Benchmarking and its applications.

What if your business were offered a powerful tool with the potential to save millions of dollars, at a low investment, and had the complementary effect of aiding in organizational development? Would your management be interested? One would imagine a collective "you betcha" from the business team. Benchmarking, which has become so conventional that it is frequently overlooked, can be this tool.

WHAT IS BENCHMARKING?

According to R. C. Camp, in Business Process Benchmarking; Finding and Implementing Best Practice; "the process of consistently researching for new ideas, for methods, practices and processes, and of either adopting the practices or adapting the good features, and implementing them to obtain the best of the best is what is known as benchmarking."

With benchmarking one can define customer requirements, establish effective goals and objectives, develop true measures of productivity, improve competitiveness, and learn from industry best practices. Benchmarking can lead to improvements in operating performance, costs, and quality. Strategic applications include understanding the business environment, developing business portfolios, and due diligence in acquisitions.

For example, cost benchmarking coated groundwood #5 tells that the curve is relatively flat with some 62% of manufacturing costs ranging between US$ 500-600/ton. First quartile lowest cost producers typically have new assets, large scale and cost advantages in either wood, fiber or energy etc.

Highest cost paper machines are typically smaller than average, aging, and have high energy, wood, or fiber costs. Producers of coated groundwood #5 have often paper machines located in different quartiles of the cost curve; also, the leading suppliers have production bases in various countries and states. The wider geographic presence enables production optimization since regions offer different advantages in wood and fiber cost and availability, and energy.

THE BENCHMARKING PROCESS

The benchmarking process involves five stages--planning, data collection, analysis, integration, and action. Important questions in the planning stage include what to benchmark, who to benchmark, and how to collect the data. Data collection typically involves developing questionnaires or interview forms. Metrics should be carefully defined to ensure appropriate comparisons can be made and enlist buy-in. A the same time, the process should have enough flexibility to capture the unexpected as well as success factors.

Analysis should be driven by striving to answer a number of questions such as: Are they really better? How? Why? What does this teach us? How can we apply it? Where does it fit with our strategy?

Action and integration will depend on answering these questions. The key is establishing goals or targets based on the answers, and implementing processes and metrics to measure performance and progress against these goals. In the best organizations, a culture of continuous improvement--driven in large part by continuous benchmarking--evolves.

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In an improvement process, actual performance is evaluated against targets to determine gaps (commonly referred to as gap analysis). Gaps are then analyzed to asses their value, and the portion of this value that can be captured. Equally important, the root causes of the gaps must be determined.

Based on this work, each opportunity must be assessed to determine the required action(s) and set priorities. Prioritization is crucial, as experience shows that many organizations become overly ambitious and take on too many projects simultaneously. Based on the opportunity assessment, the organization must decide on a plan, with clear deliverables, responsibilities and accountability.

Benchmarking is a powerful process and is often a core culture of successful companies. Almost anything can be benchmarked, and creativity should be encouraged. Organizations should focus on applications and also consider the human elements of the process.

JAAKKO POYRY CONSULTING

Note: This article is part of a series by Jaakko Poyry Consulting, Tarrytown, New York, USA, a provider of consulting services. Contact Ms. Soile Kilpi by email at [e-mail], or by phone at [phone].