Benchmarking Defined

Benchmarking has been around since the early 1980s, but it wasn’t until the early 1990s that it became a widely ac­cepted means of improving company performance. In 1985, almost no benchmarking activity existed among the Fortune 500 companies. By 1990, half of the Fortune 500 compa­nies were using this technique. Today companies large and small find benchmarking to be an effective component in their total quality effort. If there is a single most likely rea­son for the slow rise in benchmarking popularity, it is a mis­understanding of the concept—a misunderstanding of what benchmarking is, what it is not, and how to do it. It helps to begin with an examination of what benchmarking is not.

All of these misconceptions about benchmarking assume that one party somehow takes advantage of an unsuspect­ing competitor by surreptitiously copying the competitor’s
product or processes. Nothing could be further from the truth. Benchmarking involves two organizations that have agreed to share information about processes or operations. The two organizations both anticipate some gain from the ex­change of information. Either organization is free to withhold information that is considered proprietary. In addition, the two companies need not be competitors.

Benchmarking is the process of comparing and measur­ing an organization’s operations or its internal processes against those of a best-in-class performer from inside or outside its industry.

Benchmarking is finding the secrets of success of any given function or process so that a company can learn from the information—and improve on it. It is a process to help a company close the gap with the best-in-class performer without having to “reinvent the wheel.”

A distinction exists between benchmarking and com­petitive analysis. Competitive analysis involves comparing a competitor’s product against yours. It compares the features and pricing of the product. Consumers perform competi­tive analysis when they compare competitors’ products as they try to determine which brand of high-definition televi­sion or automobile to purchase. Benchmarking goes beyond that to comparing how the product is engineered, manufac­tured, distributed, and supported. Benchmarking is inter­ested not so much in what the product is and what it costs as in the underlying processes used to produce, distribute, and support it.

Finally, and most important, benchmarking is a tool to help establish where improvement resources should be allocated. If, for example, it is discovered that three of five processes are nearly as good as the best-in-class performers, but two are significantly off the best-in-class mark, the most resources should be allocated to these two. The most benefit for the dollars invested will come from changing those pro­cesses to conform more nearly to the best-in-class. Relatively little will be gained by drastically changing a process that is already close to the best there is. Key points to remember about benchmarking are as follows:

• Benchmarking is an increasingly popular improvement tool.
• Benchmarking concerns processes and practices.
• Benchmarking is a respected means of identifying pro­cesses that require major change.
• Benchmarking is done between consenting companies that may or may not be competitors.
• Benchmarking compares your process or practice with the target company’s best-in-class process or practice.
• The goal of benchmarking is to find “secrets of suc­cess” and then adapt and improve them for your own application.
• Benchmarking is equally beneficial for both large and small businesses.

1. Benchmarking Versus Reengineering

Benchmarking involves partnering with the owner of a best- in-class process so that you might adopt or adapt that pro­cess in your operation without having to spend the time and energy to try to design a duplicate of the superior process. Process reengineering requires you to do the latter, on your own. Therefore, in our view, process reengineering should be considered only when it is impossible to use benchmarking. That could happen for a number of reasons, including these:

• No known process available for benchmarking (rare)
• Best-in-class not willing to partner
• Best-in-class inaccessible due to geography or expense

If your subject process is unsatisfactory and you can­not benchmark for any of these reasons, you may have to resort to reengineering. You should be careful to consider the reasons the process is unsatisfactory. It may simply be the wrong process for the job, or it may be out of statistical control. Reengineering will not solve either of those prob­lems. Be sure that the process is appropriate and that it is in control first. If it is still not producing the desired results, suggesting that it is simply not capable, then redesigning it through reengineering is a good approach. One disadvan­tage with process reengineering is that there is no guarantee that after spending the time and resources, you will have a competitive process. That issue does not exist with bench­marking. With benchmarking, you will have observed a competitive process in action.

When we set out to improve our processes, we normally flowchart them to help us understand how each process really works and to give us a visual impression of the steps, people, and functions involved. Improvement typically comes about by changing or eliminating activity in the process that does not add value or consumes too much time or resources, and so on. There is an alternative way to go about this, and that is to abandon the current process and replace it with a brand new process that provides the same functionality but better, faster, or cheaper. That is process reengineering.

Here is something to think about: if an organization could achieve the same results by either one of these two routes, which one would offer the best chance for success in the workplace? We believe the former—let’s call it the con­tinual improvement route—would be more readily accepted by the workforce and would be, therefore, more likely to suc­ceed. Usually, the people most closely related to the process have major input to any continual improvement initiative, and it will not be perceived as something being forced on them by some person or group that fails to understand the process anyway. Whether justified or not, that is the way process reengineering has come across to workers. It tends to be radical and sudden, and seldom is consideration given to the human issues. Many times it is seen as a management tool for laying off workers. It does not have to be that way, but that is, we think, the way process reengineering is widely perceived today.

