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Table of contents

Introduction 2
Benchmarking Defined 3
Reason to Benchmark 4
Process 5
Deciding What to Benchmark 8
Understanding Current Performance 10
Learning from the Data 11
Using the Findings 12
The Benchmarking Methodology 14
Baldrige Criteria for Performance Excellence 16
Developing Spider Charts 17
Conclusion 19
References 20

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Benchmarking

Introduction
Benchmarking is a tool for continuous improvement. IT is a systematic method
by which organizations can measure themselves against the best industry
practices. It promotes superior performance by providing an organized
framework through which organizations lean how the "best in class" do things,
understand how the best practices differ from their own, and implement change
to close the gap. The essence of benchmarking is the process of borrowing ideas
and adapting them to gain competitive advantage. Benchmarking is an
increasingly popular tool. It is used extensively by both manufacturing and
service organizations, including Xerox. AT. Motorola, Ford, and Toyota.
Benchmarking is a common element of quality standards, such as the Chrysler,
Ford, and General Motors Quality System Requirements. These standards
stipulate that quality goals and objectives be based on competitive products and
benchmarking, both inside and outside the automotive industry. The Malcolm
Bladrige National Quality Award similarly requires that applicants benchmark
external organizations.
D.T. Kearns, former CEO of Xerox, states, Benchmarking is the continuous
systematic process of measuring products, services, and practices of companies
that are recognized as industry leaders for the purpose of achieving superior
performance. Gregory J. Balm of IBM has a similar definition:
(Benchmarking is) the ongoing activity of comparing ones own process,
product, or service against the best known similar activity, so that challenging
but attainable goals can be set and a realistic course of action implemented to
efficiently become and remain best of the best in a reasonable time.

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Benchmarking Defined
Benchmarking is not new and indeed has been around for a long time.
Benchmarking is the systematic search for best practices. Innovative ideas and
highly effective operating procedures. Benchmarking considers the experience
of others and us it. Indeed, it is the common-sense proposition to learn from
others what they do right and then imitate it to avoid reinventing the wheel.
As benchmarking measures performance against that best-in-class
organizations, determines how the best in class achieve those performance
levels, and uses the information as the basis for adaptive creativity and
breakthrough performance in the definition of benchmarking are two key
elements First, measuring performance requires some sort of units of measure
These are called metrics and are usually expressed numerically. The numbers
achieved by the best-in-class benchmark are the target. An organization seeking
improvement then plots its own perform-against the target. Second
benchmarking requires that managers understand why their performance
differs. Benchmarking must develop a thorough and in-depth know ledge both
their own processes and the process of the best-in-class organization.
Benchmarking involves continuously evaluating the practices of best-in-class
organizations and adapting company processes to incorporate the best of these
practices. Websters (unabridged) Dictionary defines benchmarking as: A
standard or point of reference in measuring or judging According to Robert
Camp: Benchmarking is the search for industry best practices that lead to
superior performance.


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Reason to Benchmark:

Improve profits and effectiveness
Accelerate and manage change
Set stretch goals
Achieve breakthroughs or innovations
Create a sense of urgency
Overcome complacency or arrogance
See from a new perspective
Make improvements to address Baldrige National Quality Program
criteria


