10 Steps to
Best-Practices
Benchmarking
by Charles J. Burke
You have probably encountered the word "benchmarking" before.
You may have assumed that it was just another management tool to be utilized
or rejected according to your individual circumstance. In fact, benchmarking
in the 1990s is not a choice; it is a necessity. The method that Japan adopted
after World War II to create an economic superpower is the same that the
American corporate world must learn to master to survive in the increasingly
competitive global marketplace. The penalty for neglecting proper benchmarking
is loss of competitive edge, at a time when the consequences of such a loss
are more devastating than ever.
The term "bench" comes from topography and refers to a mark
made upon some object in a landscape indicating its elevation, to be used
as a reference point by surveyors. Topographers have the whole landscape
to measure; nothing is concealed. Benchmarking in the business context involves
taking measurements of a corporate landscape whose dimensions will probably
not be immediately apparent. To be successful, it requires a combination
of solid detective work, honest self-examination and the will to innovate.
Four types of benchmarking
There are four basic types of bench-marking:
Internal-The process of comparing one particular operation within your
organization with another. Success in this area is a matter of "the
left hand knowing what the right hand is doing." Internal benchmarking
is by far the easiest, both to research and to implement. Productivity improvement
achieved in this type is usually about 10 percent.
Competitive-The process of comparing an operation with that of your direct
competitors. For obvious reasons, this is the most difficult type of benchmarking
to carry out successfully, and legal considerations must always be kept
in mind. Productivity improvement achieved in this type is usually about
20 percent.
Functional-The process of comparing an operation with that of similar
ones within the broad range of your industry (e.g., copper mining techniques
compared with coal mining techniques). Functional benchmarking is relatively
easy to research and implement. Productivity improvement achieved in this
type may be 35 percent or better.
Generic-The process of comparing operations from unrelated industries
(i.e., ones often used by a wide variety of industries). An example would
be a film library using the warehousing techniques of another industry to
store more efficiently its catalogue of old movies. The advantage of this
type is that the problems of competition do not apply, increasing the access
to information and reducing the possibility of legal problems. Productivity
improvement achieved in this type may be 35 percent or better.
Best practices
The recognition of best practices is somewhat subjective, but to increase
the "objectivity" of identifying a "best practice,"
here are a few guidelines. A practice, method or process may be deemed a
best practice when:
It produces superior results. Superior is defined as 25 percent or higher
results than the normal output.
It is clearly a new or innovative use of manpower or technology.
It is recognized by at least three different references as a best practice
(that is, three or more public domain sources have referenced this practice).
It has received an external award for this practice.
It is recognized by their customers or suppliers.
It is recognized by an industry expert.
When the organization(s) utilizing it have a patent for this practice.
It leads to exceptional performance. An example here would be General
Electric's "Workout" practice.
More than just learning what benchmarking is and what it can do, the organization's
leaders must develop a specific, organized approach to implementing benchmarking.
It is fine to extol the virtues of benchmarking and encourage its use throughout
the organization, but just like any other program, it must be established
into the organization as a working process. The following 10 steps will
keep any organization on track in its benchmarking endeavors.
Step 1-Determine processes
to be benchmarked
This step involves defining as accurately as possible the process to be
benchmarked. It is the cornerstone of the entire benchmarking process. An
incorrect identification at this stage could result in a waste of precious
resources at later stages. Consider the following questions:
Have departmental priorities been established? Determine whether the department
has strongly defined its overall purpose. This includes setting long-term
goals and short-term objectives.
What is the level of change? Does an entire system require rethinking?
Perhaps a particular process within that system needs to be improved. Can
improvement be achieved by upgrading some particular task within the process?
Has the work process to be selected been flowcharted? A good first step
in gaining an overview of the entire process is to flowchart it. This will
help identify problem areas and locate potential trouble areas. Then establish
the critical measurements by which to compare future progress.
How much change is possible? Given your organization's resources and circumstances,
find out whether reforming the process is affordable at the determined level
of change.
Have critical performance measures been determined? Investigate whether
measures have been determined in accordance with customer requirements.
