Everything You Need To Know About Benchmarking

Everything You Need To Know About Benchmarking Dr. Robin Mann Director, Centre for Organisational Excellence Research (COER), Chairman, Global Benchmarking Network, New Zealand, [email protected] www.coer.org.nz Abstract Benchmarking is a powerful method for breakthrough thinking, innovation, improvement and for delivering exceptional bottom-line results. Benchmarking is “the comparison of performance data that has been obtained from studying similar processes or activities and identifying, adapting, and implementing the practices that produced the best performance results”. This paper shows preliminary findings of the use and effectiveness of benchmarking (and other improvement tools) worldwide and the benefits obtained. It showcases a new benchmarking methodology called “TRADE” designed to encourage the trading / sharing of information and knowledge. TRADE has become the preferred benchmarking methodology in a number of countries. The paper also describes the Business Performance Improvement Resource, www.bpir.com, a leading benchmarking resource which has been designed to help organisations to learn from the best practices of others. Key words Best Practice Benchmarking, Performance Benchmarking Introduction Organisations are constantly looking for new ways and methodologies to improve their performance and gain a competitive advantage. As they seek improvements to their own business processes, many organisations recognise the importance of learning from best practices that have been achieved by other organisations. By removing the need to ‘reinvent the wheel’ and providing the potential to adopt proven practices, benchmarking has become an important methodology in organisational development. Benchmarking enables the identification of best practices and serves as a vehicle for breakthrough thinking. Adopting a structured and rational process enables those organisations that are seeking to improve to identify, understand and adapt best practices from appropriate other organisations, and thus achieve significantly enhanced levels of performance. Types of benchmarking It is useful to distinguish between the main types of benchmarking. Firstly, there is “Informal Benchmarking”. This is a type of benchmarking that most of us do unconsciously at work and in our home life. We constantly compare and learn from the behaviour and practices of others – whether it is how to use a software program, how to cook a better meal or play our favourite sport. In the context of work, most learning from informal benchmarking comes from the following: • • •

Talking to work colleagues and learning from their experience (coffee breaks and team meetings are a great place to network and learn from others) Consulting with experts (for example, business consultants who have experience of implementing a particular process or activity in many business environments) Networking with other people from other organisations at conferences, seminars, and Internet forums.

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On-line databases/web sites that share benchmarking information such as the Business Performance Improvement Resource - BPIR.com (which will be described later in this paper) provide quick and easy ways to learn about better practices from organisations all around the world.

Secondly, there is “Formal Benchmarking“ of which there are two types – Performance Benchmarking and Best Practice Benchmarking. Performance benchmarking describes the comparison of performance data that has been obtained from studying similar processes or activities. Comparisons of performance may be undertaken between companies – or internally within an organisation. It is useful for identifying strengths and opportunities for improvement. Performance benchmarking may involve the comparison of financial measures (such as expenditure, cost of labour, cost of buildings/equipment, cost of energy use, adherence to budget, cash flow, revenue collected) or non-financial measures (such as absenteeism, staff turnover, the percentage of admin staff to front-line staff, budget processing time, complaints, environmental impact or call centre performance). Most people equate benchmarking to performance benchmarking. This is unfortunate, because performance benchmarking on its own is of limited use. Too often performance benchmarking data is collected (often at significant cost) and no further action is taken after the data has been obtained. Whilst performance benchmarking enables a performance gap to be identified, it does not provide the idea, best practice or solution as to how performance can be improved and the gap closed. Best Practice Benchmarking describes the comparison of performance data that has been obtained from studying similar processes or activities and identifying, adapting, and implementing the practices that produced the best performance results. Best practice benchmarking is the most powerful type of benchmarking. It is used for “learning from the experience of others” and achieving breakthrough improvements in performance. Best practice benchmarking focuses on “Action” – i.e. doing something with the comparison data and learning why other organisations are achieving higher levels of performance. Best practice benchmarking projects typically take from 2 to 12 months. As these projects can be resource intensive, they should be undertaken in areas of high strategic importance – and a cost/ benefit analysis should be undertaken before proceeding. Often such projects can deliver major bottomline benefits. Popularity and effectiveness of benchmarking The Centre for Organisational Excellence Research (COER), is conducting research on behalf of the Global Benchmarking Network to identify the popularity and effectiveness of benchmarking in comparison to other business improvement tools. A survey has been distributed to companies all around the world – the results will enable comparisons between countries. The collection of data is only half way through and so only interim results are shown below. Figure 1 shows some of the results from New Zealand in terms of the popularity of business improvement tools. Informal Benchmarking currently rates as the most popular tool. The data set is 40 companies.

