Benchmarking in Rapid Time.

Executive Summary

Benchmarking is identified as one of the most highly utilized management tools available. It allows individuals and teams to see the world beyond the ways they have always viewed it and look into the factors that create success in an organization. A six-step process will get you on your way.

A Zen-like management riddle asks, "How does a fish know it is wet?" The fish spends all its life in water and knows no other condition. The riddle probes how people, who grow accustomed to operating in certain ways, know there are other approaches of performing the same task.

Benchmarking is perhaps the most effective way to encourage people to look beyond their daily operations in search of new ideas and improvement opportunities.

In a world where common sense prevailed, benchmarking would be a universal management tool. Benchmarking is simply the systematic process of searching for best practices, innovative ideas, and effective operating procedures that lead to superior performance.

The old school of thought, which held that if it wasn't invented here, it couldn't be any good, is a curse in today's high-velocity markets. Those who always go it alone are doomed to reinvent the wheel, for they do not learn or benefit from others' progress. A company can accelerate its own rate of improvement by systematically benchmarking others and by comparing its own operations and performance with the best and most effective practices of highly innovative and successful companies.

A brief history of benchmarking

The benefits of benchmarking have long been recognized in the manufacturing industry. In 1912, a curious Henry Ford watched men cut meat during a tour of a Chicago slaughterhouse. Carcasses hung from hooks mounted on a monorail. After each man performed his job, he pushed the carcass to the next station. Less than six months later, the world's first assembly line started producing magnetos in the Ford Highland Park plant. The idea that revolutionized modern manufacturing was imported from another industry.

Although benchmarking has been practiced since the beginning of modern manufacturing, it has only recently entered the official business lexicon. In the 1970s, the concept of a benchmark evolved beyond a technical term signifying a reference point. The word migrated into the lexicon of business, where it came to signify the measurement process by which to conduct comparisons.

Xerox Corp., an early leader in benchmarking, referred to benchmarking in rather narrow terms that focused primarily on comparisons with one's primary competitors.

During the 1970s and '80s, benchmarking referred primarily to numerical measurements used to gauge the performance of a function, operation, or business process relative to others. In this respect, managers used benchmarks as divining rods to lead the organization to hidden opportunities to innovate and improve performance. Benchmarking also enabled managers to monitor manufacturing ideals such as total quality and best-in-class in terms of objective, quantifiable metrics.

Although this metric-focused benchmarking enabled companies to compare organizational performance against their competitors, these statistical benchmarks provided incomplete comparisons. In a sense, they were superficial because they drew attention to performance gaps without offering any evidence or explanation for why those gaps existed. At times, the performance gaps that surfaced through benchmark comparisons reflected significant differences in operating systems and procedures; on other occasions, benchmark variances reflected differences in the way organizations track and measure the performance of their systems. The root causes of operating differences usually could not be discerned from the metrical benchmarks alone.

Benchmarking comes of age

In light of shortcomings of metrical benchmarking, executives extended both the scope and the functional application of benchmarking methodology. In the 1990s, executives began using benchmarking to identify both the metrical indicators and the key operational drivers of performance excellence. Metrical benchmarks were no longer the primary area of interest -- they were merely indicators of performance gaps. Of real interest to managers were the underlying processes and strategies that drive performance metrics. Benchmarking came to refer to the process of investigation and discovery that emphasizes the operating procedures as the things of greatest value. Consequently, "best practices benchmarking" came to describe the process of seeking out and studying the best internal and external practices that produce superior business results.

Benchmarking also grew from a performance measurement tool to an advanced business concept with general management applications in an array of operating areas. These more recent benchmarking applications include:

* Strategic planning. Markets are in a dynamic state of flux; consequently, important insights can be gleaned by studying the experiences and competitive strategies of others. The strategic lessons learned by other organizations and industries have helped executives refine corporate strategy, project the possible outcomes of changing current business objectives, and forecast potential cataclysmic shifts brought on by changing market circumstances. By reviewing the strategies of competitors and other industry front-runners, executives have validated the adequacy of their own goals, plans, and strategies.

