banchmarking stm m-4

8/2/2019 BanchMarking STM M-4

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CUSTOMER&COMPETITIVEINTELLIGENCE FORPRODUCT, PROCESS, SYSTEMS & ENTERPRISE EXCELLENCE

Module 4Strategic Management

Faculty

Krupa Joshi

BENCHMARKING CONSIDERATIONS


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Benchmarking

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

become the best of the best.

How is benchmarking used?

Compare performance of an existing process against othercompanies best-in-class practices

Determine how those companies achieve their performance

levels

Improve your own internal performance levels

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


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Benchmarking

Best Practices, Processes & Products


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Benchmarks & Benchmarking:Ideas & 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

WhenImplemented: Produces superior performance.

Benchmarking: is the actual process of investigation and discovery

that emphasizes the operating procedures as the things of greatestinterest and value.

Benchmarks: are measurements to gauge the performance of a

function, operation, or business relative to others.


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Customer Expectation Dilemma

Time

PerformanceGap


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Types of BenchmarkingCompetitive Benchmarking

Functional Benchmarking

Internal Benchmarking

Product Benchmarking

Process Benchmarking

Best Practices Benchmarking

Strategic Benchmarking

Parameter Benchmarking


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Competitive

Industry leaders Top performers with

similar operatingcharacteristics

Functional

Top performers

regardless of industry Aggressive innovators

utilizing newtechnology

Internal

Top performerswithin company

Top facilitieswithin company

Best PracticeOverlap

Benchmarking Methodology


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Checklist1. Identify Process to Benchmark

Select process and define defect andopportunities

Measure current process capability and establishgoals

Understand detailed process that needsimprovement


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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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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 documentsto organization


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4. Visit the Organization

Feel comfortable with and confident about

your homework Foster the right atmosphere to maximize

results

Conclude in thanking organization and ensurefollow-up if necessary


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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 andmove into Improve phase


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6. Retain and Communicate

Report out to business management and 6

leaders

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

Enter information on benchmarking projectdatabase


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Library Database Internal Reviews

Internal Publications Professional Associations

Industry Publications Special Industry Reports

Functional Trade Publications Seminars

Industry Data Firms Industry Experts

University Sources Company Watches

Newspapers Advertisements

Newsletters Original Research

Customer Feedback Supplier Feedback

Telephone Surveys Inquiry Service

Networks World Wide Web

Sources of Information


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Benchmarking CompliancePolicy 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 togather information

Information requests a request should be made only forinformation your organization would be willing to share with another company

Sensitive / proprietary information avoid directbenchmarking of sensitive or proprietary information

Confidentialitytreat all information as confidential


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Benchmarking Compliance

Avoiding inappropriate communication andcontacts with competitors.

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

Keep communications with competitors to aminimum make sure there is a legitimate businessreason for all such communications


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Benchmarking

(A) The process of identifying and learning from best practicesanywhere 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 broadapplications 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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Best Practices

Enablers - the Means to the Ends

SOFT MEDIUM HARD

Training

Communication

Empowerment

Attitude

Management

Involvement

Goals&Objectives

Sequence

Controls

Measures

Policies &

Procedures

Plant

Suppliers

Money

Technology

Equipment


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Benchmarks & Benchmarking:

Managing Change

Best Practices Benchmarkingcan be described as the processof seeking out and studying the best internal and external practices thatproduce 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 andoperating systems, such as the customer complaint process, the

order-and-fulfillment process, or the strategic planning process.

Process benchmarking seeks to identify the most effectiveoperating practices from many companies that perform similarwork functions.

Its power lies in its ability to produce bottom-line results. If anorganization improves a core process, for instance, it can thenquickly deliver process improvement


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Performance Benchmarking

Performancebenchmarking enables managers to assesstheir competitive positions through product and service

comparisons.

Performancebenchmarking usually focuses on elements

of price, technical quality, ancillary product or service

features, speed, reliability, and other performance

characteristics.

Reverse engineering, direct product or servicecomparisons, 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 successfulin their marketplaces.

Strategic benchmarking influences the longer-term

competitive patterns of a company. Consequently, thebenefits may accrue slowly.


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Benchmarking

Code of Conduct


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Benchmarking Whys & How's

Benchmarking represents a versatile process management tool that

helps organizations identify and understand what constitutes bestoperating 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 noinsightinto the root causes of performance differences.

A flexible set of benchmarks reflects full process or systemcapabilities. Performance indicators may include dimensions such

as cost, productivity, cycle time, yields, error rates, waste and

turnover.


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Range of BenchmarksFOCUS 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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Dashboard of New Performance

CapitalExpenditures

Costs

Profitability

Cashflow

SalesLiabilities

Assets

Debt

QualityCustomerRetention

Training

CustomerSatisfaction

DefectRates

CycleTime

Referral

Rates

EmployeeRetention


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Designing Successful Benchmarks:Effective Performance Benchmarks Reflect the Most Important Operating Dimensions

of a Business Process, System, or Function.

MEASUREMENTFOCUS Determine where in a work area or process that value for the customer is created;

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

and

Target benchmarks in areas where performance diverges from designatedstandards, or where variation above and below standards is greatest.

MEASUREMENTPERSPECTIVE Leading indicators foreshadow or anticipate future system outcomes. Leading

indicators are thusproactive

orpreventative

. 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-performancecompanies embrace both types since leading indicators intervene

upstream.


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MEASUREMENT CONTROL People are always the principal factor affecting the degree of measurement control.Managers fail at performance improvement when they evaluate individual or systemperformance using benchmark measures that are uncontrollable by the peopleoverseeing the process.

Therefore benchmarks that are designed for performance improvement must becrafted to reflect the individual level of authority, responsibility, and skills of thosepeople expected to work with the benchmarks.

