ONSIDERATIONS

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B
ENCHMARKING
C
ONSIDERATIONS
CUSTOMER COMPETITIVE INTELLIGENCE FOR PRODUCT,
PROCESS, SYSTEMS ENTERPRISE EXCELLENCE
DEPARTMENT OF STATISTICS
REDGEMAN_at_UIDAHO.EDU
OFFICE 1-208-885-4410
DR. RICK EDGEMAN, PROFESSOR CHAIR SIX SIGMA
BLACK BELT
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Expectations
Performance Gap
Performance
Continuous Improvement
Time
Customer Expectation Dilemma
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Benchmarking

• Benchmarking is the process of continually
  searching for the best methods, practices and
  processes, and either adopting or 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 other companies best-in-class practices
• Determine how those companies achieve their
  performance levels
• Improve internal performance levels

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Types of Benchmarking
Competitive Benchmarking Functional
Benchmarking Internal Benchmarking Product
Benchmarking Process Benchmarking Best Practices
Benchmarking Strategic Benchmarking Parameter
Benchmarking
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Benchmarking Methodology
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Benchmarking Methodology
Checklist
1. Identify Process to Benchmark

• Select process and define defect and
  opportunities
• Measure current process capability and establish
  goals
• Understand detailed process that needs improvement

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Benchmarking Methodology
2. 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 Methodology
3. 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 documents
  to organization

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Benchmarking Methodology
4. Visit the Organization

• Feel comfortable with and confident about your
  homework
• Foster the right atmosphere to maximize results
• Conclude in thanking organization and ensure
  follow-up if necessary

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Benchmarking Methodology
5. 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 and move
  into Improve phase

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Benchmarking Methodology
6. Retain and Communicate

• Report out to business management and 6s leaders
• Post findings and/or visit report on local
  server/6s bulletin board
• Enter information on benchmarking project
  database

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Sources of Information
Library Database Internal Reviews Internal
Publications Professional Associations Industry
Publications Special Industry Reports Functional
Trade Publications Seminars Industry Data
Firms Industry Experts University
Sources Company Watches Newspapers Advertisemen
ts Newsletters Original Research Customer
Feedback Supplier Feedback Telephone
Surveys Inquiry Service Networks World Wide Web
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• Policy regarding benchmarking protocol should be
  communicated to all employees involved, prior to
  contacting external organizations. Guidelines
  should address the following areas
• Misrepresentation do not misrepresent your
  identity in order to gather 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

Benchmarking Compliance
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Benchmarking Compliance

• Avoiding inappropriate communication and
  contacts with competitors.
• Never propose, enter, or engage in a
  discussion related 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 a
  minimum make sure there is a legitimate
  business 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
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 in
problem solving, planning, goal setting, process
improvement, innovation, reengineering, and
strategy setting. It is a fundamental business
skill that supports quality excellence.
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Benchmarks BenchmarkingIdeas Definitions

• Benchmarking is the on-going search for best
  practices that produce superior performance when
  adapted and implemented in ones own
  organization.
• Emphasis On-going outreach activity
• Goal Identification of best operating practices
• When Implemented Produces superior performance.
• Benchmarking is the actual process of
  investigation and discovery that emphasizes 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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Enablers - the Means to the Ends
SOFT
MEDIUM
HARD
Training Communication Empowerment Attitude Ma
nagement Involvement
Goals Objectives Sequence Controls Measures
Policies Procedures
Plant Suppliers Money Technology Equipment
Best Practices - the Ends
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Benchmarks BenchmarkingManaging Change

• Best Practices Benchmarking can be described as
  the process of seeking out and studying the best
  internal and external 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

• Process benchmarking focuses on discrete work
  processes and operating systems, such as the
  customer complaint process, the
  order-and-fulfillment process, or the strategic
  planning process.
• Process benchmarking seeks to identify the most
  effective operating 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 can then quickly
  deliver process improvement

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Performance Benchmarking

• Performance benchmarking enables managers to
  assess their competitive positions through
  product and service comparisons.
• Performance benchmarking usually focuses on
  elements of price, technical quality, ancillary
  product or service features, speed, reliability,
  and other performance characteristics.
• Reverse engineering, direct product or service
  comparisons, and analysis of operating statistics
  are the primary techniques applied during
  performance benchmarking.

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Strategic Benchmarking

• Strategic benchmarking examines how companies
  compete and is seldom industry-focused. It roves
  across industries seeking to identify the winning
  strategies that have enable high-performing
  companies to be successful in their marketplaces.
• Strategic benchmarking influences the longer-term
  competitive patterns of a company. Consequently,
  the benefits may accrue slowly.

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Benchmarking Code of Conduct
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Benchmarking Whys Hows

• Benchmarking represents a versatile process
  management tool 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
  they provide no insight into the root causes of
  performance differences.
• A flexible set of benchmarks reflects full
  process or system capabilities. Performance
  indicators may include dimensions such as cost,
  productivity, cycle time, yields, error rates,
  waste and turnover.

