
Have developed a questionnaire and interview guide, and will share these inadvance if requested.
Have the authority to share information. Work through a specified host and mutually agree on scheduling and
meeting arrangements.
The B enchmarking Code of Conduct: Adopted by The Council on B enchmarking of
The Strategic Planning Institute
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking Exchange Protocol:Guidelines for Face-to-Face Site Visits
Provide meeting agenda in advance. Be professional, honest, courteous, and prompt. Introduce all attendees and explain why they are present. Adhere to the agenda: maintain focus on benchmarking issues. Use language that is universal, not ones own jargon. Do not share proprietary information without prior approval, from the proper
authority, of both parties. Share information about your process, if asked, and consider sharing study results. Offer to set up a reciprocal visit. Conclude meetings and visits on schedule. Thank the benchmarking partner for the time and for the sharing.
The B enchmarking Code of Conduct: Adopted by The Council on B enchmarking of
The Strategic Planning Institute
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarks & Performance Measurement
Revolutions begin long before they are officially declared.For several years, senior executives in a broad range of industries
have been rethinking how to measure the performance of their businesses.
At the heart of this revolution lies a radical decision: to shift fromtreating financial figures as the foundation for performance
measurement to treating them as one among a broader set of measures.
Professor Robert Eccles, Harvard Business School
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
B enchmarking W hys & H ows Benchmarking represents a versatile process management tool thathelps organizations identify and understand what constitutes bestoperating practices.
Benchmarks are the operating statistics or measures that define theachievement level of any given practice or system.
These are not in and of themselves enough since they provide no insight into the root causes of performance differences.
A flexible set of benchmarks reflects full process or systemcapabilities. Performance indicators may include dimensions such ascost, productivity, cycle time, yields, error rates, waste and turnover.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
R ange of BenchmarksF OCUS Benchmark Levels Type Improvement
Benefit
STRATE G IC 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 5%-20%* Customer Satisfaction N orm 4
* Output : Standard 3--Products & Services
PROCESS Best-in-Company 2 Internal 5%* Practices & Capability* Inputs:
-- Material/Supplier Baseline
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Lessons from Active Benchmarkers. Do not strive to benchmark everything at best-in-country or best-in- world levels :
No company can be best in every function -- focus on processes and practices of strategicimportance.
2. Seek best-in-class benchmarks for core processes and functions of the highest strategic importance : the Pareto Principle wins again. Other benchmarks can come fromlevels 2 through 5. World and country leadership benchmarks require greater time, resourcesand effort to develop.
3. Seek internal, regional, or industry benchmarks for secondary and support processes : for some processes and business activities that are not critical to theorganizations strategic advantage, internal, regional or competitive benchmarks may be mostappropriate. Such benchmarks produce incremental improvements that are substantial -- evenif not radical or breakthrough in terms of the size of the expected improvement benefits.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Benchmarking Architecture
Performance Measures
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Six Sigma
Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of IdahoD ashboard of N ew P erformance M easures
C apital Expenditures
C osts
P rofitability
C ashflow
Sales Liabilities
Assets
Debt
Quality CustomerRetention
Training
CustomerSatisfaction
DefectRates
CycleTime
ReferralRates
EmployeeRetention
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Designing Successful Benchmarks:Effective Performance Benchmarks Reflect the Most Important
Operating Dimensions of a Business Process, System, or Function.
M EASUREMENT F OCUS
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 diverges from designated standards, or where
variation above and below standards is greatest.
M EASUREMENT P ERSPECTIVE Leading indicators foreshadow or anticipate future system outcomes. Leading indicators are
thus proactive or preventative. Lagging indicators such as traditional financial measures are reactive or descriptive of the
actual results of a system or process in a given time period. Traditional companies employ lagging indicators whilehigh-performance companies embrace
both types since leading indicators intervene upstream .
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
M EASUREMENT CONTRO L People are always the principal factor affecting the degree of measurement control.
Managers fail at performance improvement when they evaluate individual or system performance using benchmark measures that are uncontrollable by the peopleoverseeing the process.
Therefore benchmarks that are designed for performance improvement must be crafted to reflect the individual level of authority, responsibility, and skills of those peopleexpected to work with the benchmarks.
D ATA COLL ECTION
After defining performance measures, managers must be able to readily collect the datafrom which performance benchmarks are constructed. Many organizations develop interesting performance measures only to discover that they
currently do not collect the required information and do not have the resources to do so. The best performance benchmarks can be collected without excessive investment of
time, systems, staff, or capital.
Designing Successful Benchmarks
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
A Benchmark Design A rchitectureThe first step in designing a performance benchmark system is to create measures that will enable managementto achieve the organizations strategic objectives.
