B ENCHMARKING

C ONSIDERATIONS
CUSTOMER & COMPETITIVE INTELLIGENCE FOR
PRODUCT, PROCESS, SYSTEMS & ENTERPRISE EXCELLENCE

DEPARTMENT OF STATISTICS
REDGEMAN@UIDAHO.EDU OFFICE: +1-208-885-4410

DR. RICK EDGEMAN, PROFESSOR & CHAIR – SIX SIGMA BLACK BELT
 Performance o n s
t i
c ta
p e Performance Gap
Ex
e n t
rov em
p
uo us Im
t i n
Con

Time

Customer Expectation Dilemma

 Benchmarking
Benchmarking is the process of continually searching for the
best methods, practices and processes, and either adopting
or adapting their good features and implementing them to
become the “best of the best.”

Use benchmarking both for comparison of performance as well as to

understand the potential for improvement

How is benchmarking used?

• Compare performance of an existing process against other
companies’ best-in-class practices
• Determine how those companies achieve their performance
levels
• Improve internal performance levels
Types of Benchmarking
Competitive Benchmarking
Functional Benchmarking
Internal Benchmarking
Product Benchmarking
Process Benchmarking
Best Practices Benchmarking
Strategic Benchmarking
Parameter Benchmarking
 Benchmarking
Methodology
Best Practice
Overlap Competitive
• Industry leaders
• Top performers with
similar operating
characteristics

Functional Internal
• Top performers • Top performers
regardless of industry within company
• Aggressive innovators • Top facilities
utilizing new within company
technology
 Benchmarking
Methodology
Checklist
1. Identify Process to Benchmark
 Select process and define defect and opportunities
 Measure current process capability and establish
goals
 Understand detailed process that needs
improvement
 Benchmarking
Methodology
2. Select Organizations to Benchmark
 Outline industries/functions which perform your
process
 Formulate list of world class performers
 Contact the organization and network through to
key contact
 Benchmarking
Methodology
3. Prepare for the Visit
 Research the organization and ground yourself
in their processes
 Develop a detailed questionnaire to obtain
desired information
 Set up logistics and send preliminary documents
to organization
 Benchmarking
Methodology
4. Visit the Organization
 Feel comfortable with and confident about
your homework
 Foster the right atmosphere to maximize
results
 Conclude in thanking organization and ensure
follow-up if necessary
 Benchmarking
Methodology
5. Debrief and Develop an Action Plan
 Review team observations and compile report of
visit
 Compile list of best practices and match to
improvement needs
 Structure action items, identify owners and
move into Improve phase
 Benchmarking
Methodology
6. Retain and Communicate

 Report out to business management and 6σ

leaders
 Post findings and/or visit report on local
server/6σ bulletin board
 Enter information on benchmarking project
database
 Sources of Information
Library Database
Internal Publications
Industry Publications
Functional Trade Publications
Industry Data Firms
University Sources
Newspapers
Newsletters
Customer Feedback
Telephone Surveys
Networks
Internal Reviews
Professional Associations
Special Industry Reports
Seminars
Industry Experts
Company Watches
Advertisements
Original Research
Supplier Feedback
Inquiry Service
World Wide Web
Policy regarding benchmarking protocol should be
communicated to all employees involved, prior to
contacting external organizations. Guidelines should
address the following areas:
 Misrepresentation – do not misrepresent your identity
in order to gather information
 Information requests – a request should be made only
for information your organization would be willing to share with
another company
 Sensitive / proprietary information – avoid direct
benchmarking of sensitive or proprietary information
 Confidentiality – treat all information as confidential

Benchmarking Compliance
 Benchmarking Compliance
 Avoiding inappropriate communication and
contacts with competitors.

 Never propose, enter, or engage in a discussion

related to any agreements with a competitor to fix
prices, in terms or conditions of sale, costs, profit
margins, or other aspects of the competition.

