Banchmarking By Imran Hussain

BENCHMARKI NG TREM PAPER REPORT

Submitted by IMRAN HUSSAIN REG.NO:10902893 ROLL NO:A20

In partial fulfillment of the requirement for the Award of the

MASTER’S DEGREE IN BUSINESS ADMINISTRATION

Under the Guidance

Of

LOVELY INSTITUTE OF MANAGEMENT Lovely Campus, Jalandhar-Delhi G.T. Road (NH-1), Phagwara (PUNJAB) INDIA

ACKNOWLEDGEMENT First and foremost, I thank the Almighty God for sustaining the enthusiasm with which plunged into this endeavor. I avail this opportunity to express my profound sense of sincere and deep gratitude to many people who are responsible for the knowledge and experience I have gained during the termpaper work. I extend my overwhelming gratitude to , for her valuable guidance and meticulous supervision during the preparation of this Report. My hearty and inevitable thanks to all the respondents who is helped me to bring out the termpaper in a successful manner. Last but not the least; I extend my gratitude towards my, faculties and friends who extended their wholehearted support towards the successful completion of this termpaper Work.

IMRAN HUSSAIN MBA(194)

SECTION-1902 REG.NO.-10902893

TABLE CONTENTS • • • • • • • • • •

INTRODUCTION OBJECTIVES DEFINATION OF Benchmarking Types of Benchmarking Process of Benchmarking Methodology Analysis Benchmarking in TATA CONSULTANCY SERVICES Conclusion Bibliography

OBJECTIVES ➢ Describe the basic idea behind benchmarking. ➢ How benchmarking can be used to help a firm execute a successful growth strategy. ➢ Gain insight in to an organization’s capability by identifying the strengths and weakness of its current Performance. ➢ Relate these strengths and weakness to the benchmarked KPI set. ➢ Prioritize improvement plans. ➢ Focus on improvement (correct weakness that generates risks) that is most beneficial the organization given in current performance level. ➢ Compare performance against industry values (average, Best in class)

BENCHMARKING Introduction Benchmarking is a popular method for developing requirements and setting goals. In more conventional terms, benchmarking can be defined as measuring your performance against that of best-in-class companies, determining how the best-in-class achieve those performance levels, and using the information as the basis for your own company’s targets, strategies, and implementation. Benchmarking involves research into the best practices at the industry, firm, or process level. Benchmarking goes beyond a determination of the "industry standard." It breaks the firm’s activities down to process operations and looks for the best-in-class for a particular operation. For example, Xerox Corporation studied the retailer LL Bean to help them improve their parts distribution process. Benchmarking goes beyond the mere setting of goals. It focuses on practices that produce superior performance. Benchmarking involves setting up partnerships that allow both parties to learn from one another. Competitors can also engage in benchmarking, providing they avoid proprietary issues. Benchmarking projects are like any other major project. Benchmarking must have a structured methodology to ensure successful completion of thorough and accurate investigations. However, it must be flexible to incorporate new and innovative ways of

assembling difficult-to-obtain information. It is a discovery process and a learning experience. It forces the organization to take an external view, to look beyond itself.

Popularity and Benefits from benchmarking In 2008, a comprehensive survey on benchmarking was commissioned by The Global Benchmarking Network, a network of benchmarking centres representing 22 countries. Over 450 organizations responded from over 40 countries. The results showed that: 1. Mission and Vision Statements and Customer (Client) Surveys are the most used (by 2. 77% of organisations) of 20 improvement tools, followed by SWOT analysis (72%), and Informal Benchmarking (68%). 3. Performance Benchmarking was used by (49%) and Best Practice Benchmarking by (39%). 4. The tools that are likely to increase in popularity the most over the next three years are Performance Benchmarking, Informal Benchmarking, SWOT, and Best Practice Benchmarking. Over 60% of organizations that are not currently using these

tools indicated they are likely to use them in the next three years. TYPES OF BENCHMARKING ➢