The second step in designing a benchmark architecturerequires managers to create an agreed upon vocabularydescribing performance measurement in your organization.
The third step is to develop plans to collect , process , andanalyze the performance measures.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Customer-Service Performance Measures:The Best Customer-Related Measures Come from Objective and
Valid Data Collected Directly from CustomersCustomer-service performance measures typically probe organizationalperformance 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 of How Clearly Your Organization Communicates CostInformation & How Well the Organization Suggests Customer SolutionsCustomer 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 YourOrganization;The Value Customers Place on Your Organizations Products & Services.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Product / ServicePerformance Measures
Product & Service Performance BenchmarksInclude 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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Six Sigma
Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Business ProcessPerformance Measures
A simple process analysis model can help identify your organizations mostimportant workflows. This model reveals that all work can be viewed in
four sequential stages:1. I nputs (including those from both employees & suppliers);
2. P rocesses (including internal operations & support services);3. Outputs (your organizations products, services, and documentation); and
4. Customer Satisfaction.
In the following graphic ( the input-output process model ) we begin with inputs that can be tangible (such as supplies, raw materials, and component products) or intangible(such as information) which are delivered to the work process, which transforms theminto some final output which might be a product or service. The goal of the output is to
create satisfied and loyal customers.
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Six Sigma
Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of IdahoInput-Output Process Model
Products
Services
Documentation
Results
Design of Products/Services
Production of Products
Performanceof Services
Delivery of Products/Services
People
Raw Materials
Components
CustomerRequirements
Capital
CustomerNeeds
Satisfied
CustomerProblems
Solved
CustomerRequirements
Met
Inputs Processing Outputs Customers
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Common Performance Measures of theInput-Out Process Analysis Model
* Enhanced customer value - often observed through added product features or reduced costs;
* Production costs, frequently described as cost per 100, 1000 or million;* Responsiveness and / or process cycle time;
* Defect, error, waste, problem, or failure rates, often formatted asdefects per 1000 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 accident rates,employee absentee rates, regulatory citations, or litigation rates.
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Six Sigma
Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of IdahoExamples of K ey Business Processes
IBM Xerox British TelecomMarketing 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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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Support Processes / ServicesPerformance Measures
Support services are activities and operations that enable your organizations core production and delivery processes.
They include functions such as finance, software services,
marketing, public relations, information services,purchasing, legal services, and facilities management.
Examples for various areas follow.
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Six Sigma
Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Performance Measure ExamplesA ccountingPercentage of Late Payments
Time to Respond to
Customer Requests Number of Billing E rrors
Number of Payroll E rrors
PurchasingPurchase Order E rrors
Downtime Due to Shortages
E xcess Inventory
Cycle Time (from start of purchase to receipt in-house)
Information Services Number of E rrors / Code Line
Percent of Reports Received
on Schedule Number of Rewrites
Number of E rrors Found After System Accepted by Customer
Product EngineeringProject Completion Cycle Times
E ngineering Changes/ Document
Number of E rrors Found DuringDesign Review
Number of E rrors Found inDesign E valuation
Quality ControlPercentage of Lots Rejectedin E rror
Number of E ngineering ChangesDetected After Design Review
E rrors in Reports
Cycle Time for Corrective Action
MarketingAccuracy of ForecastAssumptions
Number of IncorrectOrder E ntries
Overstocked Field Supplies
Contact E rrors
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Technology & Innovation RelatedPerformance Measures
Technology-related measures reflect the productivity, deployment,and effective use of computers and other technology in anorganization.
Measure range broadly from processing speeds, deploymentpercentages, network down time and error rates.
In turn, innovation-related performance indicators reflect issues suchas product development times, employees suggestion rates, new product sales as a percent of total sales, and process improvementrates.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
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 manageon-going supplier performance .
Supplier performance metrics often include measures of cost,quality, reliability, speed or responsiveness, agreed-upon servicelevels, and product specifications .
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Cost Performance MeasuresCost performance measures are broad and flexible. They include
balance sheet liability requirements and information drawn from cost
centers throughout the organization.Companies can develop useful benchmarks by producing cost ratiosfor specific products, services, organizational units, processing steps,inputs, and labor.
A mortgage company, for instance, might use such measures as costper loan application, cost per loan processing,human resources costper loan, data processing costs per 100 bills, and service cost per loan.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Financial Performance MeasuresFinancial measure include performance indicators required by stock exchanges, security analysts, public accounting firms, regulatory agencies, and other organizations that may oversee reportingstandards in your organizations industry.
