Approaches to benchmarking

Benchmarking is such a broad term - encompassing the simplest comparison of performance data to complex strategic exercises examining how the world's best companies are run - that it can be difficult for the would-be benchmarker to know where to begin. Its purpose is to provide points of comparison to improve business performance. From where these points of comparison are drawn, and at what level of sophistication they are taken, depends on the objectives of the benchmarking project and what is being benchmarked - and also, more prosaically, on what resources are available.

THREE WAYS OF DOING IT

There are three basic levels of sophistication at which benchmarking projects can be undertaken (see figure 3.1 for an illustration of the typical benchmarking cycle):

The three levels build on each other and overlap but generally can be thought of as representing increasing degrees of complexity, with each level peeling back the layers of the organisation to reveal ever-more fundamental determinants of business success. Hence, performance benchmarking merely compares data; process benchmarking examines the underlying causes for superior performance; and strategic benchmarking looks at the less tangible factors, such as leadership, that drive performance.

Performance benchmarking

It is at the relatively straightforward level of performance or cost comparisons that most benchmarking studies are undertaken. For example, a study of benchmarking in retail financial services companies by the Warwick Business School reported that though competitive benchmarking was "well established" it concentrated on the "comparison of financial results".¹ As was noted in chapter two , statistical comparisons on their own are worthless exercises since they do nothing to reveal the reasons why performance varies between different organisations.

However, performance benchmarking does have its uses, being the important first step in any benchmarking exercise. A clear understanding of how your performance compares with that of competitors, or how your overhead costs measure up to those of similar-sized organisations engaged in similar activities, provides the essential starting point for any improvement in performance.

Although performance comparisons may not lead to the step-change in performance, they may be sufficient for many organisations. Despite an emphasis among benchmarking gurus to see it as a way of identifying wide-ranging business change, incremental shifts can still be beneficial and can usually be achieved with much less effort than other approaches. John Bramham explains why:

"Because the impact is less wide ranging, beneficial change can be achieved without the need for the highest level and comprehensive support that other approaches to benchmarking may require."²

Performance benchmarking tends to lead to changes that are implemented at the day-to-day operational level by managers operating within their own departments.

While performance benchmarking has undoubted value, its impact on the organisation is likely to be limited. All performance data is likely to be out of date by the time it is available. In fast-moving industries, this is a significant drawback as competitors are also seeking continuous performance improvements. Under such circumstances an organisation will find it difficult to improve its relative competitive position unless it achieves a more detailed understanding of the processes that lie behind the data. Operational adjustments may tackle problems on a superficial level; a more in-depth understanding could deliver longer-term, potentially more cost-effective, solutions. The greater benefits of adopting a more comprehensive benchmarking approach can be illustrated by using the management of staff absence as an example. Changing the operational management of absence - by tinkering with notification and follow-up procedures, for example - may result in some reduction in absence levels. But if the real cause arises from motivational problems rooted in the culture of the organisation, then the underlying issue will remain unresolved.

When BP Chemicals in Hull set about benchmarking its human resources (HR) department in 1993, it identified a list of nine quantitative measures, including the number of HR staff as a percentage of all staff and the training spend per head, against which to assess its benchmarking partners.³ Although this data was useful, the benchmarking team members found from their visits to their partners that qualitative issues were more important than simple metrics. The most important lessons learned from the BP study were at the level of processes and strategy. As a result, the HR department decided to devolve more responsibility to line managers and adopt a coaching and supporting role, streamlining policies and processes to make them more transparent and eliminate unnecessary work (see figure 3.2 ).

Process benchmarking

Process benchmarking is the next logical step for an organisation that wants to know the best way to bridge any gaps in performance between itself and its competitors. Process benchmarking involves identifying and comparing the key processes that lie behind performance outcomes to make them more efficient. Performance benchmarking can provide data to show how costs and performance compare with other organisations, but it is by understanding differences in the underlying processes that drive standards of performance that the real benefits of benchmarking may begin to be achieved.

The first step in process benchmarking is to work out which processes have an impact on the bottom line. These processes need to be stripped down and examined carefully, with comparisons made with the same processes either externally with organisations, or internally with divisions (departments) of the same business.

