Benchmarking

Rajiv Gupta
BITS Pilani
 Agenda
• Module 1
– Introduction Benchmarking
• Module 2
– Types of Benchmarking
• Module 3
– Steps in Benchmarking
• Module 4
– Cultural Implications

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• Begin Module 1
– Introduction to Benchmarking

3
“If you know your enemy and know yourself,
you need not fear the result of a hundred
battles”

Sun Tzu- Chinese General, 500 B.C.

4
“Fool you are …. to say you learn by your
experience ….. I prefer to profit by others’
mistakes , and avoid the price of my own”

Prince Otto Von Bismarck

5
“Keep on the lookout for novel and interesting
ideas that others have used successfully. Your
idea has to be original only in its adaptation to
the problem you’re currently working on”

Thomas Edison

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 Benchmarking
“The continuous process of measuring our
products, services and practices against our
toughest competitors or those companies
renowned as leaders”
David Kearns
Chairman, Xerox Corporation
(1982-1990)

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 Why Benchmark?
• Current competitive marketplace
– Larger number of global players
• More access to information globally
– It is becoming difficult to retain a particular edge for
long. Change is occurring very fast.
– Growing awareness among people and industries
• Today’s problems are very complex
– It is not possible to solve all the problems by oneself
– It is becoming acceptable to borrow good ideas

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 What Benchmarking Is and Isn’t
• Isn’t
– A way to reduce resource usage
– A quick fix to a recurring problem
– Something that can be done purely with the help
of consultants
– A program or special project
– A specific cookbook approach or recipe

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 What Benchmarking Is and Isn’t
• Is
– A way to understand the competitive position of a
company
– An ongoing process
– Part of top management responsibility
– Strategically important to a company

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 Benefits of Benchmarking
• Improves organizational quality
• Helps in achieving competitive costs
• Creates buy-in for change
• Exposes people to new ideas
• Creates avenue for learning
• Creates an external business view
• Overcomes employee’s belief that better
performance is possible

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• End of Module 1

12
• Begin Module 2
– Types of Benchmarking

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 Types of Benchmarking
• Based on Outcomes/Targets:
– Competitive Benchmarking
– Process Benchmarking
– Strategic Benchmarking
• Based on Levels:
– Internal
– External
– Global/Best-in-class

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• Competitive Benchmarking
– Usually compares products or services with
competitors
– Reverse engineering
– Focus on attributes such as technical quality,
reliability, speed, etc.
– Used to understand a company’s competitive
position

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• Process Benchmarking
– A specific process or work activity is selected for
comparison
– The process should be critical to the company’s
success
– Either an internal or an external benchmark is
researched
– Examples could be the order fulfillment process,
billing process, recruitment process, complaint
handling process, etc.

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• Strategic Benchmarking
– High level business strategies are targeted for
benchmarking
– Focus on things such as core competencies,
markets, etc.
– Implementation can take a long time
– Japanese have excelled in strategic benchmarking

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• Internal Benchmarking
– Look for best practices within the company
– Diverse company divisions and locations may be
unaware of practices elsewhere
– Several times, one can also get a wealth of
information from looking at past successes
– Is relatively cheap and has fewer hurdles to cross

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• External Benchmarking
– Looking for best practices outside the company,
often in the same industry
– Could be either competitive or process
benchmarking
– Requires more effort, cost, and preparation
– Gives a better view of the competitive stand of the
company

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• Best-in-class Benchmarking
– External companies, not necessarily in the same
industry are selected, based on who does an
activity the best
– Typically used for process benchmarking
– Examples are Xerox benchmarking L.L. Bean’s
logistics and distribution function, Japanese
borrowing the Kan Ban system from grocery
stores, etc.

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• End of Module 2

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• Begin Module 3
– Steps in Benchmarking

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 Basic Steps in Benchmarking
• Understand what you want to study
• Gather data
• Define gaps with your current system/process
• Take innovative action to cover the gaps and
gain superiority
• Continuously innovate

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 What is a Process?

