Benchmarking: Critical to Key Performance Drivers
Is benchmarking a practice your organization takes to heart? If it’s little more than a buzzword, you may be putting your company at risk. “Benchmarking offers the best opportunity you have to compete effectively in the marketplace,” said Fred Zimmerman, a retired University of St. Thomas engineering professor and benchmarking authority. “You can’t take a superficial stab at benchmarking and produce much by way of useful results.”
Benchmarking is the practice of measuring selected manufacturing or other business processes against other companies. Experts agree that benchmarking, done properly, provides the external perspective necessary to:
• Identify your company’s strengths and weaknesses.
• Critically examine key quality and performance drivers.
• Energize your employees and motivate them to compete.
• Improve your bottom line.
Benchmarking has grown more popular since the U.S. Department of Commerce launched the Malcolm Baldrige National Quality Award in 1987. The award stimulated many companies to look more closely at their quality performance and recognize the value such self-examination can create.
Benchmarking data and direct customer feedback are the two most important sources of information executives rely on to drive change in their organizations, according to a 2004 survey conducted by the American Productivity & Quality Center. Although benchmarking is a formidable undertaking, it need not be the sole purview of large, multinational organizations with deep pockets. Midsized companies also can benchmark effectively. They must be willing to think creatively, make optimal use of advances in information technology, and use outside resources from time to time. These resources may include consultants, benchmarking research, and database tools.
Look Inward
The first step to effective benchmarking is to conduct a thorough performance analysis, said Kingshuk Sinha, a management science professor at the University of Minnesota Carlson School of Management. In others words, benchmark your company internally. Internal benchmarking provides insights you wouldn’t otherwise identify, he said. “Fluctuations in key performance measures like output or quality might be the result of any number of factors: worker performance, managerial decisions, seasonality, and so on. You must separate the discretionary, actionable items that impact your performance from those factors about which you can do nothing.”
Internal benchmarking will help you answer some important questions that will set the stage for formulating an external benchmarking plan. What causes the fluctuation in our performance? Are we getting better over time? What are the barriers to improvement? What key metrics do we want to benchmark?
Start Small
With those questions answered, Sinha said, some basics of your benchmarking plan will begin to fall into place. Eventually, as you continue to identify key business drivers, be sure you single out those that are integral to your business strategy. “For example, overall quality isn’t as critical to a company that has positioned itself to be the low-cost provider in the marketplace. As such, you’re not trying to produce cutting-edge products. You probably have established a threshold as far as what’s acceptable in terms of quality.”
Instead, such a company might identify employee productivity, customer service, or other factors as more critical to the organization’s overall success than product quality.
When companies are just beginning to benchmark, they should zero in on one or two critical processes over which they have some control and by which they can boost their bottom line, Zimmerman and Sinha said. Manufacturers might find it instinctive to focus on primary manufacturing processes, but everyday business processes such as accounting or delivery logistics also may be ripe for benchmarking.
Comparing Apples to Apples
Once you have a plan in place, the real work begins. The hardest part of benchmarking is tracking down the information you wish to measure and compare. You have to get the right data to ensure you’re comparing apples to apples, and often that means figuring out what your competition is doing. Data-gathering might seem daunting, but you should find many options for collecting the information you need. Benchmarking experts suggest the following tips:
• Consider simple solutions. Become active in the various trade associations for your industry. Network with others, and swap ideas. Read industry-oriented publications—especially those that highlight best practices.
• Tour your competitors’ facilities. “The best benchmarking often involves out-of-plant visits, and you’d be amazed by how many companies will allow anyone to tour their facilities,” Zimmerman said.
• Find best practices from other sectors. When Xerox was looking to improve its delivery performance, it turned to mail-order retailer L.L. Bean, which had built a reputation for excellence in that area.
• Avoid wild goose chases. “If you only try to benchmark yourself against competition, you’ll find it difficult to get the data you need,” Sinha said. “A better option sometimes is to [deconstruct] your manufacturing processes. By breaking down your overall processes into many small processes, you will sometimes find that noncompetitors have nearly identical processes against which you can benchmark yourself.”
• Be a detective. Even when you can’t get all the data you need, you can sometimes “back calculate” from existing information to get the numbers you’re seeking. For example, if you and your competitors rely on common suppliers and sell to common customers, you may be able to get the data you need through some simple deductive reasoning.
• Tap into external resources. The growing interest in benchmarking has produced an expanding field of consulting specialists, as well as a new class of vendor-supplied databases and analytical software tools.
If you decide to take advantage of external resources, however, both Zimmerman and Sinha advised that you choose your consultants and other resources carefully. Following are sample questions you should ask a prospective consultant or supplier:
• Who else is using your services or products?
