Six Sigma Benchmarking


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Six Sigma Benchmarking

  3. 3. IX S IGMA S D EPARTMENT OF S TATISTICS a highly structured strategy for acquiring, assessing, and applying customer, competitor, and enterprise intelligence for the purposes of product, system or enterprise innovation and design.
  4. 4. Six Sigma Strategy and Methods Managing Six Sigma Projects: Benchmarking from a Six Sigma Perspective
  5. 5. The Analyze Phase of DM A IC: Define Performance Objectives Defects p(x) Benchmark Z short-term Baseline Benchmark: World-class performance Z short-term: The level of performance a business should be able to achieve given the investments already made Baseline: The current level of performance Benchmarking sets the ultimate goal, while baselining takes current measurements to monitor a process
  6. 6. Define Improvement Objective For Y <ul><li>Z Short-term: Short-term performance of the process </li></ul><ul><li>Benchmarking: Get to best-in-class </li></ul><ul><li>Learning Curve-Based: Get to 6 Sigma across all processes in 5 years </li></ul><ul><li>Defect Reduction: e.g., eliminate 90% of defects </li></ul>Sigma Scale of Measure The Basic Objective Six Sigma Teams Set Aggressive, but Achievable Objectives . Your Process Improvement Objective 1 2 3 4 5 6
  7. 7. Process Capability
  8. 8. Benchmarking <ul><li>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.” </li></ul><ul><li>How is benchmarking used? </li></ul><ul><li>Compare performance of an existing process against other companies’ best-in-class practices </li></ul><ul><li>Determine how those companies achieve their performance levels </li></ul><ul><li>Improve internal performance levels </li></ul>Use benchmarking both for comparison of performance as well as to understand the potential for improvement
  9. 9. Types of Benchmarking Competitive Benchmarking Functional Benchmarking Internal Benchmarking Product Benchmarking Process Benchmarking Best Practices Benchmarking Strategic Benchmarking Parameter Benchmarking
  10. 10. 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
  11. 11. <ul><li>A continuous process </li></ul><ul><li>A process of investigation that provides valuable information </li></ul><ul><li>A process of learning from others; a pragmatic search for ideas </li></ul><ul><li>A time-consuming, labor-intensive process requiring discipline </li></ul><ul><li>A viable tool that provides useful information for improving virtually any business process </li></ul>Benchmarking Is…
  12. 12. Benchmarking Methodology Checklist 1. Identify Process to Benchmark <ul><li>Select process and define defect and opportunities </li></ul><ul><li>Measure current process capability and establish goal </li></ul><ul><li>Understand detailed process that needs improvement </li></ul>
  13. 13. Benchmarking Methodology 2. Select Organization to Benchmark <ul><li>Outline industries/functions which perform your process </li></ul><ul><li>Formulate list of world class performers </li></ul><ul><li>Contact the organization and network through to key contact </li></ul>
  14. 14. Benchmarking Methodology <ul><li>3. Prepare for the Visit </li></ul><ul><li>Research the organization and ground yourself in their processes </li></ul><ul><li>Develop a detailed questionnaire to obtain desired information </li></ul><ul><li>Set up logistics and send preliminary documents to organization </li></ul>
  15. 15. Benchmarking Methodology <ul><li>4. Visit the Organization </li></ul><ul><li>Feel comfortable with and confident about your homework </li></ul><ul><li>Foster the right atmosphere to maximize results </li></ul><ul><li>Conclude in thanking organization and ensure follow-up if necessary </li></ul>
  16. 16. Benchmarking Methodology <ul><li>5. Debrief and Develop an Action Plan </li></ul><ul><li>Review team observations and compile report of visit </li></ul><ul><li>Compile list of best practices and match to improvement needs </li></ul><ul><li>Structure action items, identify owners and move into Improve phase </li></ul>
  17. 17. Benchmarking Methodology 6. Retain and Communicate <ul><li>Report out to business management and 6 σ leaders </li></ul><ul><li>Post findings and/or visit report on local server/6 σ bulletin board </li></ul><ul><li>Enter information on GE Intranet benchmarking project database </li></ul>
  18. 18. 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