 Keep communications with competitors to a

minimum – make sure there is a legitimate
business reason for all such communications
 Benchmarking

Best Practices, Processes & Products

 Benchmarking
(A) The process of identifying and learning from best
practices anywhere in the world is a powerful tool in the quest
for continuous improvement.

(B) The systematic process of searching for best practices,

innovative ideas, and highly effective operating procedures that
lead to superior performance.

Learning by borrowing from the best and adapting their

approaches to fit your own needs is the essence of
benchmarking. It has broad applications in problem solving,
planning, goal setting, process improvement, innovation,
reengineering, and strategy setting. It is a fundamental
business skill that supports quality excellence.
 Benchmarks & Benchmarking:
Ideas & Definitions
 Benchmarking: is the on-going search for best practices that produce
superior performance when adapted and implemented in one’s own
organization.
 Emphasis: On-going outreach activity
 Goal: Identification of best operating practices
 When Implemented: Produces superior performance.
 Benchmarking: is the actual process of investigation and discovery that
emphasizes the operating procedures as the things of greatest interest and
value.
 Benchmarks: are measurements to gauge the performance of a function,
operation, or business relative to others.
 Enablers - the Means to the Ends

SOFT MEDIUM HARD

Training Goals & Objectives Plant

Communication Sequence Suppliers

Empowerment Controls Money

Attitude Measures Technology

Management Policies & Equipment

Involvement Procedures

Best Practices - the Ends

 Benchmarks & Benchmarking:
Managing Change
• Best Practices Benchmarking can be described as
the process of seeking out and studying the best internal and
external practices that produce superior performance.
– Don’t reinvent what others have learned to do better!
– Borrow shamelessly!
– Adopt, adapt, advance!
– Imitate creatively!
– Adapt innovatively!
 Process Benchmarking
• Process benchmarking focuses on discrete work processes
and operating systems, such as the customer complaint
process, the order-and-fulfillment process, or the strategic
planning process.
• Process benchmarking seeks to identify the most effective
operating practices from many companies that perform
similar work functions.
• Its power lies in its ability to produce bottom-line results. If
an organization improves a core process, for instance, it can
then quickly deliver process improvement
 Performance Benchmarking
• Performance benchmarking enables managers to assess
their competitive positions through product and service
comparisons.
• Performance benchmarking usually focuses on elements
of price, technical quality, ancillary product or service
features, speed, reliability, and other performance
characteristics.
• Reverse engineering, direct product or service comparisons,
and analysis of operating statistics are the primary techniques
applied during performance benchmarking.
 Strategic Benchmarking
• Strategic benchmarking examines how
companies compete and is seldom industry-
focused. It roves across industries seeking to
identify the winning strategies that have enable
high-performing companies to be successful in their
marketplaces.
• Strategic benchmarking influences the longer-
term competitive patterns of a company.
Consequently, the benefits may accrue slowly.
Benchmarking

Code of Conduct
 Benchmarking Whys &
•
Hows
Benchmarking represents a versatile process management
tool that helps organizations identify and understand what
constitutes best operating practices.
• Benchmarks are the operating statistics or measures that
define the achievement level of any given practice or system.
• These are not in and of themselves enough since they
provide no insight into the root causes of performance
differences.
• A flexible set of benchmarks reflects full process or
system capabilities. Performance indicators may include
dimensions such as cost, productivity, cycle time, yields,
error rates, waste and turnover.
 Range of Benchmarks
FOCUS Benchmark Levels Type Improvement
Benefit

STRATEGIC Best-in-World 7 Generic Processes 30%

* Product / Services
* Business Processes
* Business Function
Best-in-Country 6 Functional Areas 30%-40%

PERFORMANCE Industry Leader 5 Direct Competitor 15%-20%

* Customer Satisfaction Norm 4
* Output : Standard 3
--Products & Services
PROCESS Best-in-Company 2 Internal 15%
* Practices & Capability
* Inputs:
-- Material/Supplier Baseline 1
Benchmarking Architecture

Performance Measures
 Cycle
Time Customer Cashflow Debt
Satisfaction

Profitability
Training Costs

Employee Capital
Retention Expenditures
Referral Assets
Rates
Quality
Customer
Defect Retention Liabilities Sales
Rates

Dashboard of New Performance

Measures
 Designing Successful Benchmarks:
Effective Performance Benchmarks Reflect the Most Important
Operating Dimensions of a Business Process, System, or Function.