• What kind of results are your customers getting?
• Can we expect to achieve results similar to those of your other customers?
• Do you collect your data over time (the most valuable data), or do you simply take a snapshot (data that reflects a single point in time)? IBI
Benchmarking is the practice of measuring selected manufacturing or other business processes against other companies. Experts agree that benchmarking, done properly, provides the external perspective necessary to:
• Identify your company’s strengths and weaknesses.
• Critically examine key quality and performance drivers.
• Energize your employees and motivate them to compete.
• Improve your bottom line.
Benchmarking has grown more popular since the U.S. Department of Commerce launched the Malcolm Baldrige National Quality Award in 1987. The award stimulated many companies to look more closely at their quality performance and recognize the value such self-examination can create.
Benchmarking data and direct customer feedback are the two most important sources of information executives rely on to drive change in their organizations, according to a 2004 survey conducted by the American Productivity & Quality Center. Although benchmarking is a formidable undertaking, it need not be the sole purview of large, multinational organizations with deep pockets. Midsized companies also can benchmark effectively. They must be willing to think creatively, make optimal use of advances in information technology, and use outside resources from time to time. These resources may include consultants, benchmarking research, and database tools.
Look Inward
The first step to effective benchmarking is to conduct a thorough performance analysis, said Kingshuk Sinha, a management science professor at the University of Minnesota Carlson School of Management. In others words, benchmark your company internally. Internal benchmarking provides insights you wouldn’t otherwise identify, he said. “Fluctuations in key performance measures like output or quality might be the result of any number of factors: worker performance, managerial decisions, seasonality, and so on. You must separate the discretionary, actionable items that impact your performance from those factors about which you can do nothing.”
Internal benchmarking will help you answer some important questions that will set the stage for formulating an external benchmarking plan. What causes the fluctuation in our performance? Are we getting better over time? What are the barriers to improvement? What key metrics do we want to benchmark?
Start Small
With those questions answered, Sinha said, some basics of your benchmarking plan will begin to fall into place. Eventually, as you continue to identify key business drivers, be sure you single out those that are integral to your business strategy. “For example, overall quality isn’t as critical to a company that has positioned itself to be the low-cost provider in the marketplace. As such, you’re not trying to produce cutting-edge products. You probably have established a threshold as far as what’s acceptable in terms of quality.”
Instead, such a company might identify employee productivity, customer service, or other factors as more critical to the organization’s overall success than product quality.
When companies are just beginning to benchmark, they should zero in on one or two critical processes over which they have some control and by which they can boost their bottom line, Zimmerman and Sinha said. Manufacturers might find it instinctive to focus on primary manufacturing processes, but everyday business processes such as accounting or delivery logistics also may be ripe for benchmarking.
Comparing Apples to Apples
Once you have a plan in place, the real work begins. The hardest part of benchmarking is tracking down the information you wish to measure and compare. You have to get the right data to ensure you’re comparing apples to apples, and often that means figuring out what your competition is doing. Data-gathering might seem daunting, but you should find many options for collecting the information you need. Benchmarking experts suggest the following tips:
• Consider simple solutions. Become active in the various trade associations for your industry. Network with others, and swap ideas. Read industry-oriented publications—especially those that highlight best practices.
• Tour your competitors’ facilities. “The best benchmarking often involves out-of-plant visits, and you’d be amazed by how many companies will allow anyone to tour their facilities,” Zimmerman said.
• Find best practices from other sectors. When Xerox was looking to improve its delivery performance, it turned to mail-order retailer L.L. Bean, which had built a reputation for excellence in that area.
• Avoid wild goose chases. “If you only try to benchmark yourself against competition, you’ll find it difficult to get the data you need,” Sinha said. “A better option sometimes is to [deconstruct] your manufacturing processes. By breaking down your overall processes into many small processes, you will sometimes find that noncompetitors have nearly identical processes against which you can benchmark yourself.”
• Be a detective. Even when you can’t get all the data you need, you can sometimes “back calculate” from existing information to get the numbers you’re seeking. For example, if you and your competitors rely on common suppliers and sell to common customers, you may be able to get the data you need through some simple deductive reasoning.
• Tap into external resources. The growing interest in benchmarking has produced an expanding field of consulting specialists, as well as a new class of vendor-supplied databases and analytical software tools.
If you decide to take advantage of external resources, however, both Zimmerman and Sinha advised that you choose your consultants and other resources carefully. Following are sample questions you should ask a prospective consultant or supplier:
• Who else is using your services or products?
• What kind of results are your customers getting?
• Can we expect to achieve results similar to those of your other customers?
• Do you collect your data over time (the most valuable data), or do you simply take a snapshot (data that reflects a single point in time)? IBI