  19. 19. B enchmarking C ompliance <ul><li>Policy regarding benchmarking protocol should be communicated to all employees involved, prior to contacting external organizations. Guidelines should address the following areas: </li></ul><ul><li>Misrepresentation – do not misrepresent your identity in order to gather information </li></ul><ul><li>Information requests – a request should be made only for information your organization would be willing to share with another company </li></ul><ul><li>Sensitive / proprietary information – avoid direct benchmarking of sensitive or proprietary information </li></ul><ul><li>Confidentiality – treat all information as confidential </li></ul>
  20. 20. Benchmarking Compliance <ul><ul><li>Avoiding inappropriate communication and contacts with competitors </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Keep communications with competitors to a minimum – make sure there is a legitimate business reason for all such communications </li></ul></ul>
  21. 21. Benchmarking Compliance <ul><ul><li>Consult with business legal counsel before initiating any contact with competitors regarding Six Sigma (or any other topic): </li></ul></ul><ul><ul><ul><li>Benchmarking </li></ul></ul></ul><ul><ul><ul><li>Training of suppliers and customers – they may also be competitors </li></ul></ul></ul><ul><ul><li>Comply with GECS guidelines for: </li></ul></ul><ul><ul><ul><li>Documenting competitor contacts – check with legal counsel first. </li></ul></ul></ul><ul><ul><ul><li>Participating in trade associations and standards - setting groups. </li></ul></ul></ul>
  22. 22. Benchmarking Best Practices, Processes & Products
  23. 23. C ustomers are I ncreasingly D emanding Customer expectations are simple. They want more goods and services at a lower cost, in a shorter time frame, with more information!
  24. 24. C ustomer E xpectation D ilemma Time Performance Expectations Continuous Improvement Performance Gap
  25. 25. 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.
  26. 26. B enchmarks & B enchmarking: Ideas & Definitions <ul><li>Benchmarking : is the on-going search for best practices that produce superior performance when adapted and implemented in one’s own organization. </li></ul><ul><li>Emphasis : On-going outreach activity </li></ul><ul><li>Goal : Identification of best operating practices </li></ul><ul><li>When Implemented : Produces superior performance. </li></ul><ul><li>Benchmarking : is the actual process of investigation and discovery that emphasizes the operating procedures as the things of greatest interest and value. </li></ul><ul><li>Benchmarks : are measurements to gauge the performance of a function, operation, or business relative to others. </li></ul>
  27. 27. 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
  28. 28. B enchmarks & B enchmarking: M anaging C hange <ul><li>Best Practices Benchmarking can be described as the process of seeking out and studying the best internal and external practices that produce superior performance. </li></ul><ul><ul><li>Don’t reinvent what others have learned to do better! </li></ul></ul><ul><ul><li>Borrow shamelessly! </li></ul></ul><ul><ul><li>Adopt, adapt, advance! </li></ul></ul><ul><ul><li>Imitate creatively! </li></ul></ul><ul><ul><li>Adapt innovatively! </li></ul></ul>
  29. 29. B enchmarking for B est P ractices Metrics Benchmarks Operating Statistics Processes Best Practices Benchmarking Practices
  30. 30. P rocess B enchmarking <ul><li>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. </li></ul><ul><li>Process benchmarking seeks to identify the most effective operating practices from many companies that perform similar work functions. </li></ul><ul><li>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 </li></ul>
  31. 31. P erformance B enchmarking <ul><li>Performance benchmarking enables managers to assess their competitive positions through product and service comparisons. </li></ul><ul><li>Performance benchmarking usually focuses on elements of price, technical quality, ancillary product or service features, speed, reliability, and other performance characteristics. </li></ul><ul><li>Reverse engineering, direct product or service comparisons, and analysis of operating statistics are the primary techniques applied during performance benchmarking. </li></ul>
  32. 32. S trategic B enchmarking <ul><li>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. </li></ul><ul><li>Strategic benchmarking influences the longer-term competitive patterns of a company. Consequently, the benefits may accrue slowly. </li></ul>
  33. 33. A pplications & B enefits <ul><li>Setting & Refining Strategy; </li></ul><ul><li>Reengineering Work Processes & Business Systems; </li></ul><ul><li>Continuous Improvement of Work Processes & Business Systems; </li></ul><ul><li>Strategic Planning & Goal Setting; </li></ul><ul><li>Problem Solving; </li></ul><ul><li>Education and Idea Enrichment; </li></ul><ul><li>Market Performance Comparisons & Evaluations; </li></ul><ul><li>Catalyst for Change. </li></ul>