Benchmarking is a tool to achieve business competitive objectives. It is not a
panacea that can replace all other quality efforts or management processes.
Organizations must still decide which markets to serve and determine the
strengths that will enable them to gain competitive advantage Benchmarking is
one tool to help organizations develop those strengths and reduce weaknesses.
By definition, benchmarking requires an external orientation, which is critical
in world were the competitor can easily be on the other side of the globe. An
external out-look greatly reduces the chance of being caught unaware by
competition. Benchmarking can notify the organization if it has fallen behind
the competition or failed to take advantage of important operating
improvements developed elsewhere. In short, benchmarking can inspire
managers (and organizations) to compete.
In contrast to the traditional method of extrapolating next year's goal from last
years performance, benchmarking allows goals to be set objectively, based on
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external information. When personnel are aware of the external information,
they are usually much more motivated to attain the goals and objectives. In
addition, it is hard to argue that an objective is impossible when it can be
shown that another organization has already achieved it. Benchmarking is time
and cost efficient because the process involves imitation and adaptation rather
than pure invention Benchmarking partners provide a working model of an
improved process, which reduces some of the planning, testing, and prototyping
effort. As the old saying goes, Why reinvent the wheel" The primary weakness of
benchmarking however, is the fact that best-in-class performance is a moving
target. For example, new technology can create quantum leap performance
improvements, such as the use of electronic data interchange (EDI). Automobile
makers no longer use paper to purchase parts from suppliers. A computer
tracks inventory and transmits orders directly to a supplier's computers. The
supplier delivers the goods, and payment is electronically transmitted to the
supplier's bank. Wal-Mart uses bar-code scanners and satellite data
transmission to restock its stores, often in a matter of hours. These applications
of EDI save tens of thousands of worker hours and whole forests of trees, as
well as helping to meet customer requirements. For functions that are critical to
the business mission, organizations must continue to innovate as well as imitate.
Benchmarking enhances innovation by requiring organizations to constantly
scan the external environment and to use the information obtained to improve
the process. Potentially useful technological breakthroughs can be located and
adopted early.
Process
Organizations that benchmark, adapt the process to best fit their own needs and
culture. Although the number of steps in the process may vary from
organization to organization, the following six steps contain the core
techniques.
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1. Decide what to benchmark.
2. Understand current performance.
3. Plan
4. Study others.
5. Learn from the data
Approaches to Benchmarklog
AT&T's 12-Step Process
1. Determine who the clients are who will use the information to improve their
processes
2. Advance the clients from the literacy stage to the champion stage.
3. Test the environment Make sure the clients can and will follow through with
benchmarking findings.
4. Determine urgency. Panic or disinterest indicate little chance for success.
5. Determine scope and type of benchmarking needed.
6. Select and prepare the team.
7. Overlay the benchmarking process onto the business planning process.
8. Develop the benchmarking plan.
9. Analyze the data.
10. Integrate the recommended actions.
11. Take action.
12 Continue improvement.
Xerox's 10-Step Process
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1. Identify what is to be benchmarked
2. Identify comparative organizations.
3. Determine data-collection method and collect data.
4. Determine current performance gap.
5. Project future performance levels.
6. Communicate benchmark findings and gain acceptance.
7. Establish functional goals.
8. Develop action plans.
9. Implement specific actions and monitor progress.
10. Recalibrate benchmarks
The above steps illustrate how AT&T and Xerox have adapted benchmarking to
their own needs. AT&T, in its first six slept, explicitly incorporates training and
makes sure that personnel using benchmarking result to improve their processes
buy into the program.
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Fig 1: Spider Dagram
National Statistics data Crown copyright and database NHS UK 2012

Deciding What to Benchmark:
Benchmarking can be applied to virtually any business or production process.
Improvement to best-in-class levels in some areas will contribute greatly to
market and financial success, whereas improvement in other areas win have no
significant impact. Most organizations have a strategy that defines how the firm
wants to position itself and compete in the marketplace. This strategy is usually
expressed in terms of mission and vision statements. Supporting these
statements is a set of critical activities, which the organization must do
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successfully to realize its vision. They are often referred to as critical success
factors. Critical processes are usually made of a number of sub-processes. In
general, when deciding what to benchmark, it is best to begin by thinking about
the mission and critical success factors. For example, take the case of two
insurance organizations. The chairperson of the first expresses the
organization's vision as becoming the "easiest in the industry to do business
with." He wants to sell customers all their insurance needs by emphasizing
speed of writing policies and an outstanding level of customer service. Critical
success factors in this case could include a 24-hour. 800 number service, fast
payment of claims, database systems that can relate information on all policies
held by each customer, and reduced cycle time. Benchmarking customer service
processes would have a substantial impact on the vision. The chairperson of the
second organization admits that his organization is only an average performer
in terms of customer service but intends to reduce the cost of insurance through
excellent investment performance. Because today's premiums are invested to
pay tomorrow's claims, higher earnings from investments would allow the
organization to charge less. The critical success factors for this firm could
include hiring and training good financial,' managers, using
telecommunications to track and act on developments in global money markets,
development of online real-time information systems Benchmarking investment
processes would be appropriate in this case. Some other questions that can be
raised to decide high impact areas to benchmark are:
I. Which process, are causing the moo trouble?
2. Which processes contribute most to customer satisfaction and which are not
performing up to expectation?
3. What are the competitive pressures impacting the organization the most?
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4. What processes or functions have the most potential for differentiating our
organization from the competition?
Understanding Current Performance:
To compare practices to outside benchmarks, it is first necessary to thoroughly
understand, and document the current process. It is essential that the
organization's performance is well understood. Several techniques, such as flow
diagrams and cause-and-effect diagrams, and understanding. Attention must be
paid to inputs and outputs. Careful questioning is necessary to identify
circumstances that result in exceptions to the normal routine. Exceptions
commonly consume a good deal of the process resources. However, process
participants may not think to mention them during interviews. Those working in
the process know the most about it and are the most capable of identifying and
correcting problems. The benchmarking team should be comprised of those who
own or work in the process to ensure suggested changes are actually
implemented.
Planning:
Once internal processes are understood and documented, it is possible to make
decisions about how to conduct the study. If not already selected, a
benchmarking team should be chosen. The team should decide what type of
benchmarking to perform, what type of data are to be collected, and the method
of collection. Organizations that are candidates to serve as the benchmark need
to be identified. Finally, timetables should be agreed upon for each of the
Benchmarking tasks and the desired output from the study.

