BENCHMARKING
FOR COMPETITIVE EDGE
Prof R K Gupta
In mid eighties, the Xerox Corporation embarked upon
examining of internal processes to ascertain cause for their
dwindling monopoly on photocopier sales. All aspects of the complex
mix of processes were examined; like price, service quality,
manufacturing, marketing, distribution. Within the distribution
process, Xerox compared their methods with 3M in Düsseldorf, Ford
in Cologne, Volvo Parts in Gothenburg and IBM.
Xerox then identified some major differences:
- Slower
information flow ( Often a problem in large organisations)
- No
logistics representative at Board level ( Imagine the situation
in companies like Wal-Mart)
- ‘First
Pick’ availability of 83% rather than the 90% enjoyed by the
companies studied
- An
extra stocking echelon that increased delivery turn-rounds and
created extra cost.
This type of critical and regular approach to study of
internal processes and the resulting improvements created a 40%
increase in customer satisfaction over four years (1987-91) and the
creation of a world wide managerial mindset that says no process is
sacred. Everything can be improved on a regular basis (Compare this
to ‘Kaizen’ system of Japan?)
In the final stages of Xerox’s first foray into competitive
benchmarking, they were awarded the Prestigious Malcolm
Baldridge National Quality Award and went on to win
European Quality Award in 1992.
Gains in overall quality were a 78 % reduction in product
defects, a 40% decrease in unscheduled maintenance and a 27 %
improvement in service response times.
Some
other successful users of benchmarking techniques are given below:
Ø
Procter
& Gamble use a seven point survey to monitor the effectiveness
of their trade customer relationships. Over time this as resulted in
loyal customers offering competitor information free on a regular
basis, helping P&G to know quickly the marketing activity of
competitors.
Ø
ICL
benchmarks 20 of its competitors for overall financial performance
and the product technology. Distribution of comparative information
is widespread within the company so that potential improvements can
be identified at all levels of the organisation.
Ø
The
Ritz-Carleton Hotel Company undertook to question customers about
what processes were important to delight
guests. Nineteen separate processes were identified and then
systematically improved and tested within hotel properties through
out the world. Specific goals were set (50% cycle time reduction,
100% guest retention) and a number of major service innovations
identified and standardized for the benefit of future guests.
Ø
Texas
Instruments in Sherman, Texas, identified $12000 a month operational
expense savings and recouped its $54,000 capital and training
investment by applying benchmarking techniques to the problem of
rancid and unpleasant fluid odors on the shop floor.
Further testimony for benchmarking
comes from a major study into productivity carried out in United
States by MIT, which concluded: ‘A characteristic of all the best
practice American firms we observed, large or small, is an emphasis
on competitive benchmarking: comparing the performance of their
products and processes with those of the world leaders in order to
achieve improvement and to measure progress’.
More proof of the effectiveness of
benchmarking techniques comes from Professor Mohamed Zairi at the
University of Bradford Management Centre. Twenty nine companies
known to be using extensive TQM techniques were observed over a
five-tear period to see whether the new techniques made any
difference to the bottom line. Using eight common statistical
ratios, such as profit per employee, return on total assets and
profit margins, the Bradford study
showed that around 80% of the companies studied were trading at
above-average levels of their sector, the only differential being their usage of benchmarking techniques.
In essence we can summarize as below:
The speed of technological
advancement in the industrial world has never been greater so also
is the access to information globally. Product development time has
reduced drastically and the product life cycles have also reduced
significantly.
As a result, companies can no
longer afford to be inward looking and rely on their own collective,
intellectual resource to survive. Benchmarking provides the behavior
model within every organisation for the acceptance of rapid change
and continuous improvement as a way of life, not just as something
unusual to help cope with difficult market conditions. Best
Practice Benchmarking (BPB) has become a necessity for some of
the world’s largest corporations in their bid to retain their
competitive edge.( Many industry’s have standard practices , for
example- GMP in Pharma sector- Good manufacturing practices .These
are different than benchmarking systems adopted by companies.)
Benchmarking Definitions:
"Benchmarking is a continuous, systematic process
of evaluating and comparing the capability of one organization with
others normally recognized as industry leaders, for insights for
optimizing the organizations processes."