  34. 34. Widely Acknowledged Benchmarking Benefits <ul><li>Improves organizational quality; </li></ul><ul><li>Leads to lower cost positions; </li></ul><ul><li>Creates buy-in for change; </li></ul><ul><li>Exposes people to new ideas; </li></ul><ul><li>Broadens the organization’s operating perspective; </li></ul><ul><li>Creates a culture open to new ideas; </li></ul><ul><li>Serves as a catalyst for learning; </li></ul><ul><li>Tests the rigor of internal operating targets; </li></ul><ul><li>Creates an external business view; </li></ul><ul><li>Raises the organization’s level of maximum potential performance. </li></ul>
  35. 35. Benchmarking Code of Conduct
  36. 36. The Benchmarking Code of Conduct: Adopted by The Council on Benchmarking of The Strategic Planning Institute Successful Benchmarking Includes Personal Interaction, Openness, Sharing and the Transfer of Information. Trust Between Benchmarking Parties is Fundamental. To Respect the Rights and Prerogatives of Others and Reflect Legal Considerations and Limitations, the Following Guidelines are Suggested for any Benchmarking Interaction.
  37. 37. B enchmarking: L egal & E thical G uidelines <ul><li>Ethics </li></ul><ul><ul><li>Principles, guidelines, or standards that determine a protocol of interaction between individuals and organizations. </li></ul></ul><ul><ul><li>Deal in a forthright & above board manner. </li></ul></ul><ul><ul><li>Provide for a clear understanding of the intended use of information. Consult your partner(s) should your intent change. </li></ul></ul><ul><ul><li>Conduct benchmarking activities with integrity and in a professional manner. Establish specific ground rules in advance, particularly when benchmarking with a competitor. </li></ul></ul>
  38. 38. B enchmarking: L egal & E thical G uidelines <ul><li>Legality </li></ul><ul><ul><li>Never misrepresent yourself or your organization’s interest in a benchmarking exchange. </li></ul></ul><ul><ul><li>Treat information obtained from a benchmarking partner as privileged. Identify all parties who will have access and the extent of that access. </li></ul></ul><ul><ul><li>Comply with antitrust laws; be aware of potentially sensitive issues and consult with legal counsel if gathering procedure is in doubt, particularly if dealing with current or potential competitors. </li></ul></ul>
  39. 39. <ul><li>Legality: Proprietary Information </li></ul><ul><li>Any information (in tangible or intangible form) created, acquired or controlled by the company that has not been published or released without restriction of a type the company wishes to maintain confidential. Proprietary information includes various kinds of technical, information per Securities & Exchange Commission requirements. </li></ul><ul><ul><li>Request and accept only the types and levels of information that you and your organization are willing to share. </li></ul></ul><ul><ul><li>Understand your and your partner organizations definitions, restrictions, and controls on proprietary information. </li></ul></ul><ul><ul><li>Respect the sensitivity of partner organizations in areas that you might not consider proprietary. </li></ul></ul><ul><ul><li>Seek prior understanding about what can be shared and / or how it might be used. </li></ul></ul><ul><ul><li>Consult legal counsel on restrictions or rights regarding proprietary information. </li></ul></ul>B enchmarking : L egal & E thical G uidelines
  40. 40. <ul><li>Legality: Intellectual Property </li></ul><ul><li>Refers to the kind of property created from intellectual activities in the industrial, scientific, literary, or artistic fields. It includes business and technical information (e.g. scientific works, inventions, industrial designs, computer programs) and the material that might lead to patents, copyrights, trademarks, service marks, and commercial names or designations. </li></ul><ul><ul><li>Know the internal organization source for any information that your organization plans to provide in a benchmarking exchange. </li></ul></ul><ul><ul><li>Understand the nature and value of your organization’s intellectual property. Respect the values of your benchmarking partner. </li></ul></ul><ul><ul><li>Seek prior understanding about what can be shared and how it might be used. </li></ul></ul><ul><ul><li>Consult legal counsel on restrictions or rights regarding intellectual property. </li></ul></ul>B enchmarking : L egal & E thical G uidelines
  41. 41. B enchmarking : L egal & E thical G uidelines Conclusion Knowing the nature of the benchmarking topic, dealing ethically and legally, understanding information exchange latitudes, and following the Benchmarking Code of Conduct will contribute to a successful and mutually beneficial benchmarking interchange.
