ONSIDERATIONS C USTOMER & C OMPETITIVE I NTELLIGENCE FOR P RODUCT, P ROCESS, S YSTEMS & E NTERPRISE E XCELLENCE C D EPARTMENT OF S TATISTICS D R. R ICK E DGEMAN, P ROFESSOR & C HAIR – S IX S IGMA B LACK B ELT REDGEMAN@UIDAHO.EDU OFFICE: +1-208-885-4410 ENCHMARKING B
C ustomer E xpectation D ilemma Time Performance Expectations Continuous Improvement Performance Gap
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.”
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
Use benchmarking both for comparison of performance as well as to understand the potential for improvement
Types of Benchmarking Competitive Benchmarking Functional Benchmarking Internal Benchmarking Product Benchmarking Process Benchmarking Best Practices Benchmarking Strategic Benchmarking Parameter Benchmarking
B enchmarking M ethodology Competitive • Industry leaders • Top performers with similar operating characteristics Functional • Top performers regardless of industry • Aggressive innovators utilizing new technology Internal • Top performers within company • Top facilities within company Best Practice Overlap
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 6 σ leaders
Post findings and/or visit report on local server/6 σ bulletin board
Enter information on benchmarking project database
Library Database Internal Reviews Internal Publications Professional Associations Industry Publications Special Industry Reports Functional Trade Publications Seminars Industry Data Firms Industry Experts University Sources Company Watches Newspapers Advertisements Newsletters Original Research Customer Feedback Supplier Feedback Telephone Surveys Inquiry Service Networks World Wide Web Sources of Information
B enchmarking C ompliance
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
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
B enchmarking (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.
B enchmarks & B enchmarking: 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.
B est P ractices - the E nds Enablers - the Means to the Ends SOFT MEDIUM HARD Training Communication Empowerment Attitude Management Involvement Goals & Objectives Sequence Controls Measures Policies & Procedures Plant Suppliers Money Technology Equipment
B enchmarks & B enchmarking: M anaging C hange
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!
Adopt, adapt, advance!
P rocess B enchmarking
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
P erformance B enchmarking
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.
S trategic B enchmarking
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
B enchmarking W hys & H ows
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.
R ange of B enchmarks 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
D ashboard of N ew P erformance M easures Capital Expenditures Costs Profitability Cashflow Sales Liabilities Assets Debt Quality Customer Retention Training Customer Satisfaction Defect Rates Cycle Time Referral Rates Employee Retention
D esigning S uccessful B enchmarks: Effective Performance Benchmarks Reflect the Most Important Operating Dimensions of a Business Process, System, or Function.
M EASUREMENT F OCUS
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.
M EASUREMENT P ERSPECTIVE
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.
Traditional companies employ lagging indicators while high-performance companies embrace both types since leading indicators intervene upstream .
M EASUREMENT C ONTROL
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.
D ATA C OLLECTION
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.
The best performance benchmarks can be collected without excessive investment of time, systems, staff, or capital.
D esigning S uccessful B enchmarks
A B enchmark D esign A rchitecture
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.
D esigning a B enchmark A rchitecture : T en G eneric B enchmark C ategories
Product / service performance;
Core business process performance;
Support processes and services performance;
New product/service development and innovation 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 .
Input-Output Process Model Products Services Documentation Results Design of Products/ Services Production of Products Performance of Services Delivery of Products/ Services People Raw Materials Components Customer Requirements Capital Customer Needs Satisfied Customer Problems Solved Customer Requirements Met Inputs Processing Outputs Customers
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.
E xamples of K ey B usiness P rocesses IBM Xerox British Telecom Marketing Information Capture; Marketing Selection; Requirements; Hardware/Software Development; Service Development; Production; Customer Fulfillment/ Relationship; Service Customer Feedback; Marketing; Solution Integration; Financial Analysis; Plan Integration; Accounting; Human Resources IT Infrastructure Customer Engagement; Inventory Mgt. & Logistics; Product Design / Engineering; Product Maintenance; Technology Maintenance; Production & Operations Mgt. Marketing Management; Supplier Management; Information Management; Business Management; Human Resources Management; Leased & Capital Asset Mgt. Legal; Financial Management. Direct Business; Plan Business; Develop Processes; Manage Process Operations; Provide Personnel Support; Market Products & Services; Provide Customer Service; Manage Products & Services; Provide Consultancy Services; Plan the Network; Operate the Network; Provide Support Services; Manage Information Resource; Manage Finance; Provide Technical R&D
S upport P rocesses / S ervices P erformance M easures 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.
P erformance M easure E xamples 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 Quality Control Percentage of Lots Rejected in Error Number of Engineering Changes Detected After Design Review Errors in Reports Cycle Time for Corrective Action Marketing Accuracy of Forecast Assumptions Number of Incorrect Order Entries Overstocked Field Supplies Contact Errors
E mployee P erformance M easures 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.
S upplier P erformance M easures 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 .
C ost P erformance M easures 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.
F inancial P erformance M easures 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 G eneric B enchmarking P rocess: The Simple, Consensus Model
From the Strategic Planning Institute’s (SPI) Council on Benchmarking has developed the following model:
3. Reach Out
X erox 12-S tep B enchmarking P rocess
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.
T he X erox 12-S tep Benchmarking P rocess (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 Customer Driven Objectives Linked to Strategic Plan Best Practices & Enablers Consider Cultural Attributes Disciplined Methodology Quantum Change Clear Project Life Cycle Integrated with Existing Quality Efforts Sponsorship Uncertain Amorphous Objectives No Strategic Integration Performance Metrics Only “ Hard” Data Only Arbitrary / Casual Approach Incremental / No Change Keep Going and Going and ….. A la carte Program
M anagement’s B enchmarking C hallenge
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.
ONSIDERATIONS C D EPARTMENT OF S TATISTICS D R. R ICK E DGEMAN, P ROFESSOR & C HAIR – S IX S IGMA B LACK B ELT REDGEMAN@UIDAHO.EDU OFFICE: +1-208-885-4410 ENCHMARKING B E nd of S ession