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Process Benchmarking - the initiating firm focuses its observation and investigation of business processes with a goal of identifying and observing the best practices from one or more benchmark firms. Activity analysis will be required where the objective is to benchmark cost and efficiency; increasingly applied to back-office processes where outsourcing may be a consideration. Financial Benchmarking - performing a financial analysis and comparing the results in an effort to assess your overall competitiveness and productivity. Benchmarking from an Investor Perspective- extending the benchmarking universe to also compare to peer companies that can be considered alternative investment opportunities from the perspective of an investor. Performance Benchmarking - allows the initiator firm to assess their competitive position by comparing products and services with those of target firms. Product Benchmarking - the process of designing new products or upgrades to current ones. This process can sometimes involve reverse engineering which is taking apart

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competitors products to find strengths and weaknesses. ➢ Strategic Benchmarking - involves observing how others compete. This type is usually not industry specific, meaning it is best to look at other industries. ➢ Functional Benchmarking - a company will focus its benchmarking on a single function in order to improve the operation of that particular function. Complex functions such as Human Resources, Finance and Accounting and Information and Communication Technology are unlikely to be directly comparable in cost and efficiency terms and may need to be disaggregated into processes to make valid comparison. ➢ Best-in-class benchmarking - involves studying the leading competitor or the company that best carries out a specific function. Operational benchmarking - embraces everything from staffing and productivity to office flow and analysis of procedures performed METHODOLOGY ➢

The Benchmarking process begins with an initial period of intensive research and preparation. This defines what is to be benchmarked and who the benchmarking

partners will be. Data is then gathered on specific processes, practices, and results. After collecting and analysing the information, stretch goals are set and an implementation plan developed to improve performance. Beyond implementation, ongoing benchmarking must be instituted to reassess and re-evaluate best practices to maintain continuous improvement. ➢ The Benchmarking process is composed of four phases: Planning, Analysis, Integration and Action. For the purposes of this survey, only the Planning and Analysis phases which are elaborated below will be conducted. PLANNING ➢ Planning lays the foundation and is critical to implementing a successful benchmarking project. Planning involves the complete understanding of the existing internal processes and measurements. It provides definitive answers to the questions: What will be benchmarked? Who will we benchmark? and, How will the data be collected? The answers to these questions will guide the project to successful fruition. STEP 1 : IDENTIFY WHAT IS TO BE BENCHMARKED. ➢ Activities that are of greatest value to your customers; ➢ Activities that are major cost areas or consume a large portion of your resources;

➢ Activities where known improvement is needed: ➢ Activities that are considered important in achieving organisation's goals or meeting organisational priorities. ➢ Analyse the selected process to determine the specific issues/items to be benchmarked. ➢ Map (e.g. through flow-charting) the existing process to reach a common understanding of how the process functions in the organisation. A good process map will enable you to. Identify process boundaries; ➢ Turn a clouded, confused situation into a logical sequence of events (process steps) that can be addressed, analysed and prioritised into a planned and systematic manner. ➢ Identify all actions, decision points, feedback loops and inspection points. ➢ Understand departments and functions involved in the process and their role. ➢ Understand the critical interfaces with customers and suppliers. ➢ Understand the interdependencies of the process with other processes. ➢ Understand critical factors affecting performance. ➢ Recognise "disconnects" (things that should be happening but are not). Identify illogical work flow.

Identify customers and their needs. How do customers assess whether the process is performing well or not? This will give a clear indication as to what aspects of the process should receive priority attention. ➢ Examine each step of the process to determine whether it adds value in the eyes of the customers. This analysis will help to identify problem areas in the process (including nonvalue-adding or non-essential activities) which should receive attention during the benchmarking investigation. Ask ➢ How long (total elapsed time) does the process take? The total elapsed time includes transports, waiting, and reworks time. ➢ How long is the total process time that is actually being worked on? ➢ What are the costs (such as cost of people input hours, cost of input materials, etc.)? ➢ What are the costs of waste/ rejects/ rework ? ➢ What are the volumes through (people, tonnes, units, etc.)? ➢ What departments of our organisation are involved? In what way? Who, how and when? ➢ What do you currently measure/ performance indicators? ➢ What performance is achieved against each measure? ➢ Who are the suppliers to this process and how does their behaviour influence the process performance? ➢