  42. 42. <ul><li>PRINCIPLES </li></ul><ul><li>To contribute to efficient, effective and ethical benchmarking, individuals agree for themselves and their organization to abide by the following principles for benchmarking with other organizations: </li></ul><ul><li>LEGALITY: Avoid discussions or actions that might lead to or imply an interest in restraint of trade: market or customer allocation schemes, price fixing, dealing arrangements, bid rigging, bribery, or misappropriation. Do not discuss costs with competitors if costs are an element of pricing. </li></ul><ul><li>EXCHANGE: Be willing to provide the same level of information that you request, in any benchmarking exchange. </li></ul>The Benchmarking Code of Conduct: Adopted by The Council on Benchmarking of The Strategic Planning Institute
  43. 43. <ul><li>PRINCIPLES </li></ul><ul><li>CONFIDENTIALITY: Treat benchmarking interchange as something confidential to the individuals and organizations involved. Information obtained must not be communicated outside the partnering organizations without prior consent of participating benchmarking partners. An organization’s participation in a study should not be communicated externally without their permission. </li></ul><ul><li>USE: Use information obtained via benchmarking partnering only for the purpose of improvement of operations within the partnering companies themselves. External use or communication of a benchmarking partner’s name with their data or observed practices requires permission of that partner. Do not, as a consultant or client, extend one company’s benchmarking study findings to another without the first company’s permission. </li></ul>The Benchmarking Code of Conduct: Adopted by The Council on Benchmarking of The Strategic Planning Institute
  44. 44. <ul><li>PRINCIPLES </li></ul><ul><li>FIRST PARTY CONTACT: Initiate contacts, whenever possible, through a benchmarking contact designated by the partner company. Obtain mutual agreement with the contact on any hand off of communication or responsibility to other parties. </li></ul><ul><li>THIRD PARTY CONTACT: Obtain an individual’s permission before providing their name in response to a contact request. </li></ul><ul><li>PREPARATION: Demonstrate commitment to the efficiency and effectiveness of the benchmarking process with adequate preparation at each process step; particularly at initial partnering contact. </li></ul>The Benchmarking Code of Conduct: Adopted by The Council on Benchmarking of the Strategic Planning Institute
  45. 45. The Benchmarking Code of Conduct: Adopted by The Council on Benchmarking of The Strategic Planning Institute <ul><li>Remember </li></ul><ul><li>1. Keep it legal; </li></ul><ul><li>2. Be willing to give what you get; </li></ul><ul><li>3. Respect confidentiality; </li></ul><ul><li>4. Keep information internal; </li></ul><ul><li>5. Use benchmarking contacts; </li></ul><ul><li>6. Don’t refer without permission; </li></ul><ul><li>7. Be prepared at initial contact. </li></ul>
  46. 46. <ul><li>Etiquette & Ethics </li></ul><ul><li>In actions between benchmarking partners, the emphasis is on openness and trust. The following guidelines apply to both partners in a benchmarking encounter. </li></ul><ul><ul><li>In benchmarking with competitors, establish specific ground rules up front, e.g. “We don’t want to talk about those things that will give either of us a competitive advantage, rather, we want to see where we both can mutually improve or gain benefit.” </li></ul></ul><ul><ul><li>Do not ask competitors for sensitive data or cause the benchmarking partner to feel that sensitive data must be provided to keep the process going. </li></ul></ul><ul><ul><li>Use an ethical third party to assemble and blind competitive data, with inputs from legal counsel, for direct competitor comparisons. </li></ul></ul>The Benchmarking Code of Conduct: Adopted by The Council on Benchmarking of The Strategic Planning Institute
  47. 47. <ul><li>Etiquette & Ethics </li></ul><ul><ul><li>Consult with legal counsel if any information gathering procedure is in doubt, e.g., before contacting any direct competitor. </li></ul></ul><ul><ul><li>Any information obtained from a benchmarking partner should be treated as internal, privileged information. </li></ul></ul><ul><ul><li>DO NOT: </li></ul></ul><ul><ul><ul><li>Disparage a competitor’s business or operations to a third party. </li></ul></ul></ul><ul><ul><ul><li>Attempt to limit competition or gain business through the benchmarking relationship. </li></ul></ul></ul><ul><ul><ul><li>Misrepresent oneself as working for another employer. </li></ul></ul></ul>The Benchmarking Code of Conduct: Adopted by The Council on Benchmarking of The Strategic Planning Institute
