Table of contents

Introduction 2

Benchmarking Defined 3

Reason to Benchmark 4

Process 5

Deciding What to Benchmark 8

Understanding Current Performance 10

Learning from the Data 11

Using the Findings 12

The Benchmarking Methodology 14

Baldrige Criteria for Performance Excellence 16

Developing Spider Charts 17

Conclusion 19

References 20

1

Benchmarking

Introduction

Benchmarking is a tool for continuous improvement. IT is a systematic method

by which organizations can measure themselves against the best industry

practices. It promotes superior performance by providing an organized

framework through which organizations lean how the "best in class" do things,

understand how the best practices differ from their own, and implement change

to close the gap. The essence of benchmarking is the process of borrowing

ideas and adapting them to gain competitive advantage. Benchmarking is an

increasingly popular tool. It is used extensively by both manufacturing and

service organizations, including Xerox. AT. Motorola, Ford, and Toyota.

Benchmarking is a common element of quality standards, such as the Chrysler,

Ford, and General Motors Quality System Requirements. These standards

stipulate that quality goals and objectives be based on competitive products and

benchmarking, both inside and outside the automotive industry. The Malcolm

Bladrige National Quality Award similarly requires that applicants benchmark

external organizations.

D.T. Kearns, former CEO of Xerox, states, “Benchmarking is the continuous

systematic process of measuring products, services, and practices of companies

that are recognized as industry leaders for the purpose of achieving superior

performance.” Gregory J. Balm of IBM has a similar definition:

“(Benchmarking is) the ongoing activity of comparing one’s own process,

product, or service against the best known similar activity, so that challenging

but attainable goals can be set and a realistic course of action implemented to

efficiently become and remain best of the best in a reasonable time.”

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Benchmarking Defined

Benchmarking is not new and indeed has been around for a long time.

Benchmarking is the systematic search for best practices. Innovative ideas and

highly effective operating procedures. Benchmarking considers the experience

of others and us it. Indeed, it is the common-sense proposition to learn from

others what they do right and then imitate it to avoid reinventing the wheel.

As benchmarking measures performance against that best-in-class

organizations, determines how the best in class achieve those performance

levels, and uses the information as the basis for adaptive creativity and

breakthrough performance in the definition of benchmarking are two key

elements First, measuring performance requires some sort of units of measure

These are called metrics and are usually expressed numerically. The numbers

achieved by the best-in-class benchmark are the target. An organization seeking

improvement then plots its own perform-against the target. Second

benchmarking requires that managers understand why their performance

differs. Benchmarking must develop a thorough and in-depth know ledge both

their own processes and the process of the best-in-class organization.

Benchmarking involves continuously evaluating the practices of best-in-class

organizations and adapting company processes to incorporate the best of these

practices. Webster’s (unabridged) Dictionary defines benchmarking as: “A

standard or point of reference in measuring or judging” According to Robert

Camp: “Benchmarking is the search for industry best practices that lead to

superior performance.”

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Reason to Benchmark:

Improve profits and effectiveness

Accelerate and manage change

Set stretch goals

Achieve breakthroughs or innovations

Create a sense of urgency

Overcome complacency or arrogance

See from a new perspective

Make improvements to address Baldrige National Quality Program

criteria

Benchmarking is a tool to achieve business competitive objectives. It is not a

panacea that can replace all other quality efforts or management processes.

Organizations must still decide which markets to serve and determine the

strengths that will enable them to gain competitive advantage Benchmarking is

one tool to help organizations develop those strengths and reduce weaknesses.

By definition, benchmarking requires an external orientation, which is critical

in world were the competitor can easily be on the other side of the globe. An

external out-look greatly reduces the chance of being caught unaware by

competition. Benchmarking can notify the organization if it has fallen behind

the competition or failed to take advantage of important operating

improvements developed elsewhere. In short, benchmarking can inspire

managers (and organizations) to compete.