Have the measures been expressed in terms of a ratio or percentage? Are
there other measures and, if so, which measure has priority?
Has a project description been written? Make sure the description includes
the following:
1. A reason for the project
2. Goals and objectives
3. The cost and duration of the project
4. Critical measures
5. Potential gains
6. The project's impact on the entire organization
Gather proof that the project is necessary in terms of potential costs against
potential benefits.
After you've accomplished step 1, you will have a sharply focused, clearly
defined procedure that tells management what needs to be changed, how much
change can be achieved within given limitations and how to measure accurately
your processes against those of others and against your own future projections.
Step 2-Determine organizations
to be benchmarked
This step determines which organizations should be studied by identifying
"the best of the best"-organizations whose practices can be adapted
to your requirements. An incorrect choice could lead to electing partners
that are not true benchmarks for the selected process, that are uncooperative
or whose practices are incompatible or irrelevant to your needs. Consider
the following questions:
From which sources could an effective partner list most likely be created?
Research which published sources (industry periodicals, annual reports,
etc.) would yield the most useful, accurate and up-to-date information.
Find out which reliable individuals or groups (industry experts, watchdog
groups, etc.) could be consulted to expand the list. A good source to consult
is a library, either corporate or public. Librarians usually are eager to
help in such efforts.
Which of the preliminary organizations selected are really "the best
of the best"? Determine which prospective partners truly are the benchmarks
for your organization.
Are the systems of the selected organizations really comparable? Select
the organizations with practices that are the most compatible with yours.
Is sufficient and accurate data obtainable? Decide which prospective partners
would be expected to produce the most reliable information. Then see which
organizations (e.g., foreign entities) would present the fewest logistical
problems when gathering data. Also, figure out which organizations would
be the least likely to present legal problems when gathering data. From
which organizations would cooperation most likely be obtained?
When you've gone through step 2, you will have compiled a large list from
which to choose organizations to contact as potential partners, based on
the superior quality of their processes.
Step 3-Gather data
This step involves creating a plan for collecting data from selected targets,
conducting site visits and creating a site visit report. The correct implementation
of this step will result in data that can be used directly to enhance your
organization's performance. Incorrect implementation of this step could
result in data that is useless or inadequate to your purposes. Consider
the following questions:
Has an adequate data-collection plan been created? Determine what are
the simplest data sources and the most difficult. Then figure out which
data would have the most value. Other important factors are the time and
cost limitations of collecting data.
Which are the best sources of practice data? Decide which combination
of the four types of sources-internal, published, external or original research-would
yield optimal results.
Have the best internal sources been consulted? Good sources to consult
are your organization's library and other internal groups or teams.
Have the best published sources been consulted? Internal publications
(e.g., annual reports, quarterly reports) of the target organizations should
be studied as well as any periodicals and directories containing information
about the target organizations. Appropriate data bases can also lead to
pertinent information.
Have the best external sources been consulted? You can acquire significant
information from professional organizations dealing with the business of
your target organizations. You can also gain valuable information by contacting
industry experts and independent consultants.
Has original research been carried out? Identify the appropriate contact
person of each benchmarked organization. Make sure to notify all contacts
by telephone, explaining that their organization has been selected as a
potential benchmarking partner. Explain the purpose of the process in clear
language.
Proceed by preparing a preliminary survey from a checklist of topics to
be covered. Do the questions emphasize process and customer-satisfaction
measures? Fifteen or fewer questions are usually appropriate. Make sure
they are objective and presented in an appropriate format (preferably multiple
choice).
Then send the preliminary survey to the contact person. Where appropriate,
conduct telephone interviews. Perform personal interviews with target personnel.
After selecting the most appropriate benchmarking partners, decide where
to conduct site visits.
Have the proper preparations been made for your site visits? Prepare a
site visit plan and send a summary of the topics that will be covered to
the contact person. Determine which questions to ask, keeping in mind the
questions that are more important than others for a particular target. It
is best to have the questions reviewed by an internal source to confirm
their relevance.
Has the proper procedure been followed before, during and after the site
visit? When notifying the contact person at the target organization of the
impending visit, confirm that the contact person understands its purpose.