Many of these measures make up the items on income statements, balance sheets, and cash flow statements, including measures suchas revenue, gross profit, operating income, net income, earning pershare, long-term debt, book value, cash flow, debt/equity ratio, days/ receivables ratio, current ratio, and so on.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Six Sigma Strategy and Methods
The B alanced Scorecard
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
TheB alancedScorecard
The Balanced Scorecard (Kaplan & Norton) manages performancemeasurements through an integrated system. This combines both financialand operational measures into an integrated system of performanceindicators. This assumes that no single measure is sufficient for managingall companies at all times. It combines at least four perspectives:
Financial Perspective : If we succeed, how will we look to ourshareholders?Customer View : To achieve our vision, how must we look to ourcustomers?Internal Operating Perspective : To delight our customers, what
management processes must we excel at?Innovation & L earning Perspective : To achieve our vision, how mustthe organization continuously learn, improve, and create value?
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
The B alanced Scorecard:Financial Perspective
There are three fundamental dimensions, each of whichmay include many types of financial measures:
Profitability Growth Shareholder Value
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
The B alanced Scorecard:Internal Operations Perspective
I nternal perspective examines those business processes andoperations that most directly influence customer satisfaction. Oftenincluded are the three dimensions of: Internal Cycle Time -- which may track specific process steps. Quality -- which may include simple defect measures or may pick
up sophisticated metrics such as first-pass yield rates. Productivity -- reflects employee skills, effectiveness, andmotivation, especially as they are evidenced in employees output perperson, per day, or per hour.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
The B alanced Scorecard:Innovation & Learning Perspective
Innovation & Learning include three primary dimensions: Market Innovation - this records new product & service introduction rates. Continuous Operational L earning & Improvement -records the rate at
which individuals & organizations learn. Intellectual Assets - These are among the most valuable and most intangible
resources available in any organization. Companies are developing measures thatevaluate skills deployment, training effectiveness, employee involvement levels,employee suggestion rates, cross-functional activity levels, and experiencesharing.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
B enchmarking Critical Success Factors
A dopt, A dapt, and A dvance : A well-designedperformance measurement and benchmark system isessential, 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 of time,
funding, and useful equipment.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Selected
B enchmarking Processes
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
The B ristol-Myers & B axter International Seven-Step B enchmarking Process
1. Determine which function(s) to benchmark;2. Identify key performance variables to measure;3. Identify the best-in-class companies;4. Measure performance of best-in-class companies;5. Measure your own performance;6. Specify programs and actions to meet and surpass;7. Implement and monitor results.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
T he M otorola F ive- S tep B enchmarking P rocess
1. Decide what to benchmark;2. Find companies to benchmark;3. Gather data;
4. Analyze data & integrate results into action plans;5. Recalibrate & recycle the process.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
T he X erox 12-S tep B enchmarking P rocess Phase 1: Planning 1. Identify what to benchmark; 2. Identify comparative companies; 3. Determine data collection method & collect data.
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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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
T he X erox 12-S tep B enchmarking P rocess (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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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
The AT&T Nine-Step B enchmarking Process1. Identify what to benchmark;2 . Develop a benchmarking plan;3 . Choose a data collections method;4 . Collect data;5 . Choose best-in-class companies;6 . Collect data during a site visit;7. Compare processes, identify gaps, and
develop recommendations;8. Implement recommendations;9. Recalibrate benchmarks.
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
A G eneric B enchmarking P rocess:The Simple, Consensus Model
From the Strategic Planning Institutes (SPI) Councilon Benchmarking has developed the following model:1. Launch2. Organize
3. Reach Out4. Assimilate5. Act
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
B enchmarking R esources & T oolset
Resources : Time Investment:
Team Leader: 20%-25% over seven monthsTeam Members: 15% over seven months
Financial Investment:Travel: 4 on-site visits* 5 members * $1,500 visit = $30,000 People: $60/hour Research: $125 to $250 / hour * 8 hours = $1,000 - $2,000 Consulting: $1,500-$3,500 /day * ( 4-10)days = $6,000-$35,000
Toolset :Voice of the Customer Hoshin Planning S toryboardsS even S trategic Tools S even M&P Tools Team BuildingValue Delivery S ystem Process Mapping
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
Attributes of B enchmarking Studies:Success vs. Failure Success Failure
Process Owner InvolvementCustomer 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 ApproachIncremental / No Change
Keep Going and Going and ..
A la carte Program
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Client, Enterprise & Competitive Intelligence for Product, Process & Systems InnovationDr. Rick L. Edgeman, University of Idaho
M anagements B enchmarking C hallenge Commit required resources to key projects; Provide focused training / facilitation to project
participants;
Proactively manage the direction and momentum of benchmarking within the organization;
Create visibility of the benchmarking process; Recognize benchmarking team efforts.
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IXS IGMA SDEPARTMENT OF STATISTICS
End of Session