Juhani Anttila
Venture Knowledgist Quality Integration
Helsinki, Finland
www.QualityIntegration.biz

 

BENCHMARKING APPROACH, AN ANALYTICAL TOOL FOR IMPROVING BUSINESS PERFORMANCE

Abstract

Benchmarking is a strong tool for organizational learning when an organization is striving for a superior business performance, excellence. Prerequisites for the effective application of benchmarking include three requirements: Understanding the purpose and the leading principles of the issue, using effective tools and approaches, and applying it in innovative management environments.

Process-focused practices in benchmarking ensure a concretely business-integrated approach. The most important benchmarking projects are related to redesigning key business processes. The benchmarking projects are also carried out in a process-like manner.

It is worthwhile to utilize generally recognized methodology in developing organizational benchmarking practices and carrying out individual benchmarking projects.

Introduction

There are lots of material or services available on benchmarking in literature and Internet, or by various training or consulting organizations. However, the key issue is how within a particular organization one might introduce an effectively practiced approach that is really matching with the needs and expectations of one's business.

Benchmarking is a method for improving organizational activities based on learning from others. It is a management tool that supplements other methods used for performance improvement. Benchmarking is a more extensive and profound method than market research and competitor analysis. In fact, there are two closely related activity-concepts that are, however, using very different principles and tools:
- Benchmarking-activity that is a process for performance improvement and organizational learning
- Benchmark-activity that is a methodology to compare and analyze organizations' key performance indicators
The first one of these is more challenging and also demanding.

Benchmarking is closely connected with process thinking and quality management. Benchmarking objects are primarily business processes or process activities to be improved, but the same principles can also be applied e.g. to benchmarking products.

In benchmarking the process in consideration (i.e. the benchmarking object) is systematically studied and compared with another process. The aim is to find better solutions used in some other organization and that can be used for learning and thus for improving the own process performance. The reference may be another process in own organization or in some other partner's organization.

A benchmarking project consists of three main areas of actions:
- Finding "gaps" in one's own business performance, e.g. a problem or challenge in a business process' performance
- Comparing business process activities with the relevant best practices in other organizations
- Designing and implementing improvement measures

Individual benchmarking projects are carried out by the benchmarking process that is one of the strategic support processes of an organization. Benchmarking process is described in figure 1. An individual benchmarking project consists of the phases of figure 2.

Figure 1. The benchmarking process

Benchmarking is an interactive, open and confidential activity, which is profitable to both partners through win / win principle. In benchmarking particularly processes of different business branches or sectors should be studied because then one may learn something really new that is not yet well-known in one's own business culture or practice.

In some cases a properly conducted benchmarking may take months and requires a lot of resources. Benchmarking is often connected with process re-engineering. As a result of benchmarking, the knowledge about the own process(es) is increased, and process performance improved, i.e. strengths (competitive advantages) are enhanced and weaknesses eliminated or decreased. At its best the benchmarking partnership may continue as an ongoing benchmarking cooperation.

There are several practical ways to realize and organize a benchmarking project. These include:
1. Bilateral benchmarking between two partners
2. Benchmarking carries out mutually by several organizations. This type of benchmarking may also mean a continual cooperation between the partners ("Benchmarking Club"-activity)
3. Benchmarking carried out between several organizations without organized cooperation but the activity is facilitated by a particular benchmarking service provider

The method is selected according to the challenge of the improvement targets taking into account the costs incorporated.

Figure 2. Tasks of a benchmarking project

Considering the improvement object for benchmarking

Impulses for applying benchmarking may be originated by an organization's business decision based on observations from the performance assessment (e.g. using auditing or performance excellence model methodology), changes in customer needs or competition situation, customer satisfaction measurements, etc. The selection of improvement objects is influenced by the status and criticality of the processes in relation to business. The object should be significant from the organization's mission, vision, and strategic focus point of view. Therefore the management has responsibility in deciding the objects and setting targets for the benchmarking and improvement.

Planning a benchmarking project

Benchmarking is carried out as a project. Implementation of the project plan includes:
- Object process, sub-processes or activities
- Targets
- Schedule
- Resources
- Organization
- Working methods
- Training
- Budget
- Documentation
- Communication
- Improvement methodology
- Follow-up

The management accepts the plan and commits itself to its realization. The project group keeps the management up to date when the work proceeds. The project group comprises the owner of the object process, preferably as project manager, and project personnel who in practice is in duty to realize the improvement activities. Moreover the quality manager of the organization may act as a methodology facilitator of the project. It should also be considered the participation of the customer of the process to bring his/her needs immediately to the usage of the project. The use of an outside consultant could also be possible in tasks that call for special expertise or confidentiality such as relating to competitor benchmarking.

