Benchmarking: Making Best Practices Your Daily Practice

1. Benchmarking:Making Best Practices Your Daily Practice James W. Cornell, President CBC, CTP, CM&A, CBA, CRA, CPP January 2005

2. Praxiis Business Advisors Our mission is to help private and corporate business owners create strategies for high performance & competitive dominance, drive value growth, and when ready devise and execute the most profitable exit through a predetermined succession plan or sale of the business.

4. Praxiis Business Advisors • Corporate Renewal, Growth & Transaction Advisors to Small and Mid-Market Businesses and their Stakeholders. • Established as Strategic Corporate Services in 1988. • Primary offices are in Western NY and services are delivered nationally. • Affiliated Professionals possess academic credentials including B.S. Business Management & Economics, Master of Business Administration, Ph.D. in various disciplines, Juris Doctor and numerous professional designations.

5. James W. (Jim) Cornell • Founder and President of Praxiis Business Advisors • 24 years as advisor to $1M - $4B Clients • Strategy, Turnarounds, Performance Improvement, Value Growth, Exit Planning, M&A, Government Contracting • Principal in numerous mid-market turnarounds, including • National security services firm • Internationally recognized manufacturer of engineered fabric structures • DOD and Industrial Paint & Coatings manufacturer • Lead advisor for successful turnaround of $50M DOJ Citizenship Benefits Processing program, & $1B+ major government contract wins (TVA, SPR) • BS, Business Management & Economics, and MBA from SUNY Empire State College • Governor, SUNY Empire State Federation Board of Governors • Faculty, SUNY Empire State College FORUM Program • Chair- Licensure Task Force Alliance of Merger and Acquisition Advisors

6. Benchmarking Defined • To measure the best practices of leading businesses, and learn and adapt them for use in your business • A systematic comparison of two or more companies or units of companies to gauge their performance relative to a peer

7. You Cant Improve What You Don’t Measure ! (and you can’t prove it to your customers either)

8. Where Did it Start? • Xerox Corporation 20 years ago • Canon was “eating their lunch” • Higher quality machines, lower price • Embarked on a systematic campaign • Reverse engineered products • Studied competitors • Studied a wide range of firms in other industries

9. A Discipline Emerged • Malcolm Baldrige National Quality Award incorporated it a a criterion • Many multi-step recipes emerged, all built around fundamentals.. • In “Benchmarking” by Camp, steps are • Planning • Analysis • Integration • Action • Maturity • American Productivity & Quality Center • Planning • Data collection • Analysis • Adapting & Improving

10. Two Types of Benchmarking • "Metrics" give numerical standards against which a client’s own processes can be compared. Metric benchmarks are of the form: • Finished-product first-pass yield of 97% • Scrap/rework less than 1% of sales • Cycle time less than 25 hours • Customer lead times less than 20 days • Productivity levels of $150,000 or more per employee • Plant-level ROA better than 15% • These metrics are usually determined via a detailed and carefully analyzed survey or interviews

11. It’ All About the Data!

13. Well, Maybe Not Always………

14. Two Types of Benchmarking • “Process Benchmarking" is generally higher-level and less numbers-intensive than metrics. • Demonstrate how top performing companies accomplish the specific process in question. • Takes form of research, surveys/interviews, and site visits. • By identifying how others perform the same functional task or objective, firms gain insight and ideas they may not otherwise achieve. • A true value-added feature of benchmarking • Benefits of process benchmarking are realized when pursuing a strategy of changed processes – making marked improvements in productivity, costs, and revenues

15. Best Practices • Tactics and strategies employed by highly regarded companies • Process benchmarking is particularly useful to develop BP, and our focus today • Fundamental tool for driving change in contemporary organizations

16. Why Benchmark? When done well, benchmarking prominently reveals gaps between the performance of the benchmarker and that of a “best practices” leader, and that leads to developing sustainable competitive advantage

17. Why Don’t More Businesses Do Traditional Multi-step Benchmarking? • Takes too long often six to nine months • Its costly • The lessons learned may or may not get translated to practice and improvement • Reports that get shelf space, not action • Cumbersome process to complete • Limits Flexibility - procedures oriented

