Chapter 20

1. Chapter 20 Benchmarking

2. Objectives • After reading the chapter and reviewing the materials presented the students will be able to: • Differentiate between benchmarking and reengineering. • Understand the role of management in benchmarking. • Understand benchmarking approach and process.

3. Benchmarking Defined • Benchmarking is the process of comparing and measuring an organization’s operations or its internal processes against those of a best in class performer from inside or outside its industry. • It is a process to help a company close the gap with the best in class performer without having to reinvent the wheel.

4. Benchmarking versus Reengineering • Benchmarking involves partnering with the owner of a best in class process so that you might adopt or adapt that process in your operation without having to spend the time and energy to try to design a duplicate of the superior process. • Process reengineering requires you to do the above on your own. Therefore process reengineering should be done only when it is impossible to use benchmarking.

5. Rationale for Benchmarking • Today’s competitive world does not allow time for gradual improvement in areas where the company lags far behind. • Benchmarking can tell a firm where it stands relative to best in class practices and processes and which processes must be changed. • Benchmarking provides a best in class model to be adopted and even improved on. • Modern customers are better informed and demand the highest quality at lowest prices. Companies have the choice to either perform with the best or go out of business. • Benchmarking supports total quality by providing the best means for rapid, significant process or practice improvement.

6. Obstacles to Successful Benchmarking • Internal focus: If a company is internally focused (as many are) it may not even be aware that its process is 80% less efficient than best in class. • Benchmarking objective too broad: The team needs a narrow target: for example “Refine or replace the invoicing process to reduce errors by 50%” That gives team members something they can go after. • Unrealistic timetables: Benchmarking takes 4 to 6 months for the shortest schedule with 6 to 8 months being the norm. • Poor team composition: Those who own the process, the people who use it day in and day out must be involved. • Settling for OK in class: It makes no sense to link with a partner that is just good. • Improper emphasis: Keep the emphasis on the process, with data and numbers supporting that emphasis. • Insensitivity to partners: If you fail to observe protocol and common courtesy in all transactions, your organization runs the risk of being cut off. • Limited top management support: Unwavering support from the top is required to get benchmarking started, to carry it through, and finally secure the promised gains.

7. Role of Management in Benchmarking • Without the approval and commitment of top management, benchmarking is not possible. • Benchmarking is not something that can occur from the grassroots up without management’s direct involvement. • Several benchmarking considerations require management’s approval before the process can start: commitment to change, funding, human resources, disclosure, and involvement.

8. Benchmarking Approach and Process • Steps in benchmarking: 1. Obtain management commitment. 2. Baseline your own process. 3. Identify your strong and weak processes and document them. 4. Select process to be benchmarked. 5. Form benchmarking teams. 6. Research the best in class. 7. Select candidate best-in-class benchmarking pattern. 8. Form agreements with benchmarking partners. 9. Collect data. 10. Analyze the data and establish the gap. 11. Plan action to close the gap or surpass. 12. Implement change to the process. 13. Monitor results. 14. Update benchmark: continue the cycle.

9. Benchmarking teams • The teams that will do the actual benchmarking should include people who operate the process, those who have inputs to the process, and those who take output from it. • These people are in the best position to recognize the differences between your process and that of your benchmarking partner. • The team must include someone with research capability because it will have to identify a benchmarking partner, and that will require research. • Every team should have management representation, not only to keep management informed but also to build support from management that is necessary for radical change.

10. Summary • Benchmarking is the process of comparing and measuring an organization’s operations or its internal processes against those of a best in class performer from inside or outside its industry. • Process reengineering requires you to do the above on your own. Therefore process reengineering should be done only when it is impossible to use benchmarking. • Benchmarking can tell a firm where it stands relative to best in class practices and processes and which processes must be changed. • Several benchmarking considerations require management’s approval before the process can start: commitment to change, funding, human resources, disclosure, and involvement. • Steps in benchmarking : 1. Obtain management commitment. 2. Baseline your own process. 3. Identify your strong and weak processes and document them. 4. Select process to be benchmarked. 5. Form benchmarking teams. 6. Research the best in class. 7. Select candidate best-in-class benchmarking pattern. 8. Form agreements with benchmarking partners. 9. Collect data. 10. Analyze the data and establish the gap. 11. Plan action to close the gap or surpass. 12. Implement change to the process. 13. Monitor results. 14. Update benchmark: continue the cycle. • The teams that will do the actual benchmarking should include people who operate the process, those who have inputs to the process, and those who take output from it. • Every team should have management representation, not only to keep management informed but also to build support from management that is necessary for radical change.

11. Home Work • Answer Questions 1, on page 380. • 1. Define benchmarking.