Make sure to send the contact the necessary information (questions, etc.)
in advance of the meeting.
On arriving at the site, the team should repeat its mission to the contact
person. Obviously the appropriate questions should be asked during the visit,
and the team should personally observe the process to be benchmarked. Instruct
them to make extensive written observations of the process and to document
observations as soon as possible after the visit. The agenda should allow
for equal time for both benchmarking teams.
Has a site visit summary report been prepared? The report should accurately
reflect the documentation of the site visit.
Have the appropriate ethical issues been considered? In obtaining information
from a competitor, avoid any possibility of misrepresentation. Always approach
consultants or former employees of the target organization with total candor
and in an appropriate manner. Be careful to identify whether any of the
information prepared could be considered proprietary (e.g., insider trading).
Upon finishing step 3, your organization will have complete, accurate and
relevant data with which to compare its own processes with "the best
of the best."
Step 4-Analyze for gaps
This step involves analyzing the data collected, discovering to what degree
present performance lags behind the best in each area and combining the
best features from the best practices into an ideal process. The correct
implementation of this step will result in a clear picture of your processes
in comparison with others in your business or industry. The incorrect implementation
of this step could result in vague information that would not ultimately
be useful in improving your operations. Consider the following questions:
How can the data compiled in step 3 be most effectively analyzed? Make
sure to properly analyze the results of the benchmarked organization(s)
in terms of output and customer satisfaction. Also analyze thoroughly the
results in terms of the work practices leading to them. Express both results
quantitatively.
How does each best practice compare with your organization's practice
for each procedure involved? Create a chart that compares the benchmarked
organization's practice with your own. Have the correct measures been employed
for comparison (e.g., cost, speed, ease of use)? Has the difference between
the benchmarked organization's practice and your own been expressed in quantitative
terms?
How can the best practices from these sources be combined? The best practice
for each of the procedures involved should be combined into a single ideal
process. How could the overall output of the process be projected? You may
find that some procedures need to be eliminated because of cost or other
considerations.
After you've accomplished step 4, relevant features from each of the best
practices will combine into an ideal practice that can be implemented within
budgetary and other constraints of your organization.
Step 5-Determine future trends
During this step, your team will examine your organization's past performance
in relation to its competitors, forecast potential change in your industry
and project future performance, both with and without the proposed benchmarking
changes. The correct implementation of this step will give management a
clear idea of its options and allot it a realistic conception of the potential
benefits of adopting the benchmarking practices. An incorrect implementation
of this step will give management an incomplete or inaccurate picture of
its options. Consider the following questions:
What have been the industry trends of the recent past? Determine the measure
(e.g., revenues, productivity), related to the practice being benchmarked,
by which your organization can most appropriately be compared to others.
Based on this measure, figure out the benchmarked organizations' recent
performance, as well as your organization's performance.
What is the current performance gap? Compare your organization's current
performance with the benchmarked organization. Is the gap widening or narrowing,
according to recent trends? Discover the reason, based on the data analyzed
in step 4, for the gap and its increase (or decrease).
What will be the future performance gap if no benchmarking changes are
implemented? By projecting past trends into the future and allowing for
anticipated changes, learn what the benchmarked competitors' position will
be within the next specified time period. Decide what your organization's
position will be if no benchmarking changes are made. Will the gap widen
or narrow?
What will be the future performance gap if all proposed benchmarking changes
are implemented? If the proposed benchmarking changes are implemented, determine
your organization's position, in comparison with its competitors, within
a specified time period. Has the change been expressed quantitatively (e.g.,
dollar amounts, percentages)? Has the potential benefit of the change been
compared with the estimated cost (e.g., equipment, production delays, etc.)
of its implementation?
Upon completing step 5, you will have identified the quantitative benefits
of implementing the proposed benchmarking changes.
Step 6-Reveal results
and sell the process
This step involves communicating the benchmarking results and their implications
to significant audiences in the organization and motivating them to carry
out changes. The correct implementation of this step will result in a complete
understanding by the target audiences of the necessity for changes in the
processes involved and a desire to carry them out. Incorrect implementation
of this step will leave both management and employees confused or inadequately
informed, reducing the potential for effective change. Consider the following
questions:
Which audiences should be addressed? Decide whether the organization's
entire management needs to be "sold" on the changes or only some
managers. Educate those departments that need to be educated about the changes,
and inform the entities outside the organization (e.g., customers, suppliers)
that need to be informed.