• MEASUREMENT FOCUS
– Determine where in a work area or process that value for the
customer is created;
– Determine where value is detracted through high costs,
errors, rework, or accidents; and
– Target benchmarks in areas where performance diverges
from designated standards, or where variation above and
below standards is greatest.

• MEASUREMENT PERSPECTIVE
– Leading indicators foreshadow or anticipate future system
outcomes. Leading indicators are thus “proactive” or
“preventative”.
– Lagging indicators such as traditional financial measures are
“reactive” or “descriptive” of the actual results of a system
or process in a given time period.
 Designing Successful Benchmarks
• MEASUREMENT CONTROL
– People are always the principal factor affecting the degree
of measurement control. Managers fail at performance
improvement when they evaluate individual or system
performance using benchmark measures that are
uncontrollable by the people overseeing the process.
– Therefore benchmarks that are designed for performance
improvement must be crafted to reflect the individual level
of authority, responsibility, and skills of those people
expected to work with the benchmarks.

• DATA COLLECTION
– After defining performance measures, managers must be
able to readily collect the data from which performance
benchmarks are constructed.
– Many organizations develop interesting performance
measures only to discover that they currently do not collect
the required information and do not have the resources to
do so.
 A Benchmark Design Architecture
The first step in designing a performance
benchmark system is to create measures that will
enable management to achieve the organization’s
strategic objectives.
The second step in designing a benchmark
architecture requires managers to create an
agreed upon vocabulary describing performance
measurement in your organization.
The third step is to develop plans to collect,
process, and analyze the performance measures.
 Designing a Benchmark Architecture:
Ten Generic Benchmark Categories

 Customer-service performance;
 Product / service performance;
 Core business process performance;
 Support processes and services performance;
 Employee performance;
 Supplier performance;
 Technology performance;
 New product/service development and innovation performance;
 Cost performance;
 Financial performance.
 Customer-Service Performance Measures:
The Best Customer-Related Measures Come from Objective and
Valid Data Collected Directly from Customers

 Customer-service performance measures typically probe

organizational performance in the following areas:
 Overall Customer Satisfaction with Products & Services;
 Customer Evaluations of Sales & Service Representatives;
 Customer Assessments of Your Organization’s Understanding of Customer Needs;
 Customer Ratings of How Clearly Your Organization Communicates Cost Information
& How Well the Organization Suggests Customer Solutions
 Customer Appraisals of Delivery Timeliness;
 Customer Impressions About the Usefulness of Your Organization’s Product &
Service Documentation;
 Customer Feelings Concerning How Easy it is to Conduct Business with Your
Organization;
 The Value Customers Place on Your Organization’s Products & Services.
 Product/Service
Performance Measures
Product & Service Performance Benchmarks
Include Measures of:
Accuracy, Reliability, Timeliness, Order Ease, Delivery,
Packaging, Ease of Assembly & Use, Documentation, Billing,
After-Sales Service, and Effective Complaint Management.

These May Also Include:

Warranty Exchanges and Returns,
Unit Productivity & Cost, Cycle Time for Key Intervals,
and Market Share.
 Business Process Performance Measures
A simple process analysis model can help identify your
organization’s most important workflows. This model
reveals that all work can be viewed in
four sequential stages:
1. Inputs (including those from both employees & suppliers);
2. Processes (including internal operations & support services);
3. Outputs (your organization’s products, services, and
documentation); and
4. Customer Satisfaction.