  48. 48. <ul><li>Benchmarking Exchange Protocol </li></ul><ul><li>As the benchmarking process proceeds to the exchange of information, benchmarkers are expected to: </li></ul><ul><ul><li>Know and abide by “The Benchmarking Code of Conduct”. </li></ul></ul><ul><ul><li>Have basic knowledge of benchmarking and follow a benchmarking process. </li></ul></ul><ul><ul><li>Have determined what to benchmark, identified key performance variables, recognized superior performing companies, and completed a rigorous self-assessment . </li></ul></ul><ul><ul><li>Have developed a questionnaire and interview guide, and will share these in advance if requested. </li></ul></ul><ul><ul><li>Have the authority to share information. </li></ul></ul><ul><ul><li>Work through a specified host and mutually agree on scheduling and meeting arrangements. </li></ul></ul>The Benchmarking Code of Conduct: Adopted by The Council on Benchmarking of The Strategic Planning Institute
  49. 49. <ul><li>Benchmarking Exchange Protocol: </li></ul><ul><li>Guidelines for Face-to-Face Site Visits </li></ul><ul><li>Provide meeting agenda in advance. </li></ul><ul><li>Be professional, honest, courteous, and prompt. </li></ul><ul><li>Introduce all attendees and explain why they are present. </li></ul><ul><li>Adhere to the agenda: maintain focus on benchmarking issues. </li></ul><ul><li>Use language that is universal, not one’s own jargon. </li></ul><ul><li>Do not share proprietary information without prior approval, from the proper authority, of both parties. </li></ul><ul><li>Share information about your process, if asked, and consider sharing study results. </li></ul><ul><li>Offer to set up a reciprocal visit. </li></ul><ul><li>Conclude meetings and visits on schedule. </li></ul><ul><li>Thank the benchmarking partner for the time and for the sharing. </li></ul>The Benchmarking Code of Conduct: Adopted by The Council on Benchmarking of The Strategic Planning Institute
  50. 50. Benchmarks & Performance Measurement Revolutions begin long before they are officially declared. For several years, senior executives in a broad range of industries have been rethinking how to measure the performance of their businesses. At the heart of this revolution lies a radical decision: to shift from treating financial figures as the foundation for performance measurement to treating them as one among a broader set of measures. Professor Robert Eccles, Harvard Business School
  51. 51. B enchmarking W hys & H ows <ul><li>Benchmarking represents a versatile process management tool that helps organizations identify and understand what constitutes best operating practices. </li></ul><ul><li>Benchmarks are the operating statistics or measures that define the achievement level of any given practice or system. </li></ul><ul><li>These are not in and of themselves enough since they provide no insight into the root causes of performance differences. </li></ul><ul><li>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. </li></ul>
  52. 52. 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
  53. 53. Lessons from Active Benchmarkers <ul><li>1. Do not strive to benchmark everything at best-in-country or best-in- world levels : No company can be best in every function -- focus on processes and practices of strategic importance. </li></ul><ul><li>2. Seek best-in-class benchmarks for core processes and functions of the highest strategic importance : the Pareto Principle wins again. Other benchmarks can come from levels 2 through 5. World and country leadership benchmarks require greater time, resources and effort to develop. </li></ul><ul><li>3. Seek internal, regional, or industry benchmarks for secondary and support processes : for some processes and business activities that are not critical to the organization’s strategic advantage, internal, regional or competitive benchmarks may be most appropriate. Such benchmarks produce incremental improvements that are substantial -- even if not radical or ‘breakthrough’ in terms of the size of the expected improvement benefits. </li></ul>
  54. 54. Benchmarking Architecture Performance Measures
  55. 55. 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