How is the report to be written? Determine what kind of publications (e.g.,
full-length report, newsletter, video presentation) would be most appropriate
to communicate the benchmarking results, based upon the nature of the organization
and its goals. Express the purpose of the benchmarking process in the appropriate
manner. Has emphasis been placed on the results of the study, rather than
methodology? Has emphasis been placed on fact rather than opinion?
Has understanding and commitment been obtained from the target audience?
Check the feedback from the report to see whether it indicates that the
target audiences understand the necessity for change. Gain management approval
for the concept of an implementation program. Also ensure that nonmanagement
employees are completely "on board" for the changes. Do the outside
entities involved understand how the changes will benefit them?
Step 6 will ensure that the advantages of change have been explained to
the parties involved in order to motivate them to carry it out.
Step 7-Achieve consensus
on revised goals
This step involves revising goals to close the performance gap determined
in step 5 and achieving consensus on those goals. The correct implementation
of this step will create realistic and unambiguous new standards for the
processes involved. Incorrect implementation of this step could create poorly
understood or unrealistic standards that would only increase the frustration
level of both management and employees. Consider the following questions:
Have operational goals been effectively and realistically revised? Determine
what type of change (e.g., basic goal priorities, measurement units, quantity
or frequency of units processed) must be implemented. All goals should be
expressed in quantifiable, easy-to-measure terms. The degree of change should
also be realistic based upon benchmarking findings.
What impact will the revised goals have within the organization? Some
departments may need to be reorganized, and some employees' positions will
need to be redefined, created or eliminated. Also, some lines of authority
may need to be altered. Analyze how the revised goals will impact departments
not targeted for change. How will these changes be justified to the parties
affected?
What impact will the revised goals have outside the organization? Try
to ascertain what effect the changes will have on customers and suppliers.
Then decide in what detail they should be informed of changes and how to
present the changes to generate support rather than anxiety.
Has management committed to the specific revised goals? Management must
understand the proposed goals and fully support them. And management must
communicate the goals to all affected employees in such a way as to obtain
their full commitment.
Step 7 establishes clear-cut goals that management has approved and that
all employees understand.
Step 8-Establish action plans
This step establishes the step-by-step plan designed to bring about the
goals created and approved in step 7. Incorrect implementation of this step
could result in vague procedures which would either be rejected by management
or would prove unworkable if approved. Consider the following questions:
In what order should work practices be implemented? Choose the factors
(time, cost, software, etc.) that are most crucial in determining priorities.
Discuss the pros and cons of each factor. Then analyze all factors so that
a schedule of action can be determined. Project future performance based
on the schedule of action.
Has the procedure been prepared? Break down all tasks into comprehensible
steps, with specified results. Then put the tasks in sequence. Determine
which resources are needed to accomplish the tasks.
Has management approved the procedure? Clearly articulate the plan's elements
(task breakdown, costs, etc.) to management.
Have individuals been empowered to manage the process? Identify the appropriate
level of management for the procedure (e.g., line manager, management team,
process owner). Select the employees and give them the training and authority
to manage the process.
Has the implementation plan been printed and displayed? Create the complete
plan in printed form. Display the plan so that tasks, responsibilities and
deadlines can be clearly seen and understood.
Upon completing step 8, management has approved the specifics of the plan,
appropriate individuals have been empowered to carry it out, and every individual
knows what changes in his or her work procedure are expected.
Step 9-Implement plans
and monitor results
This step involves executing the approved best-practice procedures and the
day-to-day monitoring of changes. The correct implementation of this step
will result in a closely watched process in which deviations from the plan
will be corrected and the ultimate goals achieved. Incorrect implementation
of this step could result in inaccurate or spotty measurement, leading to
poor control of the process and disappointing overall results. Consider
the following questions:
Have timeline charts been created? Make sure that the charts accurately
reflect the factor to be measured over the selected period of time.
