So far we have talked about benchmarking but we really have not defined it. A formal definition, then, is that benchmarking is a systematic, continual (ongoing) management process used to improve products, services, or management processes by focusing on and analyzing the best of the best practices, by direct competitors or any other companies, to determine standards of performance and how to achieve those standards, to provide least cost, quality or differentiation, in the eye of the customer.
Key words in this definition are systematic and ongoing, which imply that in order to have a successful benchmarking one must be familiar with the Kano model, Shewhart-Deming cycle, and principle of Kaizen improvement. This systematic and ongoing pursuit of excellence is applicable to all aspects of business and in all methodologies including the six sigma. It is an integral part of the strategic, operational, and quality planning process. It is not an end in itself.
Benchmarking identifies the best of class and determines standards of excellence based on the market ” considering both customers and competitors. It is a challenge with a solution. It provides the what and how. (A narrow focus on what you want to get done ” a results orientation that controls performance with a carrot and a stick ” is not effective without a broader focus on how best to do it ” a process orientation that identifies the process changes that need to be made in order for the results to be achieved consistently.)
Benchmarking is a creative imitation because part of its goal setting process that encourages the development of proactive plans is the action to bring about change. To do that, of course, analysis is required to determine all of the factors necessary for a solution to work, as appropriate and applicable to a given organization. In addition, it is necessary to project the future performance of the competition to set improvement goals. Otherwise, a company is always playing catch-up. Some of the key factors in this analysis are:
People/culture/compensation
Process/procedure
Facilities/systems
Material
Benchmarking is not:
A way to cut costs or headcount, necessarily
A quick fix or a panacea
A cookbook approach
Rather, it is a methodology that is an integral part of the management process and provides the organization with many benefits including but not limited to:
Identifying the specific action plans required to achieve success in company growth and profitability
Assessing objectively strengths and weaknesses versus competition and the best in class
Improving quality as perceived by the customer (The customer can be external to the company or the next department in the company.)
Determining goals objectively and realistically based on the actual achievements of others
Providing a vision of what can be accomplished in terms of both what and how
Providing hard, reliable data as a basis for performance improvement
Causing people to think creatively and to look at proactive alternative solutions to a problem
Promoting an opportunity for personal and corporate growth, learning, and development
Raising the company level of awareness of the outside world and of customer needs
Stimulating change ” "Others are doing this, why can't/shouldn't we?"
Identifying all of the factors required to get a job done
Promoting an in-depth analysis and quantification of operations and management processes
Encouraging teamwork and communication within an organization
Creating an awareness of problems and stimulating change
Documenting the fact that a good job is being done and that you are the best in class
Allowing a company to leapfrog competition by looking outside of an industry
Changing the rules of the game by breaking with the traditions of an industry
The benchmarking process can differ from company to company. However, the ten-step process below is generally followed.
Benchmark planning and prioritization
Identification of benchmarking alternatives
Prioritization of the benchmarking alternatives
Benchmark data collection
Identification of the benchmarking sources
Benchmarking performance and process analysis ” company operations
What do we do?
What is the process?
What are the resource inputs?
What are the outputs?
What is the resource cost per unit of output?
What are the limitations?
What are possible changes?
Benchmarking performance and process analysis ” partner's operations
Benchmark implementation
Gap analysis
Goal setting
Action plan identification and implementation
Benchmark monitoring and control
Monitor company performance and action plan milestones
Identify the new "best in class"
Benchmarking can be performed for any product, service, or process. Different classification schemes have been suggested. For example, Xerox classifies benchmarking in the following categories:
Internal benchmarking
Direct product competitor benchmarks
Functional benchmarking ” This is a comparison with the best of the best even if from a different industry.
Generic benchmarking ” This is an extension of functional benchmarking. It requires the ability to creatively imitate any process or activity to meet a specific need. For example, the technique used for high speed checking of paper currency (into the categories of good, mutilated, or counterfeit) by a bank could be adapted for high speed identification and sorting of packages in a warehouse.
ATT, on the other hand, uses the classification indicated below. Specific examples of benchmarking studies for each are shown. These are not limited to ATT examples:
Task
Invoicing
Order entry
Invoice design
Customer satisfaction
Supplier evaluation
Flow charting
Accounts payable
Functional
Promotion by banks
Purchasing
Advertising by media type
Pricing strategy
Safety
Security
Management process
PIMS par report
Profit margin/asset turnover
Strategic planning
Operational planning
Capital project approval process
Technology assessment
Research and development (R and D) project selection
Innovation
Training
Time-based competition
Benchmarking
Self-managed teams
Operations process
Warehouse operations
Make versus buy
Another classification of benchmarking projects is by:
Function ” sales and marketing
Process ” missionary selling
Activity ” cold calling
Task ” preparation of target list
Still another classification is in terms of:
Overall financial performance
Department or functional benchmarking
Cost benchmarking
Ad hoc benchmarking studies can be helpful and productive. However, many companies are attempting to institutionalize benchmarking as part of the business planning and six sigma process.
The business planning process consists of strategic planning followed by operational planning. Both phases require the development of functional area plans. However, the time periods considered , the alternatives of interest, and the level of detail are very different. The general flow of the planning process is:
What should we do?
Situation analysis performed to determine critical success factors, strengths, weaknesses, opportunities, and threats
Mission development
Statement of objectives and goals
How should we to do it?
Strategy determination
Tactics identified
Action plans specified
What are the expected results?
Budgets and financial projections
How did we do?
Monitoring and control
Who should get rewarded?