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Figure 1 – Use of business improvement tools in New Zealand Figure 2 shows the effectiveness of business improvement tools from a global data set of 290 companies. Of the types of benchmarking “Best Practice Benchmarking” rates as the most effective followed by “Performance Benchmarking” and “Informal Benchmarking”.

Figure 2 – Effectiveness of business improvement tools

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At the International Conference of Quality Managers, Dr Robin Mann will report on the findings from the final data set. What is the payback from benchmarking? The easy answer to this is that it varies from project to project, since it depends on the aim of each individual project. All projects should begin within a cost/benefits analysis and if the expected benefits are unclear or small, then the project should not proceed. If projects are carefully selected, planned and managed, there is no reason why major benefits (financial and non-financial) should not be obtained. There are many case studies focusing on success gained through benchmarking. The best known of these describe the experiences of Xerox and Chrysler. In the late 70s and early 80s, faced with ruin due to more efficient Japanese competitors, benchmarking turned the giant Xerox organisation around and put it back at the top of the market. At Chrysler, the benchmarking of Japanese new product development techniques prior to the development of the Viper sports car is credited with saving three billion dollars from development costs and one year of development time (Khade & Metlen, 1996). One study of Fortune 500 companies (APQC, 1995) found compelling figures relating to first year payback from benchmarking projects. Within organisations of 'average' benchmarking experience, an average $76-million payback was reported by more than 30 of these companies for their most successful benchmarking project. From 'more experienced' organisations, this figure was a staggering $189.4 million. Even among developing organisations, the study found average first year payback levels at $370,000. COER’s own research indicates that organisations obtain substantial benefits through benchmarking. For instance, New Zealand Benchmarking Club member organisations improved on average by 50 points per year over four years, as assessed against the Baldrige Criteria for Performance Excellence, through their increased focus on benchmarking and business excellence initiatives (Adebanjo and Mann, 2008). COER is currently undertaking further research in this area and will shortly report the benefits obtained from facilitating eight TRADE benchmarking projects in Singapore. What is TRADE? TRADE is a best practice benchmarking methodology developed by COER. The TRADE benchmarking methodology focuses on the exchange (or” trade”) of information and best practices to improve the performance of processes, goods and services. This methodology was initially developed for the New Zealand Benchmarking Club, which existed between 2000 and 2004. Since then, the methodology has been used on many benchmarking projects all over the world. However, it was not until 2007 that the project management system and training materials supporting the methodology were substantially enhanced (bringing together the experience of running many benchmarking projects). TRADE consists of five stages: • • • • •

Terms of Reference (plan the project) Research (research current state) Act (undertake data collection & analysis) Deploy (communicate & implement best practices) Evaluate (evaluate the benchmarking process & outcomes)

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Evaluate - Evaluate the benchmarking process & outcomes -

Deploy - Communicate & implement best practices -

Act - Undertake data collection & analysis -

Research - Research current state -

Terms of Reference – Plan the project © COER Limited, www.coer.org.nz

Figure 3 – TRADE best practice benchmarking methodology Within each of these stages are a number of steps to be followed as part of a benchmarking project. For instance, the Terms of Reference stage consists of the following steps: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Determine area of focus for benchmarking project Develop project brief Form project team Train project team Understand benchmarking code of conduct Prepare Terms of Reference Plan benchmarking tasks Develop documentation system Review Terms of Reference process Obtain approval to start the next stage of TRADE

Organisations using TRADE follow all the stages and steps of TRADE to successfully complete a benchmarking project and identify best practices in the area in which the project focuses. Benchmarking projects should be targeted at a process area or activity that will deliver the best value to an organisation. Often senior managers will have used techniques such as a business excellence selfassessment to determine which projects and their outcomes are likely to deliver the greatest benefits. The project aim can be broad or specific. The project aim may relate to improving the performance of a • • • • • •

process activity/task business improvement tool equipment strategy behaviour

Examples:

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Customer complaint management, e.g. to improve our customer complaint management process to a world-class standard. Balanced Scorecard, e.g. to identify and implement best practices in the application of the Balanced Scorecard. Supplier relationship process, e.g. to become an industry leader for our supplier relationship process. Team culture, e.g. to develop a winning team culture. Recruitment time, e.g. to reduce the time taken to recruit new staff.