  56. 56. D esigning S uccessful B enchmarks: Effective Performance Benchmarks Reflect the Most Important Operating Dimensions of a Business Process, System, or Function. <ul><li>M EASUREMENT F OCUS </li></ul><ul><ul><li>Determine where in a work area or process that value for the customer is created; </li></ul></ul><ul><ul><li>Determine where value is detracted through high costs, errors, rework, or accidents; and </li></ul></ul><ul><ul><li>Target benchmarks in areas where performance diverges from designated standards, or where variation above and below standards is greatest. </li></ul></ul><ul><li>M EASUREMENT P ERSPECTIVE </li></ul><ul><ul><li>Leading indicators foreshadow or anticipate future system outcomes. Leading indicators are thus “proactive” or “preventative”. </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>Traditional companies employ lagging indicators while high-performance companies embrace both types since leading indicators intervene upstream . </li></ul></ul>
  57. 57. <ul><li>M EASUREMENT C ONTROL </li></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><li>D ATA C OLLECTION </li></ul><ul><ul><li>After defining performance measures, managers must be able to readily collect the data from which performance benchmarks are constructed. </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>The best performance benchmarks can be collected without excessive investment of time, systems, staff, or capital. </li></ul></ul>D esigning S uccessful B enchmarks
  58. 58. A B enchmark D esign A rchitecture <ul><li>The first step in designing a performance benchmark system is to create measures that will enable management to achieve the organization’s strategic objectives. </li></ul><ul><li>The second step in designing a benchmark architecture requires managers to create an agreed upon vocabulary describing performance measurement in your organization. </li></ul><ul><li>The third step is to develop plans to collect , process , and analyze the performance measures. </li></ul>
  59. 59. D esigning a B enchmark A rchitecture : T en G eneric B enchmark C ategories <ul><li>Customer-service performance; </li></ul><ul><li>Product / service performance; </li></ul><ul><li>Core business process performance; </li></ul><ul><li>Support processes and services performance; </li></ul><ul><li>Employee performance; </li></ul><ul><li>Supplier performance; </li></ul><ul><li>Technology performance; </li></ul><ul><li>New product / service development and innovation performance; </li></ul><ul><li>Cost performance; </li></ul><ul><li>Financial performance. </li></ul>
  60. 60. Customer-Service Performance Measures: The Best Customer-Related Measures Come from Objective and Valid Data Collected Directly from Customers <ul><li>Customer-service performance measures typically probe organizational performance in the following areas: </li></ul><ul><li>Overall Customer Satisfaction with Products & Services; </li></ul><ul><li>Customer Evaluations of Sales & Service Representatives; </li></ul><ul><li>Customer Assessments of Your Organization’s Understanding of Customer Needs; </li></ul><ul><li>Customer Ratings of How Clearly Your Organization Communicates Cost Information & How Well the Organization Suggests Customer Solutions </li></ul><ul><li>Customer Appraisals of Delivery Timeliness; </li></ul><ul><li>Customer Impressions About the Usefulness of Your Organization’s Product & Service Documentation; </li></ul><ul><li>Customer Feelings Concerning How Easy it is to Conduct Business with Your Organization; </li></ul><ul><li>The Value Customers Place on Your Organization’s Products & Services. </li></ul>
  61. 61. 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.
  62. 62. 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 .
  63. 63. 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
  64. 64. Common Performance Measures of the Input-Out Process Analysis Model * Enhanced customer value - often observed through added product features or reduced costs; * Production costs, frequently described as cost per 100, 1000 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.
  65. 65. 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
  66. 66. 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.
  67. 67. 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
  68. 68. 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.
  69. 69. 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.
  70. 70. 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 .
  71. 71. 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.
  72. 72. 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.