Decide on what should be the key indicators (measures) for the process, based on the priority needs of customers and major aspects of cost. The measures can include. ➢ Process measures (cycle time, quality, cost measures etc.). ➢ 0utput/ Input measures (volume, quantity, delivery, etc.). ➢ Result measures (customer satisfaction, productivity, profitability, sales turnover, etc.). ➢ This level of process mapping provides a clear illustration of how work "currently" gets done, what it costs to produce a specific output, the cycle time involved and so on. It may also reveal a high level of complexity, areas of significant variation, bottlenecks, waste, duplication and rework. ➢ Summarise purpose of study--by staling: ➢ Rationale for study: ➢ Subject of study and measurements involved; ➢ Usefulness of study; ➢ Scope of study. STEP 2: IDENTIFY COMPARATIVE COMPANY ➢ Conduct a thorough search effort to identify organisations to benchmark. Sources of research can include industry/trade publications, annual reports, professional or trade associations, seminar and conference papers, company newsletters, government agencies, newspaper articles, customers, suppliers and distributors. ➢

➢ There are three types of organisations to benchmark: 1. Internal functions with similar processes: 2. Direct competitors; 3. External functional leaders outside the industry. ➢ In determining potential organisations to benchmark, ask the question, "What organisation must do an outstanding job in our studied area to be successful as a total organisation?" Some other considerations induce. ➢ Outstanding organisations - won an international or national award ➢ The practices of interest must be well-developed and structured. ➢ The level of importance of the subject area to the organisation in the internal supplier-customer chain or in satisfying end users or consumer needs. ➢ Recommendations by the relevant professional, industry or certifying bodies. ➢ Draw up a written set of criteria against which you can evaluate and prioritise your list of potential best practice partners. The criteria can induce. ➢ Size of organisation. ➢ Structure of operation. ➢ Technology level. ➢ Products. ➢ Industry.

Capability in process studied. ➢ Type of customers/employees. ➢ Once a set of best practice organisations have been identified, obtain all publicly available information before contacting the organisations directly. The number of best practice organisations to focus the study upon is usually no less than two, and no more than six. STEP 3: DATA COLLECTION ➢ Develop a list of specific questions for the benchmarking investigation. Ask focused information pertaining to the selected work process as well as each step of the process and the measurements. The aim is to identify the benchmark measures and practices which drive the best practice partners to be better/ best-inclass. The benchmarking questionnaire serves as a leading instrument for data gathering with selected partners. ➢ Document the benchmarking organisation's answers to the questions (This step will ensure that the process in the benchmarking organisation is truly understood. It will also help you to pre-test the questionnaire. Answers can also be used as a gesture of reciprocity with the best practice partners). ➢ Collect all publicly accessible information on the best practice organisations pertaining to the questions developed (If sufficient information has been obtained, proceed to the analysis phase ➢

without directly contacting the targeted organisations). ➢ Select the method to gather outstanding information from the best practice organisations through original research. The three common methods are: ➢ Mail Survey - Using mail survey should be limited to those initiatives requiring easy and quick responses. Further, mail survey questions should be mainly close-ended in nature (e.g. multiple choice, yes/no, etc.), and their number should be kept to a minimum. The most effective use of mailed questionnaires is in pre- screening a large number of potential partners; viral few questions are specifically asked of a sample group of companies. The responses will help determine the best practice partners to pursue in greater detail via site visit interviews. ➢ Phone Interview The phone interview brings a personal touch to the sometimes ineffective mail survey process. A combination of close and open-ended questions is permissible using this method. ➢ Site Visit interview the greatest opportunity to understand the processes and practices of others is certainly via a structured site visit interview. This is NOT however an endorsement for benchmarking teams to conduct site visits in all cases. A good rule for deciding upon a site visit is to determine if there is an operation or some other tangible component worth seeing in person.