DATACOLLECTION 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 thatthey currently do not collect the required information and do not have the resourcesto do so.

The best performance benchmarks can be collected without excessive investment oftime, systems, staff, or capital.

Designing Successful Benchmarks


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A Benchmark Design Architecture

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

The second step in designing a benchmarkarchitecture requires managers to create anagreed upon vocabulary describing 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 Architecture:Ten Generic Benchmark CategoriesCustomer-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.

Customer-Service Performance Measures:


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

Collected Directly from Customers

Customer-service performance measures typically probeorganizational 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 & HowWell the OrganizationSuggestsCustomer Solutions Customer Appraisals of Delivery Timeliness;

Customer Impressions About the Usefulness of Your Organizations Product &

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

Organization;

The Value Customers Place on Your Organizations Products & Services.

c / v c


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Product/Service

Performance 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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Business Process Performance Measures

A simple process analysis model can help identify your organizationsmost 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 componentproducts) or intangible (such as information) which are delivered to the

workprocess, which transforms them into some final output which might

be a product or service. The goal of the output is to create satisfied and

loyalcustomers.


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Input-Output Process Model

Products

Services

Documentation

Results

Design ofProducts/Services

Production of

ProductsPerformance

of Services

Delivery ofProducts/

Services

People

Raw Materials

Components

CustomerRequirements

Capital

CustomerNeeds

Satisfied

CustomerProblemsSolved

CustomerRequirements

Met

Inputs Processing Outputs Customers


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Common Performance Measures of theInput-Output Process Analysis Model

Enhanced customer value - often observed through added productfeatures or reduced costs;

Production costs, frequently described as cost per hundred, thousand, ormillion;

Responsiveness and/or process cycle time;

Defect, error, waste, problem, or failure rates, often formatted as defectsper 1000 or million output units;

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

Public safety and / or legal responsibilities, sometimes observed inaccident rates, employee absentee rates, regulatory citations, or litigationrates.


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Examples of Key Business Processes

IBM Xerox BritishTelecomMarketing Information Capture;

Marketing Selection;

Requirements;

Hardware/Software Development;

Service Development;

Production;

Customer Fulfillment/ Relationship;

Service Customer Feedback;

Marketing;

Solution Integration;

Financial Analysis;

Plan Integration;

Accounting;

Human Resources

IT Infrastructure

Customer Engagement;

Inventory Mgt. & Logistics;

Product Design / Engineering;

Product Maintenance;

Technology Maintenance;

Production & Operations Mgt.

Marketing Management;

Supplier Management;

Information Management;

Business Management;

Human Resources Management;

Leased & Capital Asset Mgt.

Legal;

Financial Management.

Direct Business;

Plan Business;

Develop Processes;

Manage Process Operations;

Provide Personnel Support;

Market Products & Services;

Provide Customer Service;

Manage Products & Services;

Provide Consultancy Services;

Plan the Network;

Operate the Network;

Provide Support Services;

Manage Information Resource;

Manage Finance;

Provide Technical R&D


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Support Processes / Services Performance MeasuresSupport 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, legalservices, and facilities management.

Examples for various areas follow:

AccountingPercentage of Late Payments

Time to Respond to

Customer Requests

Number of Billing Errors

Number of Payroll Errors

Information ServicesNumber of Errors / Code Line

Percent of Reports Received

on Schedule

Number of Rewrites

Number of Errors Found After

System Accepted by Customer

MarketingAccuracy of Forecast

Assumptions

Number of Incorrect

Order Entries

Overstocked Field Supplies

Contact Errors

PurchasingPurchase Order Errors

Downtime Due to Shortages

Excess Inventory

Cycle Time (from start of

purchase to receipt in-house)

Product EngineeringProject Completion Cycle Times

Engineering Changes/ Document

Number of Errors Found During

Design Review

Number of Errors Found in

Design Evaluation

Quality ControlPercentage of Lots Rejected

in Error

Number of Engineering Changes

Detected After Design Review

Errors in Reports

Cycle Time for Corrective Action


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Employee Performance MeasuresEmployee Performance Benchmarks Cover a WideRange 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 MeasuresTechnology-related measures reflect the productivity,deployment, and effective use of computers and othertechnology in an organization.

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

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


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Supplier Performance MeasuresSupplier performance measures help an organization

qualify or certify the vendors with which it will work.

These benchmarks then help the organization monitor

and manage on-going supplier performance.

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

upon service levels, and product specifications.


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Cost Performance Measures

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

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

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


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

your organizations industry.

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

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

Benchmarking


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Benchmarking

Critical Success Factors

Adopt, Adapt, and Advance: A well-designedperformance measurement and benchmark systemis essential, but there are other critical success

factors:

Senior management support;

Benchmarking training for the project team;

Useful information technology systems; Cultural practices that encourage learning;

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


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A Generic Benchmarking Process:

The Simple, Consensus Model

From the Strategic Planning Institutes (SPI)Council on Benchmarking has developed the

following model:

1. Launch

2. Organize

3. Reach Out4. Assimilate

5. Act


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Attributes of Benchmarking Studies:

Success vs. FailureSuccess Failure

Process Owner Involvement

Customer Driven Objectives

Linked to Strategic Plan

Best Practices & Enablers

Consider Cultural Attributes

Disciplined Methodology

Quantum Change

Clear Project Life Cycle

Integrated with ExistingQuality Efforts

Sponsorship Uncertain

Amorphous Objectives

No Strategic Integration

Performance Metrics Only

Hard Data Only

Arbitrary / Casual Approach

Incremental / No 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 projectparticipants;

Proactively manage the direction and momentum ofbenchmarking within the organization;

Create visibility of the benchmarking process;

Recognize benchmarking team efforts.

banchmarking stm m-4

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