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Range of Benchmarks
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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Cycle Time
Cashflow
Customer Satisfaction
Debt
Profitability
Training
Costs
Capital Expenditures
Employee Retention
Assets
Quality
Referral Rates
Customer Retention
Liabilities
Sales
Defect Rates
Dashboard of New Performance Measures
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Designing Successful BenchmarksEffective
Performance Benchmarks Reflect the Most Important
Operating Dimensions of a Business Process,
System, or Function.

• MEASUREMENT FOCUS
• 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.
• MEASUREMENT PERSPECTIVE
• 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
  while high-performance companies embrace both
  types since leading indicators intervene upstream.

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Designing Successful Benchmarks

• MEASUREMENT CONTROL
• 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 people
  overseeing 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 people
  expected to work with the benchmarks.
• DATA COLLECTION
• After defining performance measures, managers
  must be able to readily collect the data from
  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.

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A Benchmark Design Architecture

• The first step in designing a performance
  benchmark system is to create measures that will
  enable management to achieve the organizations
  strategic objectives.
• The second step in designing a benchmark
  architecture requires managers to create an
  agreed upon vocabulary describing performance
  measurement in your organization.
• The third step is to develop plans to collect,
  process, and analyze the performance measures.

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Designing a Benchmark ArchitectureTen Generic
Benchmark Categories

• 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 MeasuresThe Best
Customer-Related Measures Come from Objective and
Valid Data Collected Directly from Customers

• Customer-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 of How Clearly Your Organization
  Communicates Cost Information How Well the
  Organization Suggests Customer 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 Measures
Product 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 model reveals 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) 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 them into 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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Inputs Processing Outputs Customers
Products Services Documentation Results
Design of Products/ Services Production of
Products Performance of Services Delivery
of Products/ Services
People Raw Materials Components Customer Requir
ements Capital
Customer Needs Satisfied Customer Problems Solved
Customer Requirements Met
Input-Output Process Model
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Common Performance Measures of theInput-Output
Process Analysis Model

• Enhanced 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 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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IBM Xerox British
Telecom
Marketing Information Capture Marketing
Selection Requirements Hardware/Software
Development Service Development Production C
ustomer 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 Supplie
r 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 RD
Examples of Key Business Processes
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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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Performance Measure Examples
Marketing Accuracy of Forecast Assumptions Number
of Incorrect Order Entries Overstocked Field
Supplies Contact Errors
Accounting Percentage of Late Payments Time to
Respond to Customer Requests Number of Billing
Errors Number of Payroll Errors
Information Services Number of Errors / Code
Line Percent of Reports Received on
Schedule Number of Rewrites Number of Errors
Found After System Accepted by Customer
Purchasing Purchase Order Errors Downtime Due to
Shortages Excess Inventory Cycle Time (from
start of purchase to receipt in-house)
Quality Control Percentage of Lots Rejected in
Error Number of Engineering Changes Detected
After Design Review Errors in Reports Cycle
Time for Corrective Action
Product Engineering Project Completion Cycle
Times Engineering Changes/ Document Number of
Errors Found During Design Review Number of
Errors Found in Design Evaluation
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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 Employee
Recognition Employee Recruitment Employee
Absenteeism Employee Turnover Employee
Grievances Employee Safety/Accidents Employee
Involvement Employee Morale Employee
Performance 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 other technology in an
organization. Measure range broadly from
processing speeds, deployment percentages,
network down time and error rates. In turn,
innovation-related performance indicators reflect
issues such as product development times,
employees suggestion rates, new product sales
as a percent of total sales, and process
improvement rates.
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Supplier Performance Measures
Supplier 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 of cost, 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.
They include balance sheet liability requirements
and information drawn from cost centers
throughout the organization. Companies can
develop useful benchmarks by producing cost
ratios for specific products, services,
organizational units, processing steps, inputs,
and labor. A mortgage company, for instance,
might use such measures as cost per loan
application, cost per loan processing,human
resources cost per loan, data processing costs
per 100 bills, and service cost per loan.
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Financial Performance Measures
Financial measure include performance indicators
required by stock exchanges, security analysts,
public accounting firms, regulatory agencies, and
other organizations that may oversee reporting
standards in your organizations industry. Many
of these measures make up the items on income
statements, 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 Factors

• Adopt, 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 of
  time, funding, and useful equipment.

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Selected Benchmarking Processes
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A Generic Benchmarking ProcessThe Simple,
Consensus Model

• From the Strategic Planning Institutes (SPI)
  Council on Benchmarking has developed the
  following model
• 1. Launch
• 2. Organize
• 3. Reach Out
• 4. Assimilate
• 5. Act

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Xerox 12-Step Benchmarking Process

• 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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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 of Benchmarking StudiesSuccess vs.
Failure
Success 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
Existing Quality Efforts
Sponsorship Uncertain Amorphous Objectives No
Strategic Integration Performance Metrics
Only Hard Data Only Arbitrary / Casual
Approach Incremental / No Change Keep Going and
Going and .. A la carte Program
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Managements Benchmarking Challenge

• 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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B
ENCHMARKING
C
ONSIDERATIONS
End of Session
DEPARTMENT OF STATISTICS
REDGEMAN_at_UIDAHO.EDU
OFFICE 1-208-885-4410
DR. RICK EDGEMAN, PROFESSOR CHAIR SIX SIGMA
BLACK BELT