Have control charts been created? Charts must accurately measure the factor
to be controlled (e.g., unit cost, quantity per hour) over the selected
period of time.
Has any variance from the plan been dealt with effectively? Appropriate
action needs to be taken as soon as deviations are detected. Keep lines
of communication open to all affected parties, providing feedback on the
process.
Has final evaluation been made of the benchmarking process? Accurately
record the results, and determine whether acceptable goals have been achieved.
Prepare a final report, including which elements of the incorporated changes
should be rejected and which should be accepted as permanent practices within
the organization.
Step 9 develops procedures to enable close monitoring of the changes and
tracking of results so that, over time, successful elements of the new practices
can be retained and the less successful ones eliminated.
Step 10-Recalibrate benchmarks
This step ensures the organization remains on the cutting edge by continuously
evaluating the benchmarked practices and reinstituting the benchmarking
process when necessary. The correct implementation of this step prevents
complacency by creating the habit of evaluating procedures for their potential
for improvement. The incorrect implementation (or nonimplementation) of
this step fosters the illusion that any successful benchmarked practice
creates a permanent improvement, resulting in a false sense of security
and possible future loss of competitive edge. Consider the following questions:
How often do the processes need to be recalibrated? The period between
benchmarking studies should be realistic in terms of the nature and goals
of the organization. The organization may be planning systemic changes that
would make new benchmarking necessary. The level of customer satisfaction
must constantly be monitored for the potential need to recalibrate. Also,
management must commit fully to repeating the 10-step process when necessary.
Has a plan been developed for recalibrating? The need for periodic recalibration
should be communicated to all levels of the organization. Decide whether
the new benchmarking process will be complementary to the previous one or
will represent a new area of improvement.
What additional factors are relevant? Investigate what industry changes
(systemic, technological) have occurred since the prior benchmarking process
that would impact a new one.
After completing step 10, the organization will understand when and how
it needs to recalibrate benchmarks and will never put itself at risk by
becoming complacent.
The success of a benchmarking process depends on the organization's permanent
commitment to the process. A particular benchmarking change will often be
temporary. To sustain market leadership, however, the habit of benchmarking
must be a permanent part of the organization's culture.
Benchmarking Studies
Benchmarking engagements might typically involve:
Benchmarking Process Improvements: The most extensive type of benchmarking
services, these studies are not limited to competitors or functions. They
typically require from 90 days to a year to complete, including implementation
time.
Competitive Benchmarking: Identifying best practices among direct
competitors. These studies can typically be completed in 60 to 120 days.
Benchmarking Lite: Short-term research that entails collecting
key metrics from a number of participating organizations. In general, these
studies can be completed in 60 to 90 days.
Best Practices Example
A vivid example of a best practice is demonstrated by SRC in Springfield,
Missouri. Convinced that everyone is responsible for the company's success,
SRC's management team trained every employee in "cash flow management,"
a tool that has enabled the company to generate double-digit growth every
year since its founding 12 years ago. SRC has grown in 12 years from one
company of 100 employees to 12 employee-owned companies in 16 sites with
750 people. SRC has been named the "Entrepreneurial Company of the
Year" by Inc. magazine for the last three years. The current
turnover rate is less than 1 percent.
The 10 Steps of Benchmarking
1. Determine processes to be benchmarked.
2. Determine organizations to be benchmarked.
3. Gather data.
4. Locate deficiencies.
5. Determine future trends.
6. Reveal results and sell the process.
7. Achieve consensus on revised goals.
8. Establish procedures.
9. Implement procedures and monitor results.
10. Recalibrate benchmarks.
About the author . . .
Charles J. Burke is a benchmarking consultant with KPMG Peat Marwick
LLP in Dallas, Texas. He is responsible for assisting the firm with internal
benchmarking activities and client engagement opportunities.Burke is committed
to assisting organizations with their understanding and use of benchmarking
and other quality tools and processes that lead to significant productivity
improvements.Reprinted with permission from Benchmarking Handbook. ©
1995 KPMG Peat Marwick LLP. All rights reserved.