In the following graphic (the input-output process model) we begin with

inputs that can be tangible (such as supplies, raw materials, and
component products) or intangible (such as information) which are
delivered to the work process, which transforms them into some final
output which might be a product or service. The goal of the output is to
create satisfied and loyal customers.
 Inputs Processing Outputs Customers

People Design of
Products/ Customer
Raw Materials Services Products Needs
Satisfied
Components Production of Services
Products Customer
Problems
Customer Performance Documentation
Solved
Requirements of Services
Results Customer
Capital Delivery of Requirements
Products/ Met
Services

Input-Output Process Model

 Common Performance Measures of
the
Input-Output Process Analysis Model
Enhanced customer value - often observed through added product features or
reduced costs;
Production costs, frequently described as cost per hundred, thousand, or
million;
Responsiveness and/or process cycle time;

Defect, error, waste, problem, or failure rates, often formatted as defects per
1000 or million output units;
Productivity & resource utilization, often reflected in transactions per person,
inventory turn rates, or projects operating within budget;
Public safety and / or legal responsibilities, sometimes observed in accident
rates, employee absentee rates, regulatory citations, or litigation rates.
 IBM Xerox British Telecom
Marketing Information Capture; Customer Engagement; Direct Business;
Marketing Selection; Inventory Mgt. & Logistics; Plan Business;
Requirements; Product Design / Engineering; Develop Processes;
Hardware/Software Development; Product Maintenance; Manage Process Operations;
Service Development; Technology Maintenance; Provide Personnel Support;
Production; Production & Operations Mgt. Market Products & Services;
Customer Fulfillment/ Relationship; Marketing Management; Provide Customer Service;
Service Customer Feedback; Supplier Management; Manage Products & Services;
Marketing; Information Management; Provide Consultancy Services;
Solution Integration; Business Management; Plan the Network;
Financial Analysis; Human Resources Management; Operate the Network;
Plan Integration; Leased & Capital Asset Mgt. Provide Support Services;
Accounting; Legal; Manage Information Resource;
Human Resources Financial Management. Manage Finance;
IT Infrastructure Provide Technical R&D

Examples of Key Business Processes

 Support Processes / Services
Performance Measures
Support services are activities and operations that
enable your organization’s core production and
delivery processes.

They include functions such as finance, software

services, marketing, public relations, information
services, purchasing, legal services, and facilities
management.

Examples for various areas follow.

Performance Measure Examples
Accounting
Percentage of Late Payments
Time to Respond to
Customer Requests
Number of Billing Errors
Number of Payroll Errors
Purchasing
Purchase Order Errors
Downtime Due to Shortages
Excess Inventory
Cycle Time (from start of
purchase to receipt in-house)
Information Services
Number of Errors / Code Line
Percent of Reports Received
on Schedule
Number of Rewrites
Number of Errors Found After
System Accepted by Customer
Product Engineering
Project Completion Cycle Times
Engineering Changes/ Document
Number of Errors Found During
Design Review
Number of Errors Found in
Design Evaluation
Marketing
Accuracy of Forecast
Assumptions
Number of Incorrect
Order Entries
Overstocked Field Supplies
Contact Errors
Quality Control
Percentage of Lots Rejected
in Error
Number of Engineering Changes
Detected After Design Review
Errors in Reports
Cycle Time for Corrective Action
 Employee Performance Measures
Employee Performance Benchmarks Cover a Wide
Range of Employee Activities that May Include:

Employee Development; Employee Education;

Employee Empowerment; Employee
Recognition;
Employee Recruitment; Employee
Absenteeism;
Employee Turnover; Employee Grievances;
Employee Safety/Accidents; Employee
Involvement;
Employee Morale; Employee
Performance Appraisal;
Employee Promotion;
Employee Succession Planning.
 Technology & Innovation Related
Performance Measures
Technology-related measures reflect the productivity,
deployment, and effective use of computers and other
technology in an organization.