Also, having selected several best practice partners, site visits should be for the top two or three who are perceived as having the best of the practices/ processes from which to learn. Site visit questions are usually open-ended, and encourage a productive discussion by all parties. ➢ Make contact and draft a letter (where appropriate), obtaining agreement of the best practice partners to the proposed benchmarking activity. ➢ Prepare a small site visit team (3 persons) from the benchmarking organisation for the benchmarking information exchange: define ownership and responsibilities of each team member to ensure a professional and productive session for all involved. ANALYSIS ➢ The analysis phase involves analysing the benchmarking data to identify and understand the practices which contribute to the best practice partners' strengths . STEP 4: DETERMINE CURRENT PERFORMANCE GAP ➢ Organise the qualitative and quantitative data that is gathered, and determine the benchmark performance. ➢ Understand how and why the best practice organisations have achieved their performance

by identifying the enablers (performance drivers) contributing to that performance. BENCHMARKING SOFTWARE QUALITY _WITH APPLIED COST OF QUALITY Cost of Quality has remained theoretical in many treatments despite its powerful relevance in software quality. A survey-based approach makes this model an important quality driver today. Cost of Quality (CoQ) as a software quality model has remained an attractive yet difficult proposition. It is attractive, because it promises to provide excitedly insightful measurements, thus making cost reduction driver for improving quality. It is difficult, because it demands granular measurement and analysis, making assessment tedious. The good news is that indirect methods employed to leverage the model have helped increase the adoption of Cost of Software Quality (Cost). Correlation with Cost improvement and CMM® maturity has also been established Convincingly in some studies. These document exploresthe facets of Cost and its growing importance in software quality. It suggests a proven approach in making it practically implementable in large software Settings. Quality for Competitiveness Cost of Quality – the Cost that Reduces Cost

Software quality has come a long way. Having said that, I am probably provoking a section of software maker’s and recipients who are still sceptical about whether true software quality exists. With quality frameworks and methodologies like CMMI® and Six Sigma being used to the hilt, we somehow think we need to add another perspective to quality, one that can provide a sole indicator for benchmarking and factbased improvement. Software quality has become more tangible with time and it is interesting to see new dimensions being added to it. In every case though, the quest has been to make it relatable to business outcomes. Cost of Quality is becoming increasingly important as a driver in business quality. It is also finding serious application in software. This is more so because it provides a unified indicator as well as a driver of business health. Despite the challenge of quantifying the measures involved, it is possible to baseline software quality and benchmark improvements using survey based techniques. This paper demystifies Cost of Software Quality by suggesting practical approach to base lining Cost, which has been successfully used with our global clients. Despite quality generally being an applied discipline, COQ has remained theoretical in many treatments. Therefore, we call this approach “applied cost of quality”. Cost of quality started with the need to reduce cost of meeting client requirements, thereby increasing competitiveness. Over time, it progressed as a philosophy for successful business. Phil Crosby laid the foundation of the current form of COQ

in his book Quality is Free (McGraw Hill 1979). He suggested that cost of quality was the sum of two primary costs – cost of conformance and cost of nonconformance. Cost of conformance intern sums up the cost of appraisal and cost of prevention. The nonconformance cost, on the other hand, has two components – cost of internal failure, that is, the cost of defects that occur before release to market(for instance in development and production), and cost of external failure, that is, the cost of defect that occurs after release to market. In the case of software, these components can be illustrated as hereunder: Cost of Appraisal: These are costs incurred to determine the degree of conformance to the requirements. The typical activities of Appraisals are: ➢ Review of code and other artefacts ➢ Purchased software testing ➢ First iteration of integration and system testing ➢ User Acceptance testing. Benchmarking Software Quality – With Applied Cost of Quality Cost of Prevention: These are costs incurred to prevent poor quality by keeping failure and appraisal costs to a minimum. The typical prevention occurs through: ➢ Casual Analysis and defect prevention. ➢ Quality planning and software quality assurance ➢ Quality training on tools and techniques