We say this to lead into our final thoughts on process reengineering. If you find process reengineering to be the approach for one of your processes, never let it be a sur­prise to your employees. In keeping with the philosophy we have promoted throughout this book, it only makes sense to involve the process owners and their internal suppliers and customers, along with other appropriate employees, in your process reengineering project. Take advantage of their collective brainpower and diverse perspectives, and in the doing, their buy-in will be ensured.

In summary, if you have a very good process to begin with, use continual improvement techniques to make it bet­ter. On the other hand, if the process is clearly inferior to some used by other firms, try benchmarking. When you cannot achieve the kind of improvement you need from ei­ther of those methods, then process reengineering may be required. But no matter which way you go, be sure to get your people involved.

2. Rationale for Benchmarking

The future for companies today seems far different from what it seemed in the twentieth century. The first real ques­tions regarding the future and the ability of the United States to sustain its industrial leadership seem to have resulted from the oil crisis of 1974. By then, the United States had lost much of the commercial electronics business to Sony, Hitachi, and Panasonic, but the most important industry in the United States, the automobile industry, seemed secure. However, when the oil embargo struck, Americans quickly traded their big domestic cars for small, more fuel-efficient Japanese models. When the embargo ended, Americans continued buying Japanese cars because consumers found them better than their American counterparts. The Japanese quickly claimed about 30% of the U.S. automobile market (and possibly could have gained much more except for vol­untary restraints adopted out of fear that severe trade restric­tions would be imposed by Washington). Following these events, North America finally started to wake up to the fact that the world was changing. Whole industries were mov­ing from one part of the world to another, and most of that movement was to Japan. There was good reason to look at the Japanese to see what they were doing differently that al­lowed them to accomplish this.

What was learned, of course, was that by following the teachings of Deming, Juran, Ishikawa, Taguchi, Ohno, and other quality pioneers, Japan had developed vastly superior practices and processes. These resulted in superior manu­factured goods at competitive prices—everything from motorcycles, to cars, to cameras, to electronics of all kinds, and even to ships. It took several years of looking at Japan to realize fully what had happened. For a long time, Western leaders rationalized that Japan’s success was due to low labor costs, the Japanese work ethic versus that of Detroit, lifetime employment, and other factors. Such rationalizations simply clouded the real issue: the superiority of the Japanese prac­tices and processes. Now that industrial leaders worldwide are aware that better practices and processes can enhance competitiveness, it makes good business sense to determine where an organization stands relative to world-class stan­dards and what must be done to perform at that level. That is what benchmarking is designed to do.

Twenty years ago, benchmarking was a case of com­paring North American industry with that of the Japanese. Today benchmarking is a case of comparing your com­pany with the best in the world. The best in the world for a given comparison may be in Japan or Korea, or it may be next door. It may be your direct competition, or it may be in a completely different industry. In addition to compa­nies all over the world emulating the Japanese, customers all over the world are demanding the highest quality in the products they buy. Business as usual is no longer sufficient. Organizations must be improving always and forever, or they will be out of business soon and forever.

The rationale for benchmarking is that it makes no sense to stay locked in an isolated laboratory trying to invent a new process that will improve the product, or reduce cost, when that process already exists. If one company has a process that is four times as efficient, the logical thing for other compa­nies to do is to adopt that process. An organization can make incremental improvements to its process through continual improvement, but it might take years to make a 4x improve­ment, and by then, the competition would probably be at 6x or better. Benchmarking is used to show which processes are candidates for continual (incremental) improvement and which require major (one-shot) changes. Benchmarking offers the fastest route to significant performance improve­ment. It can focus an entire organization on the issues that really count.

Some factors that drive companies to benchmark are commitment to total quality, customer focus, product-to- market time, manufacturing cycle time, and financial per­formance at the bottom line. Every company that has won the Malcolm Baldrige Award endorses benchmarking (see Discussion Assignment 20.1 later in this chapter). Key points to remember about benchmarking as it relates to continual improvement are as follows:

• Today’s competitive world does not allow time for grad­ual improvement in areas in which a company lags far behind.
• Benchmarking can tell a firm where it stands relative to best-in-class practices and processes and which processes must be changed.
• Benchmarking provides a best-in-class model to be ad­opted or even improved on.
• Modern customers are better informed and demand the highest quality and lowest prices. Companies have a choice to either perform with the best or go out of business.
• Benchmarking supports total quality by providing the best means for rapid, significant process or practice improvement.

Source: Goetsch David L., Davis Stanley B. (2016), Quality Management for organizational excellence introduction to total Quality, Pearson; 8th edition.