Engaging in process comparisons will reveal where there are inefficiencies and where extra costs are being incurred with no discernible extra benefit. It will also identify procedures that add no value and are largely redundant. One of the major causes of business inefficiency is an accumulation of what Bramham refers to as "pass-overs, hand-ons, hand-offs and authorisations". Each time, for example, documentation is passed to another person the time taken for the process to be completed increases. Benchmarking exercises can identify how other organisations have managed to reduce the number of people required to authorise a transaction and so reduce the total time for the process to be completed.

Ford (US) is one organisation that uncovered "accumulated" processes following a benchmarking project to identify why suppliers were unhappy with the car company's accounts department.⁴ It benchmarked its accounts system against Japanese manufacturer Mazda, in which the US company has a majority stake. Ford found that whereas Mazda had only six people in its accounts department, it had 600!

The aim of process benchmarking is not to import other organisations' processes wholesale, but to understand how they work in their own context and adapt them to fit the needs and culture of your own organisation.

Strategic benchmarking

Benchmarking strategy is an ultimate goal which, in fact, few organisations undertake to any large extent. It looks at the driving forces behind successful organisations, examining such things as leadership and the management of change.

Strategy has been defined as:

"A deliberate search for a plan of action that will develop a business's competitive advantage and compound it. For any company the search is an iterative process that begins with a recognition of where you are and what you have now."⁵

Gregory Watson, one of the pioneers of benchmarking at Xerox, advocates forming long-term alliances for the purposes of strategic benchmarking.⁶ Strategic benchmarking is similar to that of process benchmarking but is different in scope. As was noted in chapter two , the key to strategic benchmarking is the adoption of successful strategies pioneered by external partners. The idea is to fundamentally change the business, rather than just make certain business processes more efficient. Strategic benchmarking helps organisations to identify their long-term strategic objectives, such as where the business is going and what it will be doing. A benchmarking project at the US corporation General Electric (GE) involved identifying "strategic partners who could help GE learn the lessons of adaptation for the future", enabling the company to develop long-term plans.⁷

The Post Office's first forays into benchmarking in 1990 and 1991 were strategic, aiming to identify future areas for attention. One element, the corporate structure, was subsequently transformed to become more customer focused and involved a reduction in the number of business units from 70 to nine.⁸ This shift, implemented in 1992, has been described as "radical organisation change".⁹

There are four main issues that can be addressed through strategic benchmarking:

In theory, strategic benchmarking has the potential to deliver the kinds of step change in performance that are the holy grail of benchmarking. But, in practice, it can be very difficult to convert the insight gained from examining other organisations' strategic management into bottom-line performance improvements at home.

In part, it is the diversity of organisations and their cultures that is the problem. Changing processes is one thing, but successfully adopting a whole new management approach or altering the prevailing corporate culture is a difficult challenge indeed.

Studies show that most change programmes fail to achieve their objectives. One author claims that 80% of cultural transformations end in tears.¹¹ Likewise, a survey of 160 American and European businesses reported that participants had experienced more difficulty with changing vision, values and culture than with any other change initiative.¹²

THE BENCHMARKING FRAMEWORK

Deciding which of the three benchmarking approaches to take depends on a careful consideration of several factors. An organisation needs to ask itself three initial questions:

As was noted earlier, the levels of benchmarking described above - performance, process and strategic - essentially build on each other adding layers of understanding of the factors that determine an organisation's competitiveness. However, each layer adds a degree of abstraction and complexity that requires greater analysis and expertise to understand how observed differences in process or strategy translate into an action plan to improve performance.

The more extensive the benchmarking study, the more resources are required. There is no point gathering reams of data if there are not adequate resources available to analyse the information. Equally, there is no purpose in a careful comparison of strategic management issues if the organisation does not possess or have the resources to acquire (from consultants, perhaps) the expertise necessary to translate the information gleaned into meaningful actions.

One way of ensuring that there are adequate resources to successfully complete a benchmarking study is to gain senior management support before the project begins. The Cabinet Office benchmarking study referred to in chapter two recommended that those involved in the benchmarking project should "find the hot button" to secure management commitment.¹³ Also, all staff in the process to be benchmarked should be made aware of the project and their support for it actively encouraged before commencing.

WHO TO BENCHMARK AGAINST?

When the objectives of the benchmarking exercise are clear - whether to simply gather comparative data, to examine differences in processes or to conduct an in-depth analysis of strategic approaches - a decision needs to be made about what sort of benchmarking partners are to be sought. Again, the choice of partner depends on the project and its resources, but there are four main options which are examined in more detail below:

The pros and cons of the four approaches to benchmarking are summarised in figure 3.3.