Performance evaluation and compensation
Benchmarking is often an integral part of the situation analysis. It can also have a major impact on the mission statement, the goals, the strategy, the tactics, and the identification and determination of action plans. Benchmarking can provide major guidance when determining what to do, how to do it, and what can be expected.
Benchmarking for strategic planning might concentrate on the determination of the critical success factors for an industry (based on customer and competitive inputs) and identifying what has to be done to be the success factors. This then leads to the development of detailed action plan with effort and result goals. Benchmarking for operational planning might concentrate on the cost and cost structure for each functional area relative to the outputs produced.
All quality initiatives ” including six sigma ” have a significant influence on the mission statement and the objectives and goals of an organization. As such, they can provide an added impetus to do benchmarking to satisfy the quality goals. Benchmarking can be centralized (ATT) or decentralized (Xerox). Xerox has several functional area benchmarking specialists, including specialists for finance, administration, marketing, and manufacturing. The big advantage of a decentralized approach is a greater likelihood of organizational buying of the final results of the benchmarking study. The effort required to perform a benchmarking study can vary significantly. For example, the L.L. Beam study performed by Xerox took one person year of effort. Generally, three to six companies are included in the benchmark. However, some companies use only one or two. Also, some studies are performed in depth, while others are fairly casual. The "One Idea Club" was a simple approach with a substantial reward.
All initiatives have requirements for success. Benchmarking is no different. Some of these requirements are:
Management vision and support to ensure the conditions necessary for the success of the strategy ” people, money, time.
Goal-focused management with a customer/competitive focus on continuously improved quality
Performance- or results-based compensation
Action plan prioritization and focus
Defined roles and responsibilities for a multidisciplinary approach
Defined organizational approach ” central versus decentralized
Integration with other management processes
Ability to maintain focus on the continuous improvement of hundreds of small items a little bit at a time
Willingness to deal with the conflict caused by a lack of goal congruity and the need to share scarce resources and to make tough decisions
Tolerance to deal with the ambiguity of results as research is conducted to determine when, where, and how to improve operations
Openness to learn and to change; results can affect organization structure, allocation of resources, corporate culture, and individual work assignments
Use of the scientific method: hypothesis formation, data collection, testing, and learning
Humility and the willingness to admit weakness and the possibility for improvement
Identification of the impediments to change and the development of a plan for change
Patience and resources to perform the analytical studies and to complete the required documentation
Long- term commitment to achieving results
Flexibility and discipline to implement the required changes
Communication of intent and approach, findings, concerns, and apprehensions
Training and total employee involvement, empowerment, and teamwork
A process that starts slow, showcases, and picks up speed as experience and confidence are gained
Market segmentation focus and a defined corporate strategy
It sounds good. But does benchmarking work? Let us see what the SAS Airlines did, as an example.
When Jan Carlzon took over as president of Scandinavian Airlines (SAS) in 1980, the company was losing money. For several previous years , management had dealt with this problem by cutting costs. After all, this was a commodity business. Carlzon saw this as the wrong solution. In his view, the company needed to find new ways to compete and build its revenue. SAS had been pursuing all travelers with no focus on superior advantage to offer to anyone . In fact, it was seen as one of the least punctual carriers in Europe. Competition had increased so much that Carlzon had to figure out:
Who are the customers?
What are their needs?
What must we do to win their preference?
Carlzon decided that the answer was to focus SAS's services on frequently flying business people and their needs. He recognized that other airlines were thinking the same way. They were offering business class and free drinks and other amenities. SAS had to find a way to do this better if it was to be the preferred airline of the frequent business traveler .
The starting point was market research to find out what frequent business travelers wanted and expected in the way of airline service. Carlzon's goal was to be one percent better in 100 details rather than 100 percent better in only one detail.
The market research showed that the number one priority was on-time arrival. Business travelers also wanted to check in fast and be able to retrieve their luggage fast. Carlzon appointed dozens of task forces to come up with ideas for improving these and other services. They came back with ideas for hundreds of projects, of which 150 were selected with an implementation cost of $40 million.
One of the key projects was to train a total customer orientation into all of SAS's personnel. Carlzon figured that the average passenger came into contact with five SAS employees on an average trip. Each interaction created a "moment of truth" about SAS. At that point of contact, the person was SAS. Given the 5 million passengers per year flying SAS, this amounted to 25 million moments of truth where the company either satisfied or dissatisfied its customer.
To create the right attitudes toward customers within the company, SAS sent 10,000 front line staff to service seminars for two days and 25,000 managers to three-week courses. Carlzon taught many of these courses himself. A major emphasis was getting people to value their own self-worth so that they could, in turn , treat the customer with respect and dignity . Every person was there to serve the customer or to serve someone who was serving the customer.
The results: Within four months, SAS achieved the record as the most punctual airline system in Europe, and it has maintained this record. Check-in systems are much faster, and they include a service where travelers who are staying at SAS hotels can have their luggage sent directly to the airport for loading on the plane. SAS does a much faster job of unloading luggage after landings as well. Another innovation is that SAS sells all tickets as business class unless the traveler wants economy class.
The company's improved reputation among business flyers led to an increase in its full fare traffic in Europe of 8 percent and its full fare intercontinental travel of 16 percent, quite an accomplishment considering the price cutting that was taking place and zero growth in the air travel market. Within a two-year period, the company became a profitable operation.
Carlzon's impact on SAS illustrates the customer satisfaction and profits that a corporate leader can achieve by creating a vision and target for the company that excites and gets all the personnel to swim in the same direction ” namely, toward satisfying the target customers. As a leader, Carlzon created the conditions necessary to ensure the success of the strategy by implementing the projects required for the front line people to do their jobs well.