BENCHMARKING
Objectives:
By the end of the chapter the student should be able to:
(i) Define the term benchmarking
(ii) Explain the types of benchmarking
(iii) Discuss the benchmarking process
(iv) Define the concept of world class operations
Introduction
Benchmarking is the process of comparing one’s business processes and performance metrics tindustry bests or best practices from other industries. Benchmarking is about comparing and measuring your performance against others in key project activities, and then using lessons learned from the best to make targeted improvements. It involves answering two questions – who is better, and why is they better? – With the aim of using this information to make changes that will lead to real improvements. The best performance achieved in practice is the benchmark. A benchmark is the best in class level of performance achieved for a specific production process or activity. It is used as a reference point for comparison in the benchmarking process.
Dimensions typically measured are quality, time and cost. In the process of best practice benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compares the results and processes of those studied (the
“targets”) to one’s own results and processes. In this way, they learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful.
Key performance indicators
A Key Performance Indicator (KPI) is the measure of performance associated with an activity or process critical to the success of a project or process. The information provided by a KPI can be used to determine how a process compares with the benchmark, and is therefore a key component in an organisation’s move towards best practice and value for money. Key performance indicators can take a variety of forms, which reflect the stakeholder interest.
KPI‟s form part of many approaches to good business management and practice but it is important to note that KPI‟s should not just be viewed, an ad-hoc, or short term measure. The nature of KPI‟s means that, they should continually be reviewed and the information gained from them used effectively to increase productivity and economic efficiency. Therefore, the use of KPI‟s is a dynamic approach and thus, a framework should exist where these KPI‟s are regularly reviewed and adjusted if necessary
Types of benchmarking
(i) Internal benchmarking– a comparison of internal operations such as one site (or project team) against another within the same company.
(ii) Competitive benchmarking – a comparison against a specific competitor for the product, service or function of interest.
(iii) Generic benchmarking – a comparison of business functions or processes that are the same, regardless of industry or country.
(iv) Functional benchmarking: Comparisons to similar functions within the same industry
(v) External Benchmarking: Involves analysing outside organisations that are known to be best in class. External benchmarking provides opportunities of learning from those who are at the “leading edge”.
Process of benchmarking
i. Identify problem areas: Because benchmarking can be applied to any business process or function, a range of research techniques may be required. They include informal conversations with customers, employees, or suppliers; exploratory research techniques such as focus groups; or in-depth marketing research, quantitative research, surveys, questionnaires, re-engineering analysis, process mapping, quality control variance reports, financial ratio analysis, or simply reviewing cycle times or other performance indicators. Before embarking on comparison with other organizations it is essential to know the organization’s function and processes; base lining performance
provides a point against which improvement effort can be measured.
ii. Identify other industries that have similar processes: For instance, if one were interested in improving hand-offs in addiction treatment one would identify other fields that also have hand-off challenges. These could include air traffic control, cell phone switching between towers, transfer of patients from surgery to recovery rooms.
iii. Identify organizations that are leaders in these areas: Look for the very best in any industry and in any country. Consult customers, suppliers, financial analysts, trade associations, and magazines to determine which companies are worthy of study.
iv. Survey companies for measures and practices: Companies target specific business processes using detailed surveys of measures and practices used to identify business process alternatives and leading companies. Surveys are typically masked to protect confidential data by neutral associations and consultants.
v. Visit the “best practice” companies to identify leading edge practices: Companies typically agree to mutually exchange information beneficial to all parties in a benchmarking group and share the results within the group.
vi. Implement new and improved business practices: Take the leading edge practices and develop implementation plans which include identification of specific opportunities, funding the project and selling the ideas to the organization for the purpose of gaining demonstrated value from the process.
Advantages of benchmarking
i. Assists in Setting Strategic Targets
ii. Promotes Improvements in Performance
iii. Establishes a Competitive Edge
iv. Enhances Customer Satisfaction
v. Reduces Costs
vi. Improves Employee Morale
vii. Survival i.e. promotes business sustainability
Disadvantages of benchmarking
i. Difficulties getting agreement on what indicators are to be used.
ii. Difficulties in defining the data.
iii. Provides only limited information about how to correct performance shortfalls.
iv. The projects could be completed quickly but the results might take much longer time.
v. Highly ambitious goals might lead to unsuccessful benchmarking process.
vi. Several organizations prevent the procedure lest their weaknesses be exposed to their competitors.
vii. Cultural differences might, lead to some difficulties in applying best practices as happening Multi National Corporations.
World class operations
Being world-class in operations capabilities is crucial to survival, because world-class has become an order-qualifier rather than an order-winner. World class operations encompass the following aspects:
(i) Lean production: an organization must adopt Lean practices in order to be a world class organisation.
(ii) Quality: Quality in world class firms is about never giving up on quality, getting better in the areas where the firm already excels, and actively seeking out areas of improvement that do not appear to be important on the surface.
(iii) Innovation is also a major requirement for firms, although being first to market does not necessarily bring sustained success.
(iv) Alliances and partnerships: World class firms must also chose partners in a range of areas, and manage relationships with them. Enemies must become friends or allies as part of world-class operations.
(v) business ethics and corporate responsibility are part of world-class operations. This responsibility is likely to increase, as awareness in major ethical and environmental issues become greater.
Guidelines for effective benchmarking and achieving world class operations
i. Commitment. A strong determination to stay the course.
ii. Communication. Paying exceptional attention to employee comments and suggestions.
iii. Culture Consciousness. Fitting systems and programs into the culture.
iv. Customer-focused. Being proactively attentive to customer needs, both present and anticipated.
v. Interdependence. Recognizing the influence of one function’s work on others.
vi. Never Satisfied. Being deeply committed to the continuous improvement ethic.
vii. Relationship. Building alliances to gain support and complete the work.
viii. Risk Taking. You need to take risks. Don’t get sandbagged by your mistakes, he cautioned. Learn from them.
ix. Strategy and Planning. Doing what management books prescribe.
x. Effective Change management. A “world class” organization, must learn how to master change.
Review questions
1. Define the term „Key performance indicators‟
2. Describe the types of benchmarking
3. Outline the process of benchmarking
4. Highlight the Advantages of benchmarking
5. List six guidelines for effective benchmarking and achieving world class operations
References
Krajewski, L.J; Ritzman, L.P; Malhotra, M.K 2010, Operations Management: Processes and Supply Chains, 9
th edn, Pearson Education, New Jersey.
Ohno, T. 1988 Toyota Production System: Beyond Large-Scale Production, Productivity Press.
Russell, R.S & Taylor, B.W 2009, Operations Management: Along the Supply Chain, 6 th edn, John
Wiley & Sons Ltd, New York.
Shingo, S 1989, A Study of Toyota Production System, Productivity Press.
Slack, N; Chambers, S; Johnston, R 2010, Operations Management, 6 th edn, Pearson Education
Limited, Harlow