In contrast to the traditional method of extrapolating next year's goal from last

year’s performance, benchmarking allows goals to be set objectively, based on

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external information. When personnel are aware of the external information,

they are usually much more motivated to attain the goals and objectives. In

addition, it is hard to argue that an objective is impossible when it can be

shown that another organization has already achieved it. Benchmarking is time

and cost efficient because the process involves imitation and adaptation rather

than pure invention Benchmarking partners provide a working model of an

improved process, which reduces some of the planning, testing, and prototyping

effort. As the old saying goes, Why reinvent the wheel" The primary weakness

of benchmarking however, is the fact that best-in-class performance is a moving

target. For example, new technology can create quantum leap performance

improvements, such as the use of electronic data interchange (EDI).

Automobile makers no longer use paper to purchase parts from suppliers. A

computer tracks inventory and transmits orders directly to a supplier's

computers. The supplier delivers the goods, and payment is electronically

transmitted to the supplier's bank. Wal-Mart uses bar-code scanners and

satellite data transmission to restock its stores, often in a matter of hours. These

applications of EDI save tens of thousands of worker hours and whole forests of

trees, as well as helping to meet customer requirements. For functions that are

critical to the business mission, organizations must continue to innovate as well

as imitate. Benchmarking enhances innovation by requiring organizations to

constantly scan the external environment and to use the information obtained to

improve the process. Potentially useful technological breakthroughs can be

located and adopted early.

Process

Organizations that benchmark, adapt the process to best fit their own needs and

culture. Although the number of steps in the process may vary from

organization to organization, the following six steps contain the core

techniques.

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1. Decide what to benchmark.

2. Understand current performance.

3. Plan

4. Study others.

5. Learn from the data

Approaches to Benchmarklog

AT&T's 12-Step Process

1. Determine who the clients are who will use the information to improve their

processes

2. Advance the clients from the literacy stage to the champion stage.

3. Test the environment Make sure the clients can and will follow through with

benchmarking findings.

4. Determine urgency. Panic or disinterest indicate little chance for success.

5. Determine scope and type of benchmarking needed.

6. Select and prepare the team.

7. Overlay the benchmarking process onto the business planning process.

8. Develop the benchmarking plan.

9. Analyze the data.

10. Integrate the recommended actions.

11. Take action.

12 Continue improvement.

Xerox's 10-Step Process

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1. Identify what is to be benchmarked

2. Identify comparative organizations.

3. Determine data-collection method and collect data.

4. Determine current performance gap.

5. Project future performance levels.

6. Communicate benchmark findings and gain acceptance.

7. Establish functional goals.

8. Develop action plans.

9. Implement specific actions and monitor progress.

10. Recalibrate benchmarks

The above steps illustrate how AT&T and Xerox have adapted benchmarking to

their own needs. AT&T, in its first six slept, explicitly incorporates training and

makes sure that personnel using benchmarking result to improve their

processes buy into the program.

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Fig 1: Spider Dagram

National Statistics data Crown copyright and database NHS UK 2012

Deciding What to Benchmark:

Benchmarking can be applied to virtually any business or production process.

Improvement to best-in-class levels in some areas will contribute greatly to

market and financial success, whereas improvement in other areas win have no

significant impact. Most organizations have a strategy that defines how the firm

wants to position itself and compete in the marketplace. This strategy is usually

expressed in terms of mission and vision statements. Supporting these

statements is a set of critical activities, which the organization must do

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successfully to realize its vision. They are often referred to as critical success