Why choose TRADE for best practice benchmarking projects? COER developed TRADE as it determined that many organisations were interested in undertaking benchmarking projects but they did not know how to do so or had failed in implementing benchmarking successfully. COER believes TRADE offers these advantages over most other benchmarking methodologies: • • • • •

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It is flexible and can be used for exploratory (1-12 week) or in-depth (13-36 week) projects. It is easy to explain and communicate, as it only has 5 stages and a memorable name! It provides a step-by-step approach. Within the 5 stages there are simple steps to be followed. It provides a rigorous approach to planning, which ensures that the project will only proceed after a cost /benefit analysis has been undertaken. There is a strong likelihood of success, as projects are supported through a TRADE project management spreadsheet, a comprehensive set of benchmarking resources and template forms, and a benchmarking certification system. It delivers results. After each stage of TRADE the Terms of Reference for the project is reviewed to ensure the project is on-track and will deliver the expected benefits. If not, the project can be stopped or the direction of the project changed. Therefore all projects should deliver the expected results and deliver major benefits (potentially saving or generating millions of dollars for large projects).

Many successful projects have now been completed with TRADE some of which will be described by Dr Robin Mann at the International Conference of Quality Managers. The methodology has become the approved methodology for Singapore’s Public Service, it is actively promoted to businesses by Taiwan’s China Productivity Centre, approved by the Global Benchmarking Network representing over 20 countries, and was first used in the United Kingdom and New Zealand. The use of technology to make benchmarking easier In the 80’s and 90’s benchmarking was mainly confined to large successful private sector organisations and projects tended to be extremely costly but gained very high returns. Today’s technological advancements have transformed communications and opened up a whole new information based world. Any organisation can now access low-cost internet-based benchmarking services and opportunities such as consortia, surveys both on and off line, virtual common interest groups such as forums, and best practice information resources. The Business Improvement Performance Resource (BPIR.com) is one such resource. It was developed by COER to provide information to support benchmarking projects. The BPIR, see Figure 4, is a vast knowledge repository containing databases with thousands of benchmarks, measures, best practices, benchmarking partners, case studies, studies/trends, and full access to well over 200,000 articles covering virtually every aspect of business. The resource can help in any business practice (everything from handling customer complaints, to undertaking performance appraisals, and improving strategic planning processes). COER launched the resource in 2002 and now thousands of organisations are using it as a first port of call for benchmarking best practices, or just individual selfimprovement. Pricewaterhouse Coopers (2003) summed up the potential the BPIR holds for its users when, in its Trendsetter Barometer Survey, it concluded that evidence suggested Benchmarking-database users can achieve 69% faster growth, and 45% greater productivity than non-users. Among its many uses

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the BPIR is a real boon to organisations who want to access best practices and expert advice/opinion but do not have the resources as yet for full-scale benchmarking projects.

Figure 4 – Business Performance Improvement Resource (BPIR) - www.BPIR.com. Conclusion Benchmarking is a proven, powerful tool that can facilitate organisations to improve efficiency, increase value-add, and gain a competitive edge. The rationale underpinning benchmarking is sound, and the benchmarking concept of ‘learning from others’ should be embedded throughout all improvement-focused organisations. Benchmarking projects should be linked to key organisational objectives and support from senior management needs to be both strong and visible. There is little doubt about the potential and versatility of benchmarking as a tool. It has been successfully applied by organisations of different sizes and in different industry sectors and has become one of the most popular management tools. However, it is thought that most organisations use performance benchmarking (comparing of performance) rather than the more powerful but resource intensive approach of best practice benchmarking (comparing and learning from others and implementing best or better practices). COER has developed a best practice benchmarking methodology, called TRADE, and a website, called BPIR.com, which aim to help more organisations undertake and reap the benefits of benchmarking projects. References 1. Adebanjo, D. and Mann, R (2008). Sustainability Of Benchmarking Networks: A Case-Based Analysis Total Quality Management and Business Excellence Journal, Vol 19, No 1-2, p109-124. 2. American Productivity & Quality Center, (1995), Organising and Managing Benchmarking Final Report, APQC, Houston.

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3. Khade, A.S., and Metlen, S.K., (1996), An application of benchmarking in the dairy industry, Benchmarking for Quality Management & Technology, Vol 3, No. 4, pp. 34-41. 4. PWC, (2003), Barometer Surveys: Fast-Growth Companies That Benchmark Grow Faster, Are More Productive Than Their Peers, Link: 12 Sept, PWC.

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