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Fig 2: benchmark phases - Activities
Institute of Management Accountants, Montvale, NJ 07645-1760 www.imanet.org

Learning from the Data
Learning from the data collected in a benchmarking study involves answering a
series of questions:
Is there a gap between the organization's performance and the performance of
the best-in-class organizations?
What is the gap? How much is it?
Why is there a gap?
What does the best-in-class do differently that is better?
If best-in-class practices were adopted, what would be the resulting
improvement?
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Benchmarking studies can reveal three different outcomes. External processes
may be significant, better than internal processes (a negative gap). Process
performance may be approximately equal (parity). Or the internal process may
be better than that found in external organizations (positive gap). Negative gaps
call for a major improvement effort. Parity requires further investigation to
determine if improvement opportunities exist. It may be that when the process is
broken down into sub-processes, some aspects are superior and represent
significant improvement Opportunities. Finally, the finding of a positive gap
should result in recognition for the internal process. There are at least two ways
to prove that one practice is superior to another. If the process being compared
are clearly understood and adequate performance measures are available, the
practices can be analyzed quantitatively. Summary measures and ratios. such as
activity costs, recant on assets, detect rates, or customer satisfaction levels, can
be calculated and compared. It is fairly simple to determine superior practices,
as the numbers speak for themselves, provided relevant measures are used. A
second way to prove superiority is through market analysis. Consumers of
products and services vote with their checkbooks.
Using the Findings:
When a benchmarking study reveals a negative gap in performance, the
objective is to change the process to close the gap. Benchmarking is a waste of
time if change does not occur as a result. To effect change, the findings must be
communicated to the people within the organization who can enable
Improvement. The findings must translate and action plans must be developed
to implement new processes. Two groups must agree on the change. The first
group consists of the people who will run the process, the process owners The
second group consists of the people, usually upper management, who can
enable the process by incorporating changes into the planning process and
providing the necessary resources. Process owners may be inclined to
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disbelieve or discount the findings, particularly if the gap is large. Therefore, it
is important to completely describe how the results were obtained from the
external organizations studied. Of course current practices can't generate best-
in-class results, but changing the process can. Process changes are likely to
affect upstream and downstream operations as well as suppliers and customers.
Therefore, senior management has to know the basis for and payoff of nets
goals and objectives in order to support the change. As discussed in the
previous section. changes in business practices and in organizational and
operational structure may be indicated. These changes have to be considered
and incorporated into the strategic planning process Because findings are
objective, the benchmarking process helps make the case to both groups. The
effect of change can be predicted quantitatively and the process fully described.
When acceptance is gained, new goals and objectives are set based on the
benchmark findings Exactly how this happens depends on the individual
organization's planning process. The generic- steps for the development and
execution of action plans are:
1. Specify tasks
2. Sequence tasks.
3. Determine resources needs.
4. Establish task schedule
5. Assign responsibility for each task.
6. Describe expected results.
7. Specify methods for monitoring results.




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The Benchmarking Methodology:
A number of analytical tools could be used to identify effective policies for
advancing on the four micro-drivers of growth. Here, a three-step benchmarking
approach compares country performance and highlights important policy areas,
based on an assumption that good performance follows from good policies.
Quantitative data and qualitative information are combined to select benchmark
countries for the four micro-drivers and to assess similarities in their business
environments. Their policy approaches are then reviewed in more detail to
pinpoint effective measures which might inform the policies of other countries.
The full technical report for the project explains the methodology, data sources,
analyses and best practice policies in detail (OECD, 2005d).
In the first step, a benchmark is defined for each driver. The benchmark refers
to the group of countries with outstanding performance considering a
combination of driver-related performance indicators. The benchmark score in
therefore an indication of the average performance of the best countries (the
benchmark countries) on the particular driver.
In the second step, the business environment for each growth driver is defined.
This refers to a mix of market, business and policy areas considered relevant for
the respective driver. Most aspects can be quantified, but qualitative information
is also used to judge relative characteristics of the business environment, which
is a product of both structural factors and policy actions. Some indicators
measure inputs that are not directly controlled by public policy, e.g. availability
of digital content or access to capital for new firms, but these dimensions are
likely to be indirectly affected by government policies. Other indicators are a
direct quantification of government policies, e.g. government equity capital,
timeframes included in bankruptcy legislation. The environment countries are
among the outstanding performers on each individual business and policy area
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related to the growth driver. As such, this group may change from indicator to
indicator. One may think about the area spanned by the environment as the best
possible score, on average, among the OECD countries. (Camp, 1989)
Malcolm Baldrige National Quality Award
The Malcolm Baldrige National Quality Award recognizes U.S. organizations
in the business, health care, education, and nonprofit sectors for performance
excellence. The Baldrige Award is the only formal recognition of the
performance excellence of both public and private U.S. organizations given by
the President of the United States. It is administered by the Baldrige
Performance Excellence Program, which is based at and managed by the
National Institute of Standards and Technology, an agency of the U.S.
Department of Commerce. Up to 18 awards may be given annually across six
eligibility categoriesmanufacturing, service, small business, education, health
care, and nonprofit. As of 2013, 102 awards have been presented to 96
organizations (including six repeat winners).
The Baldrige National Quality Program and the associated award were
established by the Malcolm Baldrige National Quality Improvement Act of
1987 (Public Law 100107). The program and award were named for Malcolm
Baldrige, who served as United States Secretary of Commerce during the
Reagan administration, from 1981 until Baldriges 1987 death in a rodeo
accident. In 2010, the program's name was changed to the Baldrige Performance
Excellence Program to reflect the evolution of the field of quality from a focus
on product, service, and customer quality to a broader, strategic focus on overall
organizational qualitycalled performance excellence.
[2]