18. Put Another Way….. “Its like the mating of pandas: infrequent, clumsy and often ineffective” Chris Bogan, President and CEO of Benchmarking and Consulting

19. How To Get It How To Evaluate It How to Use It

20. Creative Benchmarking* • Start from the customers point of view • List each step of the customers buying experience • Next, determine which factors most influence customers perception of value at each step • Finally, identify companies that excel at each factor – without regard to their industry! * (derived from the work of Dawn Iacobucci and Christie Nordhielm, Kellogg Graduate School of Management)

21. Entering, Occupying and Exiting a Hotel Room • Enter Lobby • Physical Environment • Functional, economical • Southwest Airlines, the Gap, Target, Sam’s Club • Attractive, luxurious • Virgin Atlantic, Lexus car dealerships • Greeting • Friendly, casual • Wal-Mart, Club Med • Cordial, professional • Nordstrom, Ritz-Carlton • Discrete • Alcoholics Anonymous

22. Entering, Occupying and Exiting a Hotel Room • Check-In • Fast efficient service, no lines • Express aisles in supermarkets, Hertz • Guaranteed maximum wait • Bennigans Lunch Express • Pleasant Queue experience using pagers • Cheesecake Factory • Bellboy Carries Luggage • Attentive Employees • Benihana Japanese Restaurants • Festive, informal impression • Carnival Cruise Lines, Southwest • Sedate, formal impression • Management consulting firms, Tiffany

23. Entering, Occupying and Exiting a Hotel Room • Use Shower • Good shower design • Professional sports teams • Reliable plumbing maintenance • SeaWorld • Get Advice on Restaurants • Intelligent agents who know restaurants • Electronic • Yahoo! • Employees • Travel agents • Agents who know their customers • Nordstrom

24. Entering, Occupying and Exiting a Hotel Room • Breakfast • Room service food arrives promptly, at appropriate temperature • Delivery pizzerias • Courteous delivery personnel • UPS • Check-out • Quick, seamless departure, TV checkout • Sega children’s games • Intuits TurboTax

25. Entering, Occupying and Exiting a Hotel Room • Other areas for hotels to look for best practices…. • Choose Hotel • Make Reservation • Travel to Hotel • Park Rental Car • Walk to Hotel • Go to Room • Look Around Room • Require Assistance of a hotel employee • Call Home • Use Business Equipment • Workout • Retrieve Car • Head to Airport • Follow-up

26. Fast-Cycle Benchmarking • Less elaborate than traditional multi-step • More tactical • What do concrete trucks and pizza have in common? • Useful to Identify specific operation problems or opportunities • Rather than simply copy from other firms, use the data to draw useful analogies and stimulate generation of creative ideas • Mobil and the Penske race team.. gas stations aren’t race teams, but the methods for quick turnaround led to the Speedpass

27. Figure Out What You Are Looking For • Replicate and bring it in, or • Look for practices that can spark ideas, don’t just replicate what you find • Figure out where benchmarking fits in your toolchest, and make an informed decision about the outcome you are really after

28. Benchmark Companies Roughly at Your Own Level • College physics before high school math doesn’t make any sense… • Forget the world class company (unless you are one!)..find a firm of similar size and situation as yours • Benchmark companies with similar business needs • Common concerns promote a more productive exchange or transportability of the information learned

29. Study the Entire System Rather Than One Technique • Avoid cursory, superficial looks • Mission statements, values and expectations of employees may be expressed as a document or pledge, but • The real value is in how the firm inculcates the meaning in employees, and how they put it to work in their daily practices • High performance systems only work when every single person in the organization is fully committed

30. When Benchmarking a System, Adapt What You Find, Don’t Just Copy It • Conditions are never identical • You can pick up critical variables and apply them … • Create a system – a comprehensive set of reinforcing practices that are responsible for success

31. Benchmark Subjective Measures and Qualities • Running a business today is far more of a creative process than in the past • Quantitative measures are useful, but not all encompassing • Using a creative process, benchmarking is a directional tool, not just a template

32. Remember Why You Are Doing This • Don’t get wrapped around the axle • Don’t confuse measures with actually delivering a result from the effort • Focus on the principles most applicable to your business • It is not an end in itself, it is but a means to an end