factors. Critical processes are usually made of a number of sub-processes. In

general, when deciding what to benchmark, it is best to begin by thinking about

the mission and critical success factors. For example, take the case of two

insurance organizations. The chairperson of the first expresses the

organization's vision as becoming the "easiest in the industry to do business

with." He wants to sell customers all their insurance needs by emphasizing

speed of writing policies and an outstanding level of customer service. Critical

success factors in this case could include a 24-hour. 800 number service, fast

payment of claims, database systems that can relate information on all policies

held by each customer, and reduced cycle time. Benchmarking customer service

processes would have a substantial impact on the vision. The chairperson of the

second organization admits that his organization is only an average performer

in terms of customer service but intends to reduce the cost of insurance through

excellent investment performance. Because today's premiums are invested to

pay tomorrow's claims, higher earnings from investments would allow the

organization to charge less. The critical success factors for this firm could

include hiring and training good financial,' managers, using

telecommunications to track and act on developments in global money markets,

development of online real-time information systems Benchmarking investment

processes would be appropriate in this case. Some other questions that can be

raised to decide high impact areas to benchmark are:

I. Which process, are causing the moo trouble?

2. Which processes contribute most to customer satisfaction and which are not

performing up to expectation?

3. What are the competitive pressures impacting the organization the most?

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4. What processes or functions have the most potential for differentiating our

organization from the competition?

Understanding Current Performance:

To compare practices to outside benchmarks, it is first necessary to thoroughly

understand, and document the current process. It is essential that the

organization's performance is well understood. Several techniques, such as flow

diagrams and cause-and-effect diagrams, and understanding. Attention must be

paid to inputs and outputs. Careful questioning is necessary to identify

circumstances that result in exceptions to the normal routine. Exceptions

commonly consume a good deal of the process resources. However, process

participants may not think to mention them during interviews. Those working in

the process know the most about it and are the most capable of identifying and

correcting problems. The benchmarking team should be comprised of those who

own or work in the process to ensure suggested changes are actually

implemented.

Planning:

Once internal processes are understood and documented, it is possible to make

decisions about how to conduct the study. If not already selected, a

benchmarking team should be chosen. The team should decide what type of

benchmarking to perform, what type of data are to be collected, and the method

of collection. Organizations that are candidates to serve as the benchmark need

to be identified. Finally, timetables should be agreed upon for each of the

Benchmarking tasks and the desired output from the study.

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Fig 2: benchmark phases - Activities

Institute of Management Accountants, Montvale, NJ 07645-1760 www.imanet.org

Learning from the Data

Learning from the data collected in a benchmarking study involves answering a

series of questions:

Is there a gap between the organization's performance and the performance of

the best-in-class organizations?

What is the gap? How much is it?

Why is there a gap?

What does the best-in-class do differently that is better?

If best-in-class practices were adopted, what would be the resulting

improvement?

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Benchmarking studies can reveal three different outcomes. External processes

may be significant, better than internal processes (a negative gap). Process

performance may be approximately equal (parity). Or the internal process may

be better than that found in external organizations (positive gap). Negative

gaps call for a major improvement effort. Parity requires further investigation

to determine if improvement opportunities exist. It may be that when the process

is broken down into sub-processes, some aspects are superior and represent

significant improvement Opportunities. Finally, the finding of a positive gap

should result in recognition for the internal process. There are at least two

ways to prove that one practice is superior to another. If the process being

compared are clearly understood and adequate performance measures are

available, the practices can be analyzed quantitatively. Summary measures and

ratios. such as activity costs, recant on assets, detect rates, or customer

satisfaction levels, can be calculated and compared. It is fairly simple to

determine superior practices, as the numbers speak for themselves, provided

relevant measures are used. A second way to prove superiority is through

market analysis. Consumers of products and services vote with their

checkbooks.

Using the Findings:

When a benchmarking study reveals a negative gap in performance, the

objective is to change the process to close the gap. Benchmarking is a waste of

time if change does not occur as a result. To effect change, the findings must be

communicated to the people within the organization who can enable

Improvement. The findings must translate and action plans must be developed

to implement new processes. Two groups must agree on the change. The first

group consists of the people who will run the process, the process owners The

second group consists of the people, usually upper management, who can

enable the process by incorporating changes into the planning process and

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providing the necessary resources. Process owners may be inclined to

disbelieve or discount the findings, particularly if the gap is large. Therefore, it

is important to completely describe how the results were obtained from the

external organizations studied. Of course current practices can't generate best-

in-class results, but changing the process can. Process changes are likely to

affect upstream and downstream operations as well as suppliers and customers.