Figure 3.3: Pros and cons of different approaches to benchmarking

Source: The European Benchmarking Code of Conduct - 1998-99.

Internal benchmarking

For large organisations internal benchmarking is a very attractive option. One of the golden rules of benchmarking is to know your own organisation first, so internal benchmarking against other divisions or business units within the same organisation is a good place to start. Even if the eventual aim is to benchmark externally, beginning closer to home can help achieve a better understanding of how your own organisation works and it also provides an opportunity to pilot the structures and processes devised for the benchmarking project. In this respect, process mapping is an invaluable tool in the benchmarking toolkit, enabling the organisation to better understand how it does things and why.

With internal benchmarking the aim is to seek out other parts of the same organisation that perform the same functions or processes and examine whether they achieve a better standard of performance and how such results have been achieved.

Access to internal data ought to be more straightforward than for external partners and is likely to be easier to compare. In addition, the shared common culture that exists between business units of the same organisation can help both with accessing and understanding data and with applying the results. Implementing the recommendations of an internal benchmarking project is unlikely to flounder on the "not invented here" syndrome, where the workforce is reluctant to embrace business practices or changes to processes that emanate from outside the organisation. Practices adapted from within the organisation, rooted in the same culture, are more likely to be readily accepted by managers and staff and can be implemented quickly with immediate benefits.

Center Parcs, the leisure company, is an example of an organisation that has embraced internal benchmarking. It rates its UK and continental sites on measures of customer satisfaction and percentage of chalets occupied. Where significant differences are identified the company ensures that all sites understand how the better performing sites have achieved their results.¹⁴

There are two principal drawbacks to an internal-only benchmarking approach:

Complacency

Without external references it may appear that all within the organisation is well. If, in fact, performance is poor compared with external organisations, then the changes that any business unit seeks to achieve will be modest and will not improve its competitive position. Any progress that is made is likely to be inadequate to catch up with competitors which will also be improving their performance all the time. One of the aims of benchmarking is to achieve a step change in performance, rather than taking incremental steps that do not provide sufficient momentum to make headway against competitors. As John Fisher remarks:

"By benchmarking your processes only with companies within the group, you are likely to make steady, but not spectacular progress. The power of peer group pressure is great and in shaving off comparatively small performance gains, you may miss the creative insight to make a truly radical step change that could catapult your company towards spectacular, step-change performance improvement."¹⁵

Internal politics

Although in an ideal world, one might expect divisions of the same organisation to strive for the common good, in reality many will see themselves as competitors - for investment, promotion opportunities and the allocation of business. Such competitive instincts, sometimes actively encouraged by managers at the centre, can run so deep that there can be a reluctance to share the secrets of improved performance.

Boots The Chemists opted for internal benchmarking as a way of equalising the performance of its 1,200 UK outlets, so that the low performers could achieve the same level of performance as the best.¹⁶ A major aim of the company's benchmarking project was to change the existing culture from one in which stores were in competition to one in which people shared knowledge and expertise.

Competitive benchmarking

At first sight, the absolute relevance of benchmarking against direct competitors makes this option an obvious approach to take - after all, a major aim of benchmarking is to improve performance so that the organisation can match or beat its competitors. Moreover, the data should be directly applicable since practices will be comparable and market conditions similar. Indeed, the Xerox example illustrates that competitive benchmarking can be a very fruitful exercise, enabling direct performance comparisons to be made.

However, the problem with competitive benchmarking is equally obvious - most direct competitors are unlikely to reveal the secrets of their business success and so compromise their own competitive advantages. Although as the Kawasaki Heavy Industries and Harland & Wolff example outlined in chapter two illustrates, sharing competitive information can be beneficial, ensuring a business maintains best-in-class position. A further problem with competitive benchmarking is that it may contravene legal regulations. Such principles of legality are included in the benchmarking code of conduct (see figure 3.4). It should also be remembered that competitive analysis is limited because it focuses on performance at a single point in time, rather than looking at the processes and strategies that lead to competitive advantage.