Measure range broadly from processing speeds,

deployment percentages, network down time and error
rates.

In turn, innovation-related performance indicators reflect

issues such as product development times, employees’
suggestion rates, new product sales as a percent of total
sales, and process improvement rates.
 Supplier Performance Measures
Supplier performance measures help an organization
qualify or certify the vendors with which it will work.

These benchmarks then help the organization monitor

and manage on-going supplier performance.

Supplier performance metrics often include measures of

cost, quality, reliability, speed or responsiveness, agreed-
upon service levels, and product specifications.
 Cost Performance Measures
Cost performance measures are broad and flexible. They
include balance sheet liability requirements and
information drawn from cost centers throughout the
organization.

Companies can develop useful benchmarks by producing

cost ratios for specific products, services, organizational
units, processing steps, inputs, and labor.

A mortgage company, for instance, might use such

measures as cost per loan application, cost per loan
processing,human resources cost per loan, data processing
costs per 100 bills, and service cost per loan.
 Financial Performance Measures
Financial measure include performance indicators
required by stock exchanges, security analysts, public
accounting firms, regulatory agencies, and other
organizations that may oversee reporting standards in
your organization’s industry.

Many of these measures make up the items on income

statements, balance sheets, and cash flow statements,
including measures such as revenue, gross profit,
operating income, net income, earning per share, long-
term debt, book value, cash flow, debt/equity ratio,
days/ receivables ratio, current ratio, and so on.
 Benchmarking
Critical Success Factors
Adopt, Adapt, and Advance: A well-designed
performance measurement and benchmark system is
essential, but there are other critical success factors:
 Senior management support;
 Benchmarking training for the project team;
 Useful information technology systems;
 Cultural practices that encourage learning;
 Resource dedication - especially in the form of
time, funding, and useful equipment.
 Selected

Benchmarking Processes
 A Generic Benchmarking
Process:
The Simple, Consensus
From the StrategicModel
Planning Institute’s (SPI)
Council on Benchmarking has developed the
following model:
1. Launch
2. Organize
3. Reach Out
4. Assimilate
5. Act
Xerox 12-Step Benchmarking Process
 Phase 1: Planning
1. Identify what to benchmark;
2. Identify comparative companies;
3. Determine data collection method & collect
data.
 Phase 2: Analysis
4. Determine current performance gap;
5. Project future performance levels.
 Phase 3: Integration
6. Communicate finding and gain acceptance;
7. Establish functional goals.
 The Xerox 12-Step Benchmarking Process
(continued)

 Phase 4: Action
 8. Develop action plans;
 9. Implement specific actions & monitor progress;
 10. Recalibrate benchmarks.

 Phase 5: Maturity
 11. Attain leadership position ;
 12. Fully integrate practices into processes.
 Attributes of
Benchmarking Studies:
Success vs. Failure
Success Failure
Process Owner Involvement Sponsorship Uncertain
Customer Driven Objectives Amorphous Objectives
Linked to Strategic Plan No Strategic Integration
Best Practices & Enablers Performance Metrics Only
Consider Cultural Attributes “Hard” Data Only
Disciplined Methodology Arbitrary / Casual Approach
Quantum Change Incremental / No Change
Clear Project Life Cycle Keep Going and Going and …..

Integrated with Existing A la carte Program

Quality Efforts
 Management’s
Benchmarking Challenge
Commit required resources to key projects;
Provide focused training / facilitation to project
participants;
Proactively manage the direction and momentum of
benchmarking within the organization;
Create visibility of the benchmarking process;
Recognize benchmarking team efforts.
B ENCHMARKING
C ONSIDERATIONS

End of Session
DEPARTMENT OF STATISTICS
REDGEMAN@UIDAHO.EDU OFFICE: +1-208-885-4410

DR. RICK EDGEMAN, PROFESSOR & CHAIR – SIX SIGMA BLACK BELT