Benchmarking | Six Sigma Fundamentals: A Complete Introduction to the System, Methods, and Tools

Benchmarking is a continuous, systematic process that uses metrics to find practices that will enable and direct real change, leading to best-in-class (BIC) performance. In addition, benchmarking is recognized as a proactive, positive, structured process that affords value to the company, its employees, customers and shareholders.

Benchmarking is a recurring process of defining critical success factors (CSFs), comparing CSFs with the toughest competitors or BIC performers and using comparison results to develop strategies and plans to change.

The objective of benchmarking is to make effective and verifiable changes that achieve BIC performance. Large improvements of up to 100% can be realized. If you have a specific problem, it may already have a solution. Find and apply the solution quickly and reduce the cycle time. Change is accepted more readily when benchmarking metrics prove that techniques, methods and processes are being used successfully in BIC organizations. Good leaders realize benchmarking is not a delegated process, but consider it an energizing learning event, especially when done as a team.

The expected results from applying successful benchmarking processes include:

Gaining valuable knowledge and insight to help appraise business decisions, strategic options and business opportunities that impact shareholder value.
Identifying the gaps between your performance and BIC organizations' performance. This result should support the organization's objective of comparing key business indicators to those of competitors and other non-competitive organizations. The comparison helps to determine the organization's position in the industry and marketplace.
Identifying ways to close these gaps through improved knowledge, process and practices that support the overall organizational strategy—fastest time to market and quickest implementation of new ideas in the industry.

A benchmarking process to close these gaps requires a combination of management, organization and employee allegiance—all critical to achieving the superior performance necessary for a true commitment to change. The benchmarking process and findings must be understood by the entire organization to obtain a commitment to change. Organized management support and careful communication are essential to successful benchmarking. Employee involvement is needed to smoothly implement the findings. These criteria lead to excellence and superior performance.

It is of paramount importance to recognize that BIC is not necessarily referring to your competitors. Rather, best-in-class achievement is defined as the reference metric that best describes the appropriate level of achievement for a project. Therefore, in benchmarking we may pursue the BIC in a variety of situations and sources, such as in:

Best-in-city.
Best-in-company.
Best-in-industry.
Best-in-country.
Best-in-world.

For benchmarking to be effective it must support the effort to compare the organization's key business indicators to those of competitors and BIC performers, and identify in-house performance by comparing business practices to best practices within the company and other organizations. Ultimately, to realize overall value, best practices and lessons learned must be shared continuously with others throughout the company.

Why would anybody use benchmarking? Because by learning from several BIC organizations and adding your own innovative ideas, it is possible to surpass the BIC performance. By using benchmarking, an organization may become more flexible, learn to use less to do more and become faster, more agile and more competitive. What better way to accomplish this strategy than by identifying and implementing the best practices within the company and those employed by BIC organizations? The benchmarking process is learning and doing things that other BIC organizations are already doing. There is nothing theoretical or futuristic here. Many of the answers you need are in another company, perhaps another industry. It is faster to find these proven solutions and add your innovative ideas than to reinvent. Therefore, the power of benchmarking is truly in the application and transfer of knowledge from other BIC organizations to your own.

In addition to the obvious benefits, benchmarking can also contribute to the following:

Achieving organizational objectives.
Establishing baseline measurements.
Meeting and exceeding competitor's strengths.
Bringing best practices into the company, quickly.
Stimulating and motivating learning from outside the company.
Breaking down barriers to change.

Benchmarking types

Different situations require different benchmarking processes to attain reliable results, best practices and a commitment for change from the team. The following benchmarking process types may be used individually or combined as necessary:

Process or generic benchmarking. This type of benchmarking focuses on:

Improving processes, practices, methods and techniques.
Improving organizational strategies that link projects to customer driven functionalities.
Improving value added improvements for a wide range of applications

Specialized benchmarking. The following types of benchmarking are used similarly to process benchmarking but each for a more specific objective:

Strategic benchmarking helps with strategic decisions (high level) as opposed to tactical decisions (lower level).
Functional benchmarking usually looks only within a specific function of an organization.
Competitive benchmarking is product- or process-focused, but only competitors are looked at. The emphasis here is on competitors and not process. For example, when an automobile company is looking at the preventive maintenance of Toyota, that company is interested only on the issues of preventive maintenance as they relate to Toyota and not necessarily to the BIC practices.
Performance benchmarking is usually comparing the product or service performance with that of its competitors.
Best practices benchmarking is similar to process benchmarking and is sometimes used synonymously, however it can add to process benchmarking a focus on management practices that allow for superior processes.
Internal benchmarking looks at other internal operations to find best-in-company practices.
Product benchmarking is a form of performance or competitive benchmarking that concentrates on product design evaluations and manufacturing and assembly methods.
Camera benchmarking uses photography (i.e., taking pictures of a process or product) to obtain product ideas and competitive information.

Benchmarking model

Benchmarking encourages systemic thinking by recognizing interdependencies and aspects of a process to attain BIC status. Benchmarking allows individuals and teams to identify the most critical things to change. Ultimately, it encourages new ideas and motivates people to take an innovative approach to business problems.

There are several models to follow. However, here we will only describe one of the most common models, known as the Motorola model. (Actually, the model was developed by DEC, Motorola, Boeing and XEROX.) The model has five phases, begins with deciding what to benchmark and concludes with the actual implementation of change.