The members of the project group should have knowledge and skills of:
- The business of the company
- The object process
- Process analysis and improvement
- Benchmarking procedure
- Gathering and analyzing information

To ensure a successful realization of the project the members of the group should be trained to take use of the benchmarking procedure.

In the planning phase a set of questions to the partner is formulated and tested, and the data collection methods applied are preliminarily agreed upon. That may include literature / Internet searches, questioning by letter, telephone and video conferences, and company visits.

Selecting benchmarking partners

The target is to find such a process, internal or external, which has features ("Best Practices") desirable to the process to be improved. The selected partner may be a unit of own organization, competitor or a leading company in another industry. In the first phase it is recommended to select the processes within the own company as comparison objects. Thus the risks are smaller and the personnel can be trained and they get experience for external benchmarking.

To find partners for internal benchmarking it is possible to take use of the networks of quality managers or process owners. The results of self-assessments (especially when using a performance excellence model methodology) made in different organizations give reference information for selecting benchmarking partners. Quality award winners are good candidates for benchmarking partners.

Information sources of external partners include for example:
- Process personnel
- Customers and suppliers
- Business partners and competitors
- Annual reports and other company publications
- Libraries, and data bases and Internet
- Experts and associations
- Conferences and exhibitions
- Reports and researches

Good international peer-to-peer expert networks may be very useful to find partners for benchmarking.

The owner of the benchmarking process supports the selectors in the acquisition and maintenance of information. It is recommended that there are several partner-candidates for each benchmarking case to ensure sufficient choice.

When a few promising candidates are available, the project group gets acquainted with their business with the aid of available preliminary information and contacts with the candidates. When an agreement with some candidate on participating to benchmarking has been reached, the topics to be considered, contact persons, way of realizing necessary information acquisition, and other details should be agreed upon. It should be also agreed, what matters are not handled. Those may relate e.g. to the prices of products, pricing principles, and detailed market or customer information.

Acquiring information and visiting the benchmarking partners

A necessary precondition of useful benchmarking is the deep knowledge of one's own process. The process should be defined, documented, and its performance measurable. The assessment (e.g. auditing) of the process gives useful information of the present status of the process before starting benchmarking. Thus, knowing clearly one's own process the benchmarking object and its performance is a prerequisite for approaching partner's corresponding process.

The performance indicators should be mainly quantitative so that the processes can be compared as explicitly as possible. Also qualitative information should be utilized as appropriate. However, the amount of information must be limited to essential. Thus, it is also reasonable to take use of such information, which is collected regularly. An important criterion for the selection of performance indicators is their business significance. Performance indicators should be linked to business vision and strategies and emphasize performance improvement. On the other hand the information should be sufficiently general to make the comparison possible.

The benchmarking partners should agree upon how the preliminary information is collected and exchanged. To go deeply into the information and its background and to create a strong relation with the partner requires personal meeting(s) with the representatives of the partners. In the beginning of the meetings with benchmarking partners the purpose of the benchmarking visit is stated i.e. what is desired to be found out.

The information is collected according to the plan; no information irrelevant to the subject is collected. It is thus ensured, that the targets are reached and that the timetable held. The partner is asked only for such information that one can deliver self correspondingly to the partner if asked for. Generally it is acted so that mutual confidentiality is maintained. It is typical to apply a confidentiality agreement between the partners (see an example in annex 1). In making observations special attention is paid to, in which matters and by which indicator the partner has a better process performance. The observations are recorded immediately. The root causes, premises and procedures of the superiority should be found out.

Physical visiting to the benchmarking partner(s) is only a small part of a benchmarking project. However, it may require a lot of practicalities for arranging benchmarking meetings with relevant partners.

When visiting a benchmarking partner a systematic and effective approach is beneficial because it is very typical that shortage of time for peer-to-peer communication on site is the most difficult fact. Also one should always keep in mind the different roles and interests of the partners in the benchmarking. Annex 2 represents a method - so called Funnel Method - that has proved useful in practice in communicating with benchmarking partners.

In the case of a benchmarking club effective continual exchange of information is essential. In this case also modern information technology may be used effectively; especially interesting new means are so called social networking and collaborative group work software applications.

Analyzing information

Before taking use of the information, its correctness and validity should be ensured. The information is analyzed in a way suitable for the nature of the examined processes. On the basis of information conclusions are made and goals are set to improve the processes.

Improving the object process

The target of improvement is, that the performance of the own process at least reaches and preferably exceeds the performance of the reference process. Because the reference process will also be improved in the future, the development of the partner's future performance should be projected, and which factors influence on it assessed.

In the improvement plan the measures and the timetable are defined. The management should approve the plan and commit itself to the measures.

Very often benchmarking is a part of a process improvement project. If not, then it is beneficial to carry out benchmarking-based process-improvement measures according systematic project management practices.