Output
Input Process

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 Process View of an Organization
President

Sales Engineering Manufacturing Distribution

Sales Engineering Manuf Dist

Function Function Function Function

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Order Fulfillment process
 Core Processes
• Core processes are those processes that are
critical to the success of the organization
• Examples of core processes could be order
entry, order fulfillment, training, recruitment,
billing, customer service, etc.
• Each organization would need to define its
own set of core processes.
• These core processes are what should be the
focus of benchmarking
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 Examples of Core Business Processes
• Xerox
– Market to collection
– Integrated supply chain
– Time to market
– Customer service
• General Electric
– Advanced technology
– Offerings development
– Service delivery
– Order-to-remittance
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 Whom to Benchmark
• Own past experiences
• Internal sources
• Direct competitors
• Functional leaders
• Generic

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Source Relevance Data Collection Innovative
Ease Ideas

Past Experience X X

Internal Sources X X

Direct Competitors X

Functional Leaders X X

Generic X X

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 Sources of Data
• Internal sources
• External sources
• Original research

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 Internal Sources
• Product analysis:
– Reverse engineering reveals information about the
product
– Ordering and shipping documents show methods and
origin of shipment
– Packing slips and other documents may reveal use of
bar codes for inventory control
– Repair and returns policy might also be indicated on
service documents
– Order catalogs have information on ordering methods
 Internal Sources
• Internal experts:
– Functional experts are usually aware of current trends
in their respective areas
– There may be other people who are not functional
experts, but whose job keeps them on a lookout for
developments in the markets, e.g. marketing people
– There may be people who may not have information
themselves, may have indirect information that may
help
– There are people who are active socially or
professionally and this brings them into contact with
what is happening on the outside
 External sources
• Library Search/Internet Search
• Professional and Trade Associations
• Consultants
• External Experts and Studies
 Original Research
• Questionnaires
• Telephone Interviews
• Mail in surveys
• Direct site visits
 Data Analysis and Action
• Analyze current performance gaps
• Project future performance gaps
• Establish action plan

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 Examples
• Ford:
500 employees worked in the accounts payable department.
Ford executives thought they could reduce the headcount by
about 20% by using computers.
They visited Mazda, which employed only 5 people in A/P.
How to use re-engineering? You cannot re-engineer a
department such as the A/P dept.
They decided to re-engineer the procurement process

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• Old process:
Purchasing sends a P/O to the vendor, with a copy to A/P.
When material is received at receiving dock, receiving clerk
completes a form regarding the material and sends it to A/P.
The vendor sends an invoice to A/P.
A/P has 3 documents. If they matched, payment was sent to
vendor. If not, clerks in A/P spent hours to reconcile them. Lot
of work and delay in payment to the vendor.

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• New Process:
Purchasing releases P/O to vendor and enters order in on-line
data base. When material is received, the receiving clerk
checks physical material with any on-line purchase order. If it
does, the clerk okays the receipt and this automatically
authorizes a check to be sent to the vendor.
If the received material does not match any open P/O, the
clerk refuses the material and sends it back to the vendor.
As a result of these changes, the A/P dept was reduced to 5%
of its original size in some parts of Ford.

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• End of Module 3

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• Begin Module 4
– Cultural Implications

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 Cultural Implications
• We have been brought up on the concept that
it is wrong to steal, even ideas.
• However, there is nothing wrong in taking
ideas from someone and improving upon
them
• Innovative adaptation of ideas has always
been done in history and has resulted in
human progress

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 Cultural Implications
• We need to get away from the idea that
learning from others is cheating
• We need to make sure, however, that nothing
illegal is done, i.e., taking patented or
proprietary information or ideas
• Borrowing from others needs to built into our
system to facilitate organizational learning

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 What Can Companies Do
• Invest in employee education that brings
outside ideas into your organization
• Create lending libraries that focus on
competitors and other high performance
winning strategies and systems
• Encourage visits to outside facilities and
seminars to learn from other companies

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 What Can Companies Do
• Make best practice information sharing and
innovative adaptation skill evaluated in performance
review and promotion process
• Make benchmarking competitors and other excellent
companies a responsibility clearly described in job
descriptions
• Engage high level executives directly in
benchmarking and innovative adaptation
• Regularly identify, study and celebrate internal
successes with the goal of repeating and improving
on them

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• End of Module 4

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