Rachal Roach Tim Hyder Chris Green Chapter 8 Benchmarking Rachal Roach Tim Hyder Chris Green

Introduction Book definition: Benchmarking is a systematic method by which organizations can measure themselves against the best industry practices Benchmarking is a standard that companies compare themselves to and strive to be that good

Benchmarking What is your definition of benchmarking? What is the process for benchmarking?

Benchmarking Concept What is our performance level? How do we do it? What are others' performance levels? How did they get there? Creative Adaptation Breakthrough Performance

Benchmarking Concept Concept has been around for a while 2 Key elements 1) Units of measure (to measure performance) 2) Managers need to understand why their company's performance differs

Reasons to Benchmark Promotes continuous improvement Makes companies search for the best practices, innovative ideas, and highly effective operating procedures Can notify a company if it has fallen behind the competition Inspires managers to compete Allows goals to be set objectively

Reasons to Benchmark Weaknesses Organizations must continue to innovate as well as imitate.

6 General Steps to Benchmarking 1) Decide what to benchmark 2) Understand current performance 3) Plan 4) Study others 5) Learn from the data 6) Use the findings

Deciding What to Benchmark Think about the mission and critical success factors Decide the scope Devise charts that will pin point the exact problem Decide on a numerical measure to show improvement

Understanding Current Performance Understand and document current processes Form a benchmarking team Decide on a way to numerically measure findings

Planning Decide what type of benchmarking to perform (internal, competitive, or process) Choose the type of data to be collected Devise a method of collection Identify which organizations to use as your benchmarks Make a timetable to adhere to for each task Have a desired output for the study

Studying Others Use internal sources Apply data in the public domain Utilize original research Combining all or some of these

Learning from the Data Is there a gap between the organization’s performance and the performance of the best-in-class organization? 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?

Learning from the Data Studies can reveal 3 outcomes: Negative gap External process better than internal processes Parity Process performance approximately equal Positive gap Internal process better than that found in external organizations

Learning from the Data At least two ways to prove a superior practice: Analyzed quantitatively Summary measures and ratios (activity costs, return on assets, or customer satisfaction levels) Market analysis Does the market prefer one process over another? Price outside services

Using the Findings When a benchmarking study reveals a negative gap in performance, the objective is to change the process to close the gap Two groups must agree on the change: Process owners (those who run the process) Upper Management (incorporating changes and providing resources)

Using the Findings Generic steps of Action Plans: Specify tasks Sequence tasks Determine resource needs Establish task schedule Assign responsibility for each task Describe expected results Specify methods for monitoring results

Using the Findings Goals and objectives should be consistent with the execution of the action plan so that the end result is process superiority The best results are obtained when the process owners fully participate in the design and execution of the plan

Using the Findings The next step is to repeat the benchmarking process The benchmarking process must be used continuously to pursue emerging new ideas

Pitfalls & Criticisms Idea of copying others How can an organization be superior if it does not innovate to get ahead? How can an organization even survive if it loses track of its external environment? Not a strategy or business philosophy It is an improvement tool Not a substitute for innovation It is a source of ideas from outside

Pitfalls & Criticisms Avoid – Benchmarking for the sake of it Focusing entirely on comparisons of performance measures rather than the processes and activities that enable the achievement of good practice Expecting that benchmarking will be quick or easy

Questions for Discussion What are the six core techniques of the benchmarking process? 1. Decide what to benchmark 2. Understand current performance 3. Plan 4. Study others 5. Learn from the data 6. Use the findings

Questions for Discussion Efficiency has been defined as “doing things better” and effectiveness as “doing better things.” Describe how benchmarking can be used to improve both efficiency and effectiveness…

Questions for Discussion Explain how an organization might benefit from benchmarking organizations in a completely different industry…

Questions for Discussion Identify and explain the three types of benchmarking… In what circumstances would each type be most appropriate?

Questions for Discussion How are critical success factors important in benchmarking?

Questions for Discussion Benchmarking studies are a search for two types of information – An understanding of best-in-class processes The metrics that result Which piece of information is more important and why?

Questions for Discussion Why is it important to understand internal processes before studying those of other organizations? What tools are useful in examining internal processes?

Questions for Discussion Who in the class has experience in the benchmarking process?

Thanks for your time! Rachal Tim Chris