1. Fundamental of the Week: BENCHMARKING Presented by: Justis McEvilly 2/13/01

2. 2 “Benchmarking is the continuous search for and application of significantly better practices that leads to superior competitive performance.” -Westinghouse

3. 3 What is Benchmarking? Continuous method of measuring and comparing a firm’s business processes against those of another firm Incorporate leading firm’s processes into one’s own strategy to fill the gaps and improve performance Discover performance gaps between one’s own processes and those of leading firms

4. 4 Benchmarking Basics 1.Firm establishes where it currently is. 2.Firm decides where it wants to be. 3.Firm finds companies that currently are where it wants to be. 4.Firm investigates what processes enabled these companies to be successful, and then tries to do the same.

5. 5 Why do firms benchmark? Build core competencies that will help to sustain competitive advantage  Access to a variety of markets  Perceived benefit of product or service will increase  Product or service is hard to imitate  Low-cost leader Target specific shift in strategy  Entering new markets  Developing new products To create a firm more adaptable to change

6. 6 Basic Process Step 1 Step 2 Step 4 Step 3

7. 7 Step 1: Plan the Benchmarking Project 1. Company must identify its: a. strategic intent b. core competencies c. map capabilities 2. Select the process to be benchmarked and determine what value it would add 3. Determine how to measure the success factors

8. 8 Step 2: Collect the Necessary Data 1. Internal Data Collection  “How do WE do it?” 2. Secondary Research  Public disclosures about particular process 3. External Data Collection  Select who to benchmark  “How do THEY do it?”

9. 9 Step 3: Analyze Data for Performance Gaps Compare current performance against benchmark Identify performance gaps and determine their root causes Isolate the processes that enabled the benchmarked firm to thrive Determine if these processes are adaptable to one’s own company culture and structure

10. 10 Step 4: Implement New Processes Set necessary goals to close the performance gap Modify and enhance the new processes to fit one’s company culture and structure Commit the necessary resources for implementation Take action and implement the plan Monitor progress and measure success

11. 11 Financial Performance Benchmarking Profit Margin R&D Spending Return Ratios: ex. ROA, ROE, ROI Liquidity: ex. Current, Quick Leverage: ex. Debt-Equity Ratio Inventory Turnover Receivables Turnover

12. 12 Questions?