Benchmarking is the search for and
implementation of best practices…..The continuous process of
measuring our products, Services and practices against our toughest
competitors or those companies known as leaders.
……….Robert C Camp, Xerox Corp., 1989
Benchmarking is anything taken or
used as a point of reference or comparison. Something that serves as
a standard by which others may be served; it is all to do with
anything or something that is comparatively measurable.
……….Dr
Mohamed Zairi, Competitive benchmarking, 1988
It is a standard against which
something can be measured; a survey mark of previously determined
position used as a reference point.
….. Dictionary definition
The benchmarking can be broadly classified into FOUR TYPES:
1. Internal benchmarking: Most new bench markers start this
way and gain quick results, often wondering why they never did it
before. Some of the types of questions that need to be asked are:
What are our most admired procedures? What makes them efficient?
What are we bad at? Why we continue to do them?
But even in small companies, the departmental sensitivities
need to be respected. A consultative approach with adequate
pre-visit explanations is essential to gain cooperation, not just
for the visit but for all subsequent visits that would characterize
a healthy benchmarking culture.
2.
Competitive benchmarking: A
direct competitor is usually the first place to look, particularly
if that competitor seems to be doing better than you in the market
place. One serious question to collect data of competitor is ethics.
Second is the information about processes may be obsolete and the
competitor might have already improved over earlier one. Even
employees from competitor may not have adequate information to help
much. However, such information which can pinpoint to key
differentiators between you and competitor is very helpful in
improving competitiveness. It could be even recruiting method,
employee productivity or customer service. There is also an argument
about which is better?-The ‘me too’ approach or being a first
and pioneer in business processes.
Following a Leader always gives you an illusion of safety.
Because all organisations are unique in some ways; even IBM faltered
in going for large systems rather than small PCs.
3.
Functional
Benchmarking: Another option is to look at companies that are not
competitors but are employing similar processes in one or several
parts of organizations. For example, life and non life insurance
companies. At first glance they may be features that are well known
from a consumer perception- the rapid cooking and delivery of fast
food, the distribution coverage of mail service, the quality of a
Rolls Royce. On closer examination, they may use processes that only
become apparent after some investigation. For example, cash
distribution around the country local banks, consumer holiday
telephone booking system, the setting of fares within a national
rail network. One can thus benchmark with several industries for
different parts of business.
4. Generic
Benchmarking: The
objective here is to study the processes of non-competitive market
leaders that are directly comparable with your own processes.
Application
of benchmarks:
The reasons could be one or more of any of the following:
1. Establishing the difference
2. Setting the highest possible standards
3. Learning from Best-In-Class (BIC)
4. Creating synergy of ideas
Performance analysis forms the basis for your
current process improvement which enables you to make better
software tomorrow. Performance benchmarking removes misconceptions,
and lets us see the actual need for improvement.
The Benchmarking Service provides answers to
questions like:
- What is our current capability?
- How do we compare in terms of speed,
efficiency, and quality?
- Is our productivity improving?
Normally manufacturing is the best place to start. Another
important area is accounting. It could be personnel policies also.
This has increased significance in modern challenging environment in
knowledge based industry. Even in a service business, the same rules
apply. Are customers in different divisions being serviced equally
well? Are the billing procedures the most efficient way to chase
debts? Is there a company-wide preferred supplier list and if so,
does everyone know who is on it? What one does is to focus on
performance setting standards for the future.
Critical processes should be identified and improved upon by
internal and external benchmarking process. For example, in printing
industry, one element critical to success, on the customer’s eyes,
is after-sales service. The Semiconductor Business Association (SBA)
carries out a benchmarking program on behalf of its specialist
manufacturer members on the number of design iterations for
integrated circuits; the higher the number, the longer the delay in
development for customers and lower the profitability.
Acknowledgements:
1. http://www.qaiindia.com/Benchmarking/main.htm
2.
How to beat your competitors; John G Fisher; Kogan Page: 2002
Authors:
Author:
Prof R K Gupta
Aravali Institute of Management, Jodhpur
cityju@rediffmail.com
rkgupta_india@hotmail.com
Phone: 0291-2542235
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