33. Step-by-Step - 1 • You are the Process Owner • Start by Working Alone • List key ideas and best practices you believe your organization should consider • Brainstorm • List and rate your ideas relative to your organizations mission and strategy • Identify timeframes within which each idea and practice could realistically be implemented

34. Step-by-Step - 2 • Share your analysis with other key members of your organization • Have them create similar lists and incorporate them into a master list • Discuss individual ratings • Develop consensus for importance and timing

35. Step-by-Step - 3 • Identify extended team members that are motivated • Work together to prepare list of top three ideas and best practices that should be implemented immediately • Identify key benefits expected to be gained from each • Develop the approach to be used to implement, problems expected, and how you will address them

36. Step-by-Step - 4 • As Group, list top 3 ideas and best practices that should be considered to implement in the next year • Identify and assign a key person to take the lead in analyzing implementation feasibility

37. Step-by-Step - 5 • Meet regularly as a team • Assess progress and identify new ideas • Discuss how to develop a culture of • Entrepreneurship • Innovation • Accountability • All to keep the creative energy flowing

38. Step-by-Step - 6 If the task seems too daunting engage a facilitator from outside the immediate organization to lead the process and establish accountabilities for the team

39. Pitfalls When Not Done Well • Failure to consider organizational cultures or circumstances leads to a wrong direction • Insufficient preparation usually results in MBWAA (management by wandering around aimlessly!) • What are you trying to learn about? • Why do you want to learn it? • What will you do with it to make your processes better once you have it?

40. Recognize You’re Not The Best • Not invented here • Humility and Determination is required to think outside the box • Utilize the best ideas of others to build upon

41. Processes can often be evaluated with numeric metrics

42. A What Without a How Can Do More Harm Than Good • The “hows” underlying the numbers are essential • They tell you if you are comparing “apples to apples” • They provide clues to how to alter methods to suit your culture or circumstance • They may reveal that a best-in-class measure isn’t cost effective, or that outsourcing may be in order

43. Measure What’s Needed, Not What’s Easy • Broad measures of performance fail to give you actionable information • You don’t need a 1000 measures, just find the key indicators that serve as critical factors • eg employee turnover • Finding balance is important..dont let a non-benchmarked metric go bad • Call center volume vs. hi-margin cross selling

44. Find the Happy Medium in Frequency • One shot benchmarking doesn’t gain continuing improvement • Too often (weekly, monthly) makes you reactionary slaves to the numbers • Speed of business is increasing, driving the frequency of benchmarking..things change quickly

45. Involve Implementers from the Start • Getting Buy-in is critical • Involvement from planning to implementation of the people who need to implement findings conveys ownership

46. Look for Benchmarking Opportunities Everywhere • Internal and External • In and out of industry • Utilize Trade and other organizations (Runzheimer)

47. Delivering Excellent Service: Lessons from the Best Firms Robert C. Ford Cherrill P. Heaton Stephen W. Brown California Management Review Vol 44, NO. 1 Fall 2001

48. Ten Essential Lessons • Base decisions on what the customer wants and expects • Think and act in terms of the entire customer experience • Continuously improve all parts of the customer experience • Hire and reward people who can effectively build relationships with customers • Train employees in how to cope with their emotional labor costs • Create and sustain a strong service culture • Avoid failing your customers twice • Empower customers to co-produce their own experience • Get managers to lead from the front, not the top • Treat all customers as if they were guests

49. Resources • Benchmarking for Best Practices: Winning Through Innovative Adaptation, Christopher Bogan and Michael English, McGraw Hill • www.best-in-class.com – Bogan’s website • The International Benchmarking Clearinghouse, www.apqc.org • www.runzheimer.com • The Business Gateway http://www.bgateway.com/index.asp

50. Reference Sources and Readings • Is Benchmarking Doing the Right Work? David Stauffer, Harvard Business School Publishing 2003 • Key Ideas and Best Practices Analysis, Lynda M. Applegate, Harvard Business School Publishing, April 2002 • Creative Benchmarking, D. Iacobucci and Christie Nordhielm, Harvard Business Review, 2000 • Delivering Excellent Service: Lessons from the best firms, Ford, Heaton and Brown, California Management Review, 2001