Therefore, senior management has to know the basis for and payoff of nets

goals and objectives in order to support the change. As discussed in the

previous section. changes in business practices and in organizational and

operational structure may be indicated. These changes have to be considered

and incorporated into the strategic planning process Because findings are

objective, the benchmarking process helps make the case to both groups. The

effect of change can be predicted quantitatively and the process fully described.

When acceptance is gained, new goals and objectives are set based on the

benchmark findings Exactly how this happens depends on the individual

organization's planning process. The generic- steps for the development and

execution of action plans are:

1. Specify tasks

2. Sequence tasks.

3. Determine resources needs.

4. Establish task schedule

5. Assign responsibility for each task.

6. Describe expected results.

7. Specify methods for monitoring results.

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The Benchmarking Methodology:

A number of analytical tools could be used to identify effective policies for

advancing on the four micro-drivers of growth. Here, a three-step benchmarking

approach compares country performance and highlights important policy areas,

based on an assumption that good performance follows from good policies.

Quantitative data and qualitative information are combined to select benchmark

countries for the four micro-drivers and to assess similarities in their business

environments. Their policy approaches are then reviewed in more detail to

pinpoint effective measures which might inform the policies of other countries.

The full technical report for the project explains the methodology, data sources,

analyses and best practice policies in detail (OECD, 2005d).

In the first step, a benchmark is defined for each driver. The benchmark refers

to the group of countries with outstanding performance considering a

combination of driver-related performance indicators. The benchmark score in

therefore an indication of the average performance of the best countries (the

benchmark countries) on the particular driver.

In the second step, the business environment for each growth driver is defined.

This refers to a mix of market, business and policy areas considered relevant for

the respective driver. Most aspects can be quantified, but qualitative information

is also used to judge relative characteristics of the business environment, which

is a product of both structural factors and policy actions. Some indicators

measure inputs that are not directly controlled by public policy, e.g. availability

of digital content or access to capital for new firms, but these dimensions are

likely to be indirectly affected by government policies. Other indicators are a

direct quantification of government policies, e.g. government equity capital,

timeframes included in bankruptcy legislation. The environment countries are

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among the outstanding performers on each individual business and policy area

related to the growth driver. As such, this group may change from indicator to

indicator. One may think about the area spanned by the environment as the best

possible score, on average, among the OECD countries. (Camp, 1989)

Malcolm Baldrige National Quality Award

The Malcolm Baldrige National Quality Award recognizes U.S. organizations

in the business, health care, education, and nonprofit sectors for performance

excellence. The Baldrige Award is the only formal recognition of the

performance excellence of both public and private U.S. organizations given by

the President of the United States. It is administered by the Baldrige

Performance Excellence Program, which is based at and managed by the

National Institute of Standards and Technology, an agency of the U.S.

Department of Commerce. Up to 18 awards may be given annually across six

eligibility categories—manufacturing, service, small business, education, health

care, and nonprofit. As of 2013, 102 awards have been presented to 96

organizations (including six repeat winners).

The Baldrige National Quality Program and the associated award were

established by the Malcolm Baldrige National Quality Improvement Act of

1987 (Public Law 100–107). The program and award were named for Malcolm

Baldrige, who served as United States Secretary of Commerce during the

Reagan administration, from 1981 until Baldrige’s 1987 death in a rodeo

accident. In 2010, the program's name was changed to the Baldrige Performance

Excellence Program to reflect the evolution of the field of quality from a focus

on product, service, and customer quality to a broader, strategic focus on overall

organizational quality—called performance excellence.[2]

The award promotes awareness of performance excellence as an increasingly

important element in competitiveness. It also promotes the sharing of successful

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performance strategies and the benefits derived from using these strategies. To

receive a Baldrige Award, an organization must have a role-model

organizational management system that ensures continuous improvement in

delivering products and/or services, demonstrates efficient and effective

operations, and provides a way of engaging and responding to customers and

other stakeholders. The award is not given for specific products or services.