The award promotes awareness of performance excellence as an increasingly
important element in competitiveness. It also promotes the sharing of successful
performance strategies and the benefits derived from using these strategies. To
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receive a Baldrige Award, an organization must have a role-model
organizational management system that ensures continuous improvement in
delivering products and/or services, demonstrates efficient and effective
operations, and provides a way of engaging and responding to customers and
other stakeholders. The award is not given for specific products or services.
(Malcolm Baldrige, 2014)
Baldrige Criteria for Performance Excellence
The Baldrige Criteria for Performance Excellence serve two main purposes:
(1) To help organizations assess their improvement efforts, diagnose their
overall performance management system, and identify their strengths and
opportunities for improvement.
(2) To identify Baldrige Award recipients that will serve as role models for
other organizations. In addition, the Criteria help strengthen U.S.
competitiveness by
improving organizational performance practices, capabilities, and results
facilitating communication and sharing of information on best practices
among U.S. organizations of all types
serving as a tool for understanding and managing performance and for
guiding planning and opportunities for learning
The Baldrige Criteria for Performance Excellence provide organizations with an
integrated approach to performance management that results in
delivery of ever-improving value to customers and stakeholders,
contributing to organizational sustainability
improved organizational effectiveness and capabilities
organizational and personal learning
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Fig 3: quality system status

Developing Spider Charts
1. Identify the alternatives to be compared
Spider Charts could be used to compare:
Potential Projects
Performance of Vendors
Employee Performance
No more than 5 alternatives should be compared using Spider
Charts.

2. Generate criteria to rate each alternative
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Projects can be rated based on risk, return, initial cost, or any other
criteria
At least three criteria must be used, more may be helpful, but more
than seven may be too complex
3. Rate each alternative based on criteria.
4. Draw and label the axis arms of the chart (one arm for each criterion)
5. Draw and label each alternatives ratings on the chart, connecting
between arms.
6. Analyze the chart. (Dau, 2008).




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Conclusion:
Benchmarking, if applied properly, is a powerful tool with which to keep an
organization competitive. The tools and techniques described in this
SMA enable an organization to effectively benchmark and transform
themselves to meet the challenges of today's competitive environment.
The organizations that understand, embrace, and implement benchmarking and
the related tools and techniques will be able to celebrate the turn of the
millennium.
Benchmarking illustrates the usefulness of the radar chart approach for
comparing national labor market performance: 1) The radar charts provide a
highly intuitive synoptic overview of national performance on multiple
performance measures and changes over time and can also be used, for
example, to compare the performance profiles of several countries; 2) The
surface measure of overall performance (SMOP). There are, however, a number
of theoretical and practical issues in applying a benchmarking approach that
should be taken into consideration both in interpreting these findings and in
future benchmarking work in the context of the European employment strategy.
An initial problem is the need to select a limited number of performance
dimensions for analysis from the large number of potential candidates
mentioned in the employment guidelines. The substitution of other indicators
that are equally plausible in terms of the European employment strategy (e.g.
promotion of self-employment or integration of handicapped persons) might
lead to somewhat different comparative results. Moreover, the quantitative
indicators actually used are inevitably only approximations because of the
institutional and cultural diversity in the employment systems compared, and
the qualitative dimensions of indicators (e.g. of employment) are neglected due
to the lack of agreed measures. Finally, benchmarking requires the specification
of quantitative goals.
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References:
1- Besterfield, Dale H. Total Quality |Management, 3
rd
edition, 2011
2- Dau, Frithjof, Conceptual Spider Diagrams, University of Brighton, UK,
2008.
3- P.-G. Pettersen, B. Andersen, Benchmarking Handbook,Springer, 1995.
4- Malcolm Baldrige National Quality Award
http://www.baldrigepe.org/
5- Camp, Robert C., Benchmarking: The Search for Industry Best Practices that
Lead to Superior Performance, 1989.