➢ Process improvements ➢ Code and component reuse ➢ Training on design review Cost of Internal Failure These are costs associated with defects found prior to delivery of software to the customer. The typical activities under this head are ➢ Pre-release defect management ➢ Rework ➢ Re-reviews ➢ Retesting. Cost of External Failure These are costs associated with defects found after the software is released to customers. Typical activities are Cost of pre-enhancement maintenance and support after release: ➢ Reworks and defect management of field errors. ➢ Warranty redressed. Cost of Execution These are costs incurred to build the software right first time or the cost of construction, also expressed as percentage of project cost. Therefore, Cost of Execution (%) = 100 – Cost of Quality (%) Cost of quality provides a means to quantify quality cost in business terms. It therefore helps in identifying Opportunities for cost reduction. The underlying philosophy is that by cutting down on the cost of

quality, one is able to stay more competitive in the market and reduce opportunity cost of losing out to competition. Therefore, in the highest performance state, the effective cost of quality to business is minimal. It emerges as a powerful driver and, at the same time, carries the simplicity of providing one unified metric to judge the health of the line of business. By providing distribution of quality cost across the four components of it, it helps in understanding the direction of improvement focus. For instance, if the cost of appraisal is high compared to that of prevention, one would focus on finding improvement opportunities in defect prevention (such as in design, coding best practices). The underlying philosophy is that by cutting down On your cost of quality, you are able to stay more Competitive in the market and reduce opportunity Cost of losing out to competition. Therefore, in the Highest performance state, your effective cost of Quality to business is minimal. It emerges as a Powerful driver and, at the same time, carries the Simplicity of providing one unified metric to judge The health of the line of business.

Cost Correlates with SoftwareCapabilityMaturity Levels The Cost of Software Quality (Cost) has a good correlation with capability maturity of the organization,

and can be explained by Knox’s model for Cost (Modelling the Cost of Software Quality, Stephen T. Knox). Knox used the CoQ model developed in the manufacturing environments and extended it across the SEI CMM® to produce a theoretical Cost model. CMM® today is a well-accepted framework to assess maturity of software delivery capability. Thanks to its wide adoption, we have extensive data available on overall industry maturity in terms of CMM® levels. Knox predicted that CMM® Level 1 units have 60% Cost and he further hypothesized that Cost reduces by 67% at level 5.Knox was able to map the four components of CoQ with the CMM® maturity levels. His finding suggested that the ratio between conformance and non-conformance cost at level 3 would typically be 0.5. In the study, the overall Cost exhibits a downward trend and an improvement of cost of execution. Thus, the high maturity organizations get a return of 85% on marginal cost of quality (return on penny spent).

KICK-STARTING THE JOURNEYBASELINING-COST OF SOTWARE QUALITY

QUESTIONARIES (3Measured and Controlled INITIAL ORGANIZATION STUDY Process characterized DESIGN

for the

Concluding Remarks ADMINISTER Cost of Quality has emergedPOPULATION as a tool for looking QUESTIONARIES quality from the perspective SAMLPING of enhancing

at

competitiveness. By cutting down the cost of quality, we are improving the overall health of the line of business; Cost of Quality has remained theoretical in many treatments despite its powerful relevance in softwarequality. A survey-based approach makes this model an important quality driver today. Cost of Quality (CoQ) as a software quality model has remained an attractive yet difficult proposition. It is SURVEY attractive, because it promises to provide decidedly IDENTIFY RESPONSE PRECENT OPPORTUNITY insightful measurements, thus making cost reduction GROUPING FOR It is difficult, because it a driver for improving quality. ANALYTICS IMPROVEMENT demands granular measurement and analysis, making assessment tedious. The good news is that indirect methods employed to leverage the model have helped increase the adoption of Cost of Software Quality (CoSQ). Correlation with CoSQ improvement and CMM® maturity has also been established convincingly in some studies. This document explores the facets of CoSQ and its growing importance in software quality. It suggests a proven approach in making it practically implementable in large software settings.

BIBLIOGRAPHY www.tcs-ca.tcs.co.in/ [email protected] www.isixsigma.com/me/benchmarking BOOKS Benchmarking for best practices : auther-christopher E. Bogan and michaed J. Enlish The benchmarking : author- Michael J. sphendolini