BENCHMARKING FOR COMPETITIVE EDGE


By
Prof R K Gupta
BE (Hons), MBA, FIE
Aravali Institute of Management
Jodhpur (Rajasthan)
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
URL :
www.Geocities.com/rkgupta_india
 


BENCHMARKING FOR COMPETITIVE EDGE

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:

    1. Slower information flow ( Often a problem in large organisations)

    2. No logistics representative at Board level ( Imagine the situation in companies like Wal-Mart)

    3. 'First Pick' availability of 83% rather than the 90% enjoyed by the companies studied

    4. 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:

    * 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.

    * 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.

    * 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. 

    * 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
 


Prof R K Gupta
BE (Hons), MBA, FIE
Aravali Institute of Management
Jodhpur (Rajasthan)
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
URL :
www.Geocities.com/rkgupta_india
 

Source : E-mail April 15, 2004

 

B A C K

 

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