  73. 73. Six Sigma Strategy and Methods The Balanced Scorecard
  74. 74. T he B alanced S corecard <ul><li>The Balanced Scorecard (Kaplan & Norton) manages performance measurements through an integrated system. This combines both financial and operational measures into an integrated system of performance indicators. This assumes that no single measure is sufficient for managing all companies at all times. It combines at least four perspectives: </li></ul><ul><li>Financial Perspective : “If we succeed, how will we look to our shareholders?” </li></ul><ul><li>Customer View : “To achieve our vision, how must we look to our customers?” </li></ul><ul><li>Internal Operating Perspective : “To delight our customers, what management processes must we excel at?” </li></ul><ul><li>Innovation & Learning Perspective : “To achieve our vision, how must the organization continuously learn, improve, and create value?” </li></ul>
  75. 75. The Balanced Scorecard: Financial Perspective <ul><li>There are three fundamental dimensions, each of which may include many types of financial measures: </li></ul><ul><ul><ul><li>Profitability </li></ul></ul></ul><ul><ul><ul><li>Growth </li></ul></ul></ul><ul><ul><ul><li>Shareholder Value </li></ul></ul></ul>
  76. 76. The Balanced Scorecard: Customer Perspective <ul><li>The customer perspective includes four important dimensions: </li></ul><ul><ul><li>cycle time for meeting customer needs; </li></ul></ul><ul><ul><li>quality; </li></ul></ul><ul><ul><li>performance & service for customer value creation; and </li></ul></ul><ul><ul><li>cost of ownership. </li></ul></ul><ul><li>In total these reflect the customer’s perception of total value. </li></ul>
  77. 77. The Balanced Scorecard: Internal Operations Perspective <ul><li>Internal perspective examines those business processes and operations that most directly influence customer satisfaction. Often included are the three dimensions of: </li></ul><ul><ul><li>Internal Cycle Time -- which may track specific process steps. </li></ul></ul><ul><ul><li>Quality -- which may include simple defect measures or may pick up sophisticated metrics such as first-pass yield rates. </li></ul></ul><ul><ul><li>Productivity -- reflects employee skills, effectiveness, and motivation, especially as they are evidenced in employees’ output per person, per day, or per hour. </li></ul></ul>
  78. 78. The Balanced Scorecard: Innovation & Learning Perspective <ul><li>Innovation & Learning include three primary dimensions: </li></ul><ul><ul><li>Market Innovation - this records new product & service introduction rates. </li></ul></ul><ul><ul><li>Continuous Operational Learning & Improvement -records the rate at which individuals & organizations learn. </li></ul></ul><ul><ul><li>Intellectual Assets - These are among the most valuable and most intangible resources available in any organization. Companies are developing measures that evaluate skills deployment, training effectiveness, employee involvement levels, employee suggestion rates, cross-functional activity levels, and experience sharing. </li></ul></ul>
  79. 79. Benchmarking Critical Success Factors <ul><li>Adopt, Adapt, and Advance : A well-designed performance measurement and benchmark system is essential, but there are other critical success factors: </li></ul><ul><ul><li>Senior management support; </li></ul></ul><ul><ul><li>Benchmarking training for the project team; </li></ul></ul><ul><ul><li>Useful information technology systems; </li></ul></ul><ul><ul><li>Cultural practices that encourage learning; </li></ul></ul><ul><ul><li>Resource dedication - especially in the form of time, funding, and useful equipment. </li></ul></ul>
  80. 80. Selected Benchmarking Processes
  81. 81. The Bristol-Myers & Baxter International Seven-Step Benchmarking Process <ul><li>Determine which function(s) to benchmark; </li></ul><ul><li>Identify key performance variables to measure; </li></ul><ul><li>Identify the best-in-class companies; </li></ul><ul><li>Measure performance of best-in-class companies; </li></ul><ul><li>Measure your own performance; </li></ul><ul><li>Specify programs and actions to meet and surpass; </li></ul><ul><li>Implement and monitor results. </li></ul>