* Change management. The pace of change is so rapid that no single organization can ever control or dominate all effective operating practices and good ideas. To be a marketplace leader, one must look outward -- as well as inward -- for constant improvement and new ideas. Benchmarking teams, with a mandate to look far and wide for better operating practices, are arguably one of the best sentinels senior management can post along the watchtowers of the organization. They can sound the alarm when the first signs appear on the horizon that the organization has fallen behind the competition or has failed to take advantage of important operating improvements developed elsewhere. Best practices benchmarking provides executives with the tool, the rationale, and the process to accept change as constant, inevitable, and good.

* Process re-engineering. Benchmarking is a necessity for companies engaged in re-engineering processes and systems.

Through the study of outside best practices, a company can identify and import new technology, skills, structures, training, and capabilities. Benchmarking also provides a potent source for incremental change and improvement. Benchmarking projects frequently yield golden nuggets that are weighed in ounces rather than pounds.

* Knowledge management. Benchmarking is a tool for achieving idea enrichment and general education that can be spread throughout the organization. Successful benchmarkers return to their organizations with valuable trophies -- new ideas and approaches for accomplishing old tasks. By regularly benchmarking critical functions, organizations ensure they remain open to new ideas, changing trends, and evolving technology. If seeing is believing, then benchmarking is an effective process to ensure that managers and front-line operators see other approaches to accomplishing the activities over which they preside.

* Advanced problem solving. Benchmarking frequently demonstrates its value in the problem-solving process. Ironically, most corporate problem-solving processes do not methodically look outside the team or organization for solutions. Standard problem-solving processes provide a structure that makes work groups more effective; they also prompt teams to root their analysis in empirical data, which supports management by fact rather than fancy. But most problem solving processes indirectly encourage teams to reinvent the wheel because they seldom encourage work groups to consider external experience in developing their solutions. As an enabling tool for problem solving, benchmarking frequently produces elegant answers for thorny operating issues.

Benchmarking in the 1990s gave executives a panoramic view of the competitive landscape and enabled them to revolutionize their own business processes with innovative best practices. Because of its proven ability to drive consistent business results, best practice benchmarking has grown to become an invaluable management tool. In fact, a survey conducted in 1999 by Bain and Co. identified benchmarking as one of the most highly utilized management tools.

Benchmarking in the new millennium

For nearly three decades, executives have used both metrical and best practice benchmarking to drive significant performance improvements. However, today's high-octane business environment has had an interesting effect on executives' use of benchmarking. On one hand, executives need benchmarking data more than ever to keep abreast of industry trends amid fierce global competition. On the other hand, executives are moving faster than ever, and they feel they don't have the time to undergo a benchmarking project that requires several months to complete. Working in "Internet time" intensifies the need for benchmarking data, yet requires the data to be collected much more quickly.

Best Practices LLC has developed a benchmarking methodology -- "rapidmarking" -- that compresses the traditional benchmark project cycle time of three to six months down to 10 to 20 business days. Rapidmarking is based on the traditional six-step benchmarking process (Figure 1). However, adjustments reduce the project cycle time significantly:

* Determine which function to benchmark. Teams that set out to benchmark expansive subjects such as empowerment might as well try to boil the ocean -- and many bench marking projects have spent months trying to do so. Begin with well-focused project missions that target manageable topic areas. Select high-leverage research subjects by identifying precisely where customer value is created in a process and designing the project around that area.

* Identify best-in-class companies and measure performance. Benchmark only against the best. Consider joining a benchmarking community, which allows participants to discuss business trends, share best practices, and develop contacts for future benchmarking projects.

* Measure internal performance. Benchmarking teams often spend a good deal of time convincing others of the value of participating in a benchmarking study. One way to demonstrate the value of benchmarking projects is to post the results of past projects on the corporate intranet.

* Compare internal vs. best-in-class performance. Many benchmarking teams suffer from "analysis paralysis" -- the inability to select the right tools to make sense of an avalanche of data. Present benchmarking data in a way that allows easy comparison between internal and best-in-class performance, reveals trends and gaps in performance, and identifies the cause and effect relationships between the measures and the reasons for the gaps. The presentation of benchmarking results should combine matrices for quantitative analysis with narrative text for qualitative analysis (Figure 2).

* Develop programs to meet and surpass best-in-class performance. Benchmark projects are worthless unless they drive executives to close the performance gaps uncovered in the study. Establish a process to absorb the lessons learned from the research, prioritize them, fit the critical few best practices to the company's operating strategy, and compose a detailed improvement path forward. This process is intended to identify two or three high-impact improvement opportunities that will move the company towards rapid improvement (Figure 3).