Phase 1. Phase 1 answers the question, What to benchmark? This involves selecting a focused project and studying the current process or project. Phase 1 may take up to about 10 percent of the total time of the Motorola model. The steps to follow to achieve the goal of selecting a benchmarking topic are:

List the critical success factors.
Review the strategic plan (identify elements that support the organizational objectives in it).
Determine whether the team can link the CSFs to elements in the strategic plan.
Choose an area of strengths or weaknesses to focus on.
List the CSFs by priority.
Divide the highest priority CSFs into components and prioritize, if necessary.

At the end of this phase, the team should agree on a benchmarking topic.

Phase 2. This phase answers the question, "How do we do it?" It helps determine how best to benchmark whatever project was selected during Phase 1 by analyzing the internal process data. It may take up to 40 percent of the total project time and involves the following steps:

Identify the people who are critical to the benchmark process.
Get team agreement on definitions as they relate to the task at hand.
Contact people critical to the project.
Define the process for which benchmarking is being undertaken (through documentation, flowcharting and organizational mapping, etc.).
Define at least two different ways to quantify the internal data and break it down into smaller sections.
Normalize data (this allows the experimenter to compare different data on the same scale) and apply over time to make the data process dependent as opposed to time dependent.
Contact internal people to verify internal data.

At the end of this phase, the team should have agreed on how the process is defined—that is, how the benchmarking should be done.

Phase 3. Phase 3 answers the question, "Who is best?" This involves finding the BIC process and setting up learning partnerships with your benchmarking partner. It may take up to 15 percent of the total time. Corporate values are paramount, especially during this phase. You must be honest, ethical and open about your motives when selecting benchmarking partners using the following steps:

Create a list of criteria for selection of potential benchmark partners.
Select a pool of partner candidates.
Secure preliminary data.
Narrow candidate pool to between three to five candidates.

By the end of this phase, the team should have agreed on the selection of benchmark partners.

Phase 4. This phase answers the question, "How do they do it?" It determines why the performance of those chosen in Phase 3 is superior. This phase may take up to 15 percent of the total time; it compares our methods and practices against the BIC by taking the following steps:

Review the Dos and Don'ts and the legal considerations for information exchange.
Gather public information.
Create a partner profile.
Generate a list of questions to drive the benchmark project, using documentation.
As much as possible, answer all the questions with public information.
Determine methods needed to gather non-public information.
Create a project plan to gather information.
Get help—if needed to create tools.
Pilot the tools internally.
Create a contingency plan.
Gather data, debrief and finalize data gathering.
Normalize the BIC data to your process.
Identify the gap and calculate.

At the end of this phase, the team should have agreed on what enables the BIC to create and maintain the gap.

Phase 5. This phase involves analyzing the enablers, adding innovations, setting improvement goals and developing action plans to achieve them. This phase deals with the implementation of best practices discovered as a result of a benchmarking process. The strategy is to create and follow through on an action plan to close the gaps the benchmarking team identified. The time allotted for this phase is approximately 20 percent of the total time. It involves the following steps:

Define what has to be done, when it should be done (i.e., project timelines), and who has the authority and responsibility to carry out the action plan.
List the recommendations based on your findings. What do you recommend to improve your organization so that the differences are closed or even eliminated?
Select a method to close the gap.
Implement the action plan.
Measure the results.
Recalibrate—determine if the changes targeted in the action plan are taking place.
Determine whether partners are performing as predicted.
Determine whether there are new performers. When you get to this point you recycle—start again.

Another way to look at the deliverables of a typical benchmarking is shown in Table 4.1.

Table 4.1: Deliverables of the five-phase benchmarking model
Inputs	Outputs	Outputs	Outputs	Outputs	Outputs
Customer needs Strategic Information Internal/external data Market trends	Champion identified Project description Plan (title, purpose, scope, etc.) Critical success factors CSF rationale	Stakeholder list Terms/definitions List of processes Macro flow chart Process map Cross-functional map	Clients for selection List of BIC candidates Information collection plans Preliminary look at GAP (where are they and where are we?) List of partners (3 to 5)	Public data Partner Project plan to gather information Contingency plan Surveys Interview plan Letter of introduction Interview agenda Trip report List of best practices List of enablers Gap analysis	List of recommendations Benchmarking report Presentation plan Implementation plan Measured results Recognition Recalibate decisions
Phase 1	Phase 2	Phase 3	Phase 4	Phase 5	Phase 6

Benchmarking project partners

Here are some tips to help you convince a BIC organization to partner with you on a benchmarking project:

Find the person that can approve your request—large projects usually require a higher level of authorization.
Explain that they will learn by participating.
Offer an agreement that they can benchmark your company—reciprocity.
Let them know that you anticipate a long-term relationship because your companies have common interests.
Explain why this project is important to your company.
Take advantage of any connections between the companies, such as customers, suppliers, or subsidiaries.
List which disciplines you would anticipate being involved in and for how long.
Make sure that they know that you have a benchmarking process and that you will be considerate of their time—that you will be focused and surgical.
Confirm that they understand that you will act as project manager and provide to them all data collected from all the benchmarking partners during the project. This includes your own answers to any questions the partners are asked.
Verify that all the benchmarking partners being considered can work together—there might be competitive or other reasons why the BIC candidate list will have to be adjusted.