Documentation

At the end of a benchmarking project a final report should be made. Also the benchmarking partners should be informed of the results.

The owner of the object process is responsible for the documentation of benchmarking information, results of analysis and process improvements.

For the organizational registration purposes the following centrally maintained information is delivered to the owner of the benchmarking process:
- Name of the object process
- Benchmarking partners
- Persons participated
- Usage of resources
- Time schedule of implementation
- Time schedule of the improvement measures.
This information is useful for following-up the effectiveness of the organizational benchmarking activities as a whole.

Conclusion

Experiences gained through practice have taught what kinds of difficulties and problems one may face in the implementation of benchmarking. These have resulted primarily from the following issues:
- One has not understood one's own business clearly enough, e.g. one's process practices have been vague or ambiguous
- The approach has been superficial, i.e. analytical means have not been utilized
- External company visits have been emphasized too strongly, or practiced only as technical tourism
- One has not been able to apply the best external practices innovatively and instead they have merely been copied and others' medium-grade practices have been imitated
- Benchmarking has been viewed as a new management doctrine or an '-ism'

Benchmarking should be applied rather cautiously. Benchmarking is a tool for large-scale projects and even when implemented appropriately, it is rather expensive and laborious approach. However, it may be useful as a learning tool within the framework of the company's ordinary leadership system and quality management approach. Although many reported benchmarking projects are encouraging, benchmarking should nevertheless definitely not be viewed as a remedy in all cases.

References

1. Camp Robert: Benchmarking, Quality Press 1989
2. Finerty Terry: Beyond Benchmarking: European Quality, 1994, Vol 1 No 1, p. 12-17
3. GOAL/QPC Research Committee: Benchmarking, Research Report, 1991, 21 p.
4. Smith Steve: Revealing the Hidding Potential, European Quality 1994, Vol 1 No 6, s. 48-50

ANNEX 1

AGREEMENT ON CONFIDENTIALITY

XX Co and ……………………… have made the following agreement on changing benchmarking information.

According to this agreement the partners can change confidential information with each other. Hence the partners have agreed that the following information is valid during the benchmarking co-operation and five years since the co-operation has ended.

In this agreement all information - technical, commercial or other information independent of how it is documented - what one partner delivers to the other partner according to this cooperation is regarded as confidential. As confidential is also regarded the contact information of the partners.

The partners commit themselves not to deliver confidential information to a third party, and to store the information acquired in this context in such a way that a third party cannot access the information.

The partner can break the terms of this agreement only by the approval of the other partner.


Place and date

Signatures


__________________        ____________________

          XX Co                       The benchmarking partner

ANNEX 2

FUNNEL PRINCIPLE FOR BENCHMARKING

Funnel-principle is useful when used in visiting to a benchmarking partner for learning from the partner's best practices. The method was originally created by Mr. Jorma Kylander, JKC Consulting Oy, Finland for sales negotiations.

Funnel-principle supports a systematic and effective consultation practice. It enables to understand the partner's present situation regarding to the topic in question, to listen to his/her argumentations and premises without prejudices, to depict the found out facts as useful for the benchmarking needs as well as to use achieved information for improvement purposes within the benchmarking item. The win / win -achievements are emphasized in using the funnel-principle (see the figure 3).


Figure 3. Funnel principle for benchmarking

The funnel-principle consists of the following stages:

1. Effective opening "The first five minutes"

Positive start / first impression - Using an effective small talk
Short company presentations
What is the idea of this benchmarking and how to do it
Confidentiality issues

2. Listening stage

Finding out the present situation of the partner
Activate the partner to speak - Using effective "opening question(s)"
Being a good listener
Making notes effectively
Using appropriate techniques for promoting the conversation
Understanding and recognizing one's own and partner's personality
Creating a pleasant atmosphere
Using a professional interview techniques

3. Questioning stage

Finding out the information areas necessary for this benchmarking
Using right types of questions - Using "umbrella questions"
Activating the partner
Finding out the key issues of the partner's practices

4. Detailing and facts stage

Fact finding - Specifying details of the practices, getting examples and background information (reasons, premises, etc.)
Using right types of questions - Using detailed "focus questions"
Listening to the partner
Steering the conversation to the needs of this benchmarking
Summarizing the findings
Agreeing on the next possible meeting or contacts for further considerations as necessary

5. Tailoring stage

Tailoring the findings for the purposes of this benchmarking
Solutions for the benchmarking needs
Considering the benefit(s) for this benchmarking case

6. Closing stage

Feedback to the benchmarking partner

7. Improvement stage

Realizing the improvements as a project

[This material has been presented in different forms in differerent seminars or conferences, e.g. in London, UK 1998, Singapore 1998, and Kiev, Ukraine 2005]