(Malcolm Baldrige, 2014)

Baldrige Criteria for Performance Excellence

The Baldrige Criteria for Performance Excellence serve two main purposes:

(1) To help organizations assess their improvement efforts, diagnose their

overall performance management system, and identify their strengths and

opportunities for improvement.

(2) To identify Baldrige Award recipients that will serve as role models for

other organizations. In addition, the Criteria help strengthen U.S.

competitiveness by

improving organizational performance practices, capabilities, and results

facilitating communication and sharing of information on best practices

among U.S. organizations of all types

serving as a tool for understanding and managing performance and for

guiding planning and opportunities for learning

The Baldrige Criteria for Performance Excellence provide organizations with an

integrated approach to performance management that results in

delivery of ever-improving value to customers and stakeholders,

contributing to organizational sustainability

improved organizational effectiveness and capabilities

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organizational and personal learning

Fig 3: quality system status

Developing Spider Charts

1. Identify the alternatives to be compared

Spider Charts could be used to compare:

Potential Projects

Performance of Vendors

Employee Performance

No more than 5 alternatives should be compared using Spider

Charts.

2. Generate criteria to rate each alternative

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Projects can be rated based on risk, return, initial cost, or any other

criteria

At least three criteria must be used, more may be helpful, but more

than seven may be too complex

3. Rate each alternative based on criteria.

4. Draw and label the axis arms of the chart (one arm for each criterion)

5. Draw and label each alternative’s ratings on the chart, connecting

between arms.

6. Analyze the chart. (Dau, 2008).

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Conclusion:

Benchmarking, if applied properly, is a powerful tool with which to keep an

organization competitive. The tools and techniques described in this

SMA enable an organization to effectively benchmark and transform

themselves to meet the challenges of today's competitive environment.

The organizations that understand, embrace, and implement benchmarking and

the related tools and techniques will be able to celebrate the turn of the

millennium.

Benchmarking illustrates the usefulness of the radar chart approach for

comparing national labor market performance: 1) The radar charts provide a

highly intuitive synoptic overview of national performance on multiple

performance measures and changes over time and can also be used, for

example, to compare the performance profiles of several countries; 2) The

surface measure of overall performance (SMOP). There are, however, a number

of theoretical and practical issues in applying a benchmarking approach that

should be taken into consideration both in interpreting these findings and in

future benchmarking work in the context of the European employment strategy.

An initial problem is the need to select a limited number of performance

dimensions for analysis from the large number of potential candidates

mentioned in the employment guidelines. The substitution of other indicators

that are equally plausible in terms of the European employment strategy (e.g.

promotion of self-employment or integration of handicapped persons) might

lead to somewhat different comparative results. Moreover, the quantitative

indicators actually used are inevitably only approximations because of the

institutional and cultural diversity in the employment systems compared, and

the qualitative dimensions of indicators (e.g. of employment) are neglected due

to the lack of agreed measures. Finally, benchmarking requires the specification

of quantitative goals.

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References:

1- Besterfield, Dale H. Total Quality |Management, 3rd edition, 2011

2- Dau, Frithjof, Conceptual Spider Diagrams, University of Brighton, UK,

2008.

3- P.-G. Pettersen, B. Andersen, Benchmarking Handbook,Springer, 1995.

4- Malcolm Baldrige National Quality Award

http://www.baldrigepe.org/

5- Camp, Robert C., Benchmarking: The Search for Industry Best Practices that

Lead to Superior Performance, 1989.

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