Monitor results and seek continuous improvement opportunities. Successful benchmarking projects do not end with the implementation of an improvement initiative. Instead, they engender an everlasting mentality among employees that lessons can be learned from anywhere. Encourage participants to view benchmarking not as a singular event but an ongoing learning activity.

Database benchmarking

The Internet has almost entirely eliminated the cycle time for benchmarking projects. Online databases can be used to access benchmarking data without undertaking lengthy benchmarking projects. When evaluating benchmarking databases, executives should seek answers to the following questions:

* What is the source of the data? Discover if the information in the database is from a primary or a secondary source. If the data is gathered from journal articles, then it might not be worth paying for the information when it can be found for free elsewhere. However, if the data is from primary interviews with veteran executives, the cost is often worth the value of accessing executive insights.

* Is the source of the information compatible with your business model? When conducting benchmarking research, it is critical to compare apples to apples. Executives using benchmarking databases should contextualize metrics and best practices to ensure that the circumstances that affect a data point are similar to their own business models. To increase compatibility, seek databases with information on a wide range of functional areas -- such as human resources, customer service, and marketing -- that are common across all companies and industries. If the database is too specialized in a particular area, there is a lower chance that the database will match your needs.

* How is the information delivered? Not all database search engines are created equal. Look for key-word functions and advanced search functions, such as the ability to search for word variants.

* How old is the information? It is easy for archived benchmark data to age quickly. Look for the date that the benchmark research was conducted. If the data is too old or if the database does not provide data at all, it would be unwise to place much credence in the database.

* Who is going to use the information? Benchmarking databases are valuable tools for executives looking to support daily decisions, energize meetings with new ideas, and include primary data in presentations. Many databases offer a range of purchase options from, per-document purchases to annual corporate subscriptions. Annual subscriptions can be valuable for companies with a large number of employees or for consulting professionals who need constant access. Conversely, pay-per-document purchases are more valuable for executives who need fast, one-time access to benchmarking data.

Who needs it?

Savvy executives use benchmarking to support a range of critical business decisions. Since benchmarking can be adapted to fulfill nearly every business need, it is perhaps the most comprehensive business management tool available.

There is a simple litmus test to determine benchmarking's applicability to your organization. Ask whether your organization can afford to stop improving. It is difficult to imagine many organizations that can answer yes to that question and stay in business for long. Every organization strives to enhance its position over time, and benchmarking will help your organization reach its goals.

The Authors

Christopher Bogan is the president and CEO of Best Practices LLC. He is author of Benchmarking for Best Practices: Winning Through Innovative Adaptation and The Baldrige: What It Is, How It's Won, How To Use It to Improve Quality in Your Company. He is a guest lecturer at Northwestern University's Kellogg School of Management. Bogan received his M.B.A. degree with honors from the Harvard Business School and his bachelor's degree magna cum laude from Amherst College. He can be reached at [e-mail].

Dan Callahan is a benchmarking analyst at Best Practices LLC. His areas of expertise include benchmarking and knowledge management in pharmaceutical, telecom, and high-tech industries. Callahan received his bachelor degree with highest distinction from the University of North Carolina at Chapel Hill. He can be reached at [e-mail].

For further reading

(See page 34 for ordering information.)

Anton, Jon, Call Center Metrics That Matter, Purdue University Press, 1999.

Anton, Jon and David Gustin, Call Center Benchmarking, Purdue University Press, 2000.

Bogan, Christopher and Michael English, Benchmarking for Best Practices: Winning Through Innovative Adaptation, McGraw Hill, 1994.

Use a combination of quantitative and qualitative analysis to present data for easy comparison.

Qualitative analysis

Analysis of this data shows that by making small productivity improvements, this plant can save millions in construction costs.

             Operational performance
                  Best-in-class       Internal
Performance           $2.7B            $2.2B     $524M
indicator 1
Performance           $3.0B            $1.5B    $1,505M
indicator 2
Performance           $3.3B            $1.8B    $1,581M
indicator 3
             Potential productivity
                  improvements
                       1%             3%     5%
Performance           $41M           $123M  $206M
indicator 1
Performance           $40M           $120M  $200M
indicator 2
Performance           $39M           $117M  $195M
indicator 3