  82. 82. T he M otorola F ive- S tep B enchmarking P rocess <ul><li>Decide what to benchmark; </li></ul><ul><li>Find companies to benchmark; </li></ul><ul><li>Gather data; </li></ul><ul><li>Analyze data & integrate results into action plans; </li></ul><ul><li>Recalibrate & recycle the process. </li></ul>
  83. 83. T he X erox 12-S tep B enchmarking P rocess <ul><li>Phase 1: Planning </li></ul><ul><ul><li>1. Identify what to benchmark; </li></ul></ul><ul><ul><li>2. Identify comparative companies; </li></ul></ul><ul><ul><li>3. Determine data collection method & collect data. </li></ul></ul><ul><li>Phase 2: Analysis </li></ul><ul><ul><li>4. Determine current performance gap; </li></ul></ul><ul><ul><li>5. Project future performance levels. </li></ul></ul><ul><li>Phase 3: Integration </li></ul><ul><ul><li>6. Communicate finding and gain acceptance; </li></ul></ul><ul><ul><li>7. Establish functional goals. </li></ul></ul>
  84. 84. T he X erox 12-S tep Benchmarking P rocess (continued) <ul><li>Phase 4: Action </li></ul><ul><ul><li>8. Develop action plans; </li></ul></ul><ul><ul><li>9. Implement specific actions & monitor progress; </li></ul></ul><ul><ul><li>10. Recalibrate benchmarks. </li></ul></ul><ul><li>Phase 5: Maturity </li></ul><ul><ul><li>11. Attain leadership position ; </li></ul></ul><ul><ul><li>12. Fully integrate practices into processes. </li></ul></ul>
  85. 85. The AT&T Nine-Step Benchmarking Process <ul><li>Identify what to benchmark; </li></ul><ul><li>Develop a benchmarking plan; </li></ul><ul><li>Choose a data collections method; </li></ul><ul><li>Collect data; </li></ul><ul><li>Choose best-in-class companies; </li></ul><ul><li>Collect data during a site visit; </li></ul><ul><li>Compare processes, identify gaps, and develop recommendations; </li></ul><ul><li>Implement recommendations; </li></ul><ul><li>Recalibrate benchmarks. </li></ul>
  86. 86. A G eneric B enchmarking P rocess: The Simple, Consensus Model <ul><li>From the Strategic Planning Institute’s (SPI) Council on Benchmarking has developed the following model: </li></ul><ul><ul><ul><ul><li>1. Launch </li></ul></ul></ul></ul><ul><ul><ul><ul><li>2. Organize </li></ul></ul></ul></ul><ul><ul><ul><ul><li>3. Reach Out </li></ul></ul></ul></ul><ul><ul><ul><ul><li>4. Assimilate </li></ul></ul></ul></ul><ul><ul><ul><ul><li>5. Act </li></ul></ul></ul></ul>
  87. 87. The Doyle-Smith 10-Step B enchmarking P rocess: 1. Identify what to benchmark; 15% 7% 2. Select the benchmarking team; 4% 7% 3. Document your process; 18% 21% 4. Quantify your process; 6% 10% 5. Develop questionnaire; 5% 10% 6. Develop partnership with BIC organizations 5% 10% 7. Document BIC process & analyze; 35% 28% 8. Develop goals & implementation plans; 9% 7% 9. Monitor the plan. Strategic Plan Identify Best-in-Class Organizations ------- 4% -Concurrent 937 29 hours weeks Contact Elapsed Time Time
  88. 88. B enchmarking R esources & T oolset <ul><li>Resources : </li></ul><ul><ul><li>Time Investment : </li></ul></ul><ul><ul><ul><li>Team Leader: 20%-25% over seven months </li></ul></ul></ul><ul><ul><ul><li>Team Members: 15% over seven months </li></ul></ul></ul><ul><ul><li>Financial Investment : </li></ul></ul><ul><ul><ul><li>Travel: 4 on-site visits * 5 members * $1,500 visit = $30,000 </li></ul></ul></ul><ul><ul><ul><li>People: $60/hour </li></ul></ul></ul><ul><ul><ul><li>Research: $125 to $250 / hour * 8 hours = $1,000 - $2,000 </li></ul></ul></ul><ul><ul><ul><li>Consulting: $1,500-$3,500 /day * (4-10) days = $6,000-$35,000 </li></ul></ul></ul>Toolset : Voice of the Customer Hoshin Planning Storyboards Seven Strategic Tools Seven M&P Tools Team Building Value Delivery System Process Mapping
  89. 89. 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
  90. 90. M anagement’s B enchmarking C hallenge <ul><li>Commit required resources to key projects; </li></ul><ul><li>Provide focused training / facilitation to project participants; </li></ul><ul><li>Proactively manage the direction and momentum of benchmarking within the organization; </li></ul><ul><li>Create visibility of the benchmarking process; </li></ul><ul><li>Recognize benchmarking team efforts. </li></ul>
  91. 91. IX S IGMA S D EPARTMENT OF S TATISTICS E nd of S ession