Designing the Benchmarking Process

Benchmarking can be applied to virtually any business or production process. Improve­ments to the best-in-the-class levels in some areas will contribute greatly to market and financial success, whereas improvements in other areas will not have a significant impact. Organizations that benchmark adapt the process to best fit their own needs and culture. The logical process flow involved in benchmarking is given in Figure 11.1.

1. Phases in the Benchmarking Process

Although the number of phases in the process may vary from organization to organization, the following five phases contain the core techniques:

  1. Planning
  2. Analysis
  3. Integration
  4. Action
  5. Maturity

  1. Planning: This phase involves answering the following questions:
    • What is to be benchmarked? Which processes cause the most trouble?
    • Which processes contribute most to customer satisfaction and which are not perform­ing up to expectations?
    • What are the competitive pressures impacting the organization the most?
    • What processes or functions have the most potential for differentiating our organiza­tion from the competition?
    • To whom or what will we compare?
    • How will the data be collected?
  2. Analysis: The analysis phase should involve a careful understanding of your current processes and practices as well as those of the organizations being benchmarked. What is desired is an understanding of internal performance on which to assess strengths and weaknesses. The following questions may then be asked:
    • Is there a gap between the organization’s performance and that of the best-in-the-class organizations?
    • What is the gap? How much is it?
    • Why is there a gap? What does the best-in-the-class do differently, that is better?
    • If best-in-the-class practices were adopted, what would be the resulting improvement?

Benchmarking studies can reveal three different outcomes. External processes may be significantly better than internal processes (a negative gap). Process performance may be approximately equal (parity) or the internal processes may be better than that found in external organizations (positive gap). Negative gaps call for a major improve­ment effort. Parity requires further investigation to determine if improvement opportunities exist. The finding of a positive gap should result in recognition for the internal process. When best-in-the-class processes have been described and quantified, additional analysis is necessary to determine the root causes of the gaps. Gaps are a result of process practices themselves, general business practices and the organizational and operational structures.

  1. Integration: Integration is the process of using benchmark findings to set operational tar­gets for change. It involves careful planning to incorporate new practices and to ensure that benchmark findings are incorporated in all formal planning processes.

When benchmarking studies reveal a negative gap in performance, the objective is to change the process to close the gap. Benchmarking is a waste of time if change does not get implemented as a result. To effect change, the findings must be communicated to the people who can enable improvements within the organization. The findings must translate into goals and objectives. Action plans must be developed to implement new processes.

  1. Action: Action plan for change also should contain milestones for updating the bench­mark findings and an ongoing reporting mechanism. Progress toward benchmark findings must be reported to all employees. The generic steps for the development and execution of action plans are:
    • Specify tasks
    • Sequence tasks
    • Determine resource needs
    • Establish task schedules
    • Assign responsibility for each task
    • Describe expected results
    • Specify methods for monitoring results
  1. Maturity: Maturity will be attained when best industry practices are incorporated in all business processes, thus ensuring superiority. Maturity is also achieved when benchmarking becomes an ongoing, essential and self-initiated facet of the management process. Benchmarking is a tool for continuous improvement. It is not to be undertaken to create one permanent improvement and thereby miss the opportunity for future improvements. In order to avoid complacency, benchmarking must be used continuously to pursue emerging new ideas. Figure 11.2 displays the phases in the benchmarking process. Table 11.2 illustrates how Xerox and AT&T have adapted benchmarking to their own needs. Box 11.3 illustrates the impact of benchmarking at AT&T and Box 11.4 illustrates how Ford gained its competitive edge by benchmarking against Japan’s Mazda.

Box 11.3 Impact of Benchmarking at AT&T

AT&T Inc. is one of the world’s largest telecommunications holding companies and is the largest in the United States. Operating globally under the AT&T brand, AT&T companies are recognized as the leading world-wide providers of IP-based communications services to business and as the lead­ing providers of high-speed DSL Internet, local and long distance voice, and directory publishing and advertising services in the Unites States.

While companies such as Motorola, Ford, DuPont and Xerox have routinely benchmarked their manufacturing operations, AT&T with the help of the accounting firm Coopers & Lybrand has benchmarked its cash management operations. Operations benchmarked include cash position­ing, cash concentration, cash mobilization funds transfer and cash transactions accounting.

First, AT&T determined the areas to benchmark and the companies to benchmark against. Then, it determined the indicators that would be measured and collected data by interviewing other companies, conducting surveys, and reading technical journals and advertisements. It analysed the data and determined the best-in-the-class from each identified benchmark. AT&T then evaluated its progress against the benchmarks and decided on the best way to improve operations.

As a result of its extensive benchmarking effort, AT&T increased automated clearinghouse usage, increased electronic data interchange/electronic funds transfer focus, enhanced training and education, created a quality consultant position, reduced management and staffing, consolidated operations and systems, combined banking and cash management functions, simplified its banking network and reduced the number of its bank accounts.

Source: Poornima M. Charantimath (2017), Total Quality Management, Pearson; 3rd edition.

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