Nevertheless, there remains a role for competitive benchmarking. It may not be possible to organise a benchmarking partnership with a competitor, but extensive research into publicly available data on the organisation can be helpful. Fisher suggests examining such easily comparable measures as turnover, profit before tax, return-on-capital-employed (ROCE), productivity per employee, growth, margin and investment.¹⁷ These will at least give an idea of the performance gap that exists, even if it sheds little light on how it can be closed.

In addition, some degree of competitive benchmarking can be achieved through industry surveys. Performance data is often collected through regular anonymous surveys by respected industry or professional associations and these can prove very valuable. Care needs to be taken to ensure that the statistical basis is sound - with a balanced representation of organisations, for example.

Another source of information on competitors can be provided by customers who can report on their relative degrees of satisfaction with your own organisation and its competitors. BTR Sealing Systems, manufacturer of rubber seals for vehicles, gleans information on competitors' performance in areas such as quality from its Japanese customers, including Honda, Nissan and Toyota.¹⁸ Organisations should beware of placing too much reliance on comparative data supplied by customers, however. It could simply be a tactic to cut prices by shaving profit margins.

Ford's development of its Taurus car in the US provides an illustration of how competitive benchmarking can achieve significant results by combining customer feedback with one of the oldest established competitive benchmarking practices - reverse engineering.¹⁹ In the early 1980s, Ford established a team to develop a new model, the Taurus. As part of the development phase of the new car, the team undertook extensive consultation with customers, dealers, service agents and others to compile a list of features that they felt mattered to the customer. Using this list of features, the team set about analysing the same features in around 50 competing models to identify the best-in-class standard for each feature. These became the benchmarks for the company's engineers to aim at when designing the Taurus. The resulting car was a tremendous success, at least in part because of the benchmarking process.

Functional benchmarking

Functional benchmarking involves comparisons of processes conducted in organisations that are not direct competitors. Some functions such as human resources, marketing and financial control are universal and in many cases their operation is independent of the industry sector in which the organisation works so that meaningful comparisons can still be made.

Alternatively, benchmarking of a particular process that is common across one or more industries can be conducted against organisations that are not direct competitors. For example, all utilities, from gas companies to providers of telecommunications, regularly dig up streets to lay or repair cables and pipes.²⁰ The actual process is similar in all organisations and much can be learned from the experiences of others that are not direct competitors.

Because potential partners are not competitors, they are more likely to be prepared to share sensitive data. Gathering ideas from a different industry may highlight completely new approaches to familiar problems that can deliver truly innovative ways of improving performance.

Generic benchmarking

The final approach to benchmarking is often regarded as the "luxury" approach - best-in-class benchmarking against acknowledged world leaders. Clearly, the starting point in such a process is to identify which organisations are the best and for what aspects of their operations. Although the partner may not be from the same or even a similar industry, there are still valuable lessons to be learned about how to run efficient core processes and, at the strategic level, how some organisations become world beaters.

Generic benchmarking has the potential to offer the greatest benefits, delivering the step-change in performance that many organisations seek. Looking at businesses in other industries can be of great benefit since there are no preconceptions about the way things are done. Quite often an external focus helps to remove the blinkers that prevent organisations accepting new practices.²¹

Unfortunately, it is not always possible to translate the opportunities that generic benchmarking can provide into real business changes. The lessons learned can prove too difficult to translate to new situations and without outstanding leadership and commitment organisations can find it difficult to "think out of the box" and adopt whole new models of best practice in business. In addition, access to best practice organisations can be difficult since some of the best known are flooded with requests for partnerships and some (such as Xerox, for example) have begun to charge for their services. Best practice benchmarking works best as a long-term partnership, and many organisations do not have the resources to devote to building such relationships over an extended period of time.

CHOOSING THE RIGHT PARTNERS

The key to successful functional or generic benchmarking is to choose the right partners. The organisations chosen need to be comparable in some respects at least, or the lessons learned from benchmarking could prove difficult to implement. Usually, it is recommended that partners need to be of a comparable size. This is not only because large organisations can be reluctant to agree to partnerships with small firms, but because the lessons learned from a large organisation may not be applicable in a smaller setting. In fact, the reason why a large organisation's processes are better than those of a smaller partner may simply be that they have more resources available to support the process.

Other elements of similarity to look for include:

Pacific Bell, the Californian telecommunications company created in 1984 by the dissolution of AT&T, developed a benchmarking partners' profile to select potential partners.²³ Pacific Bell marked possible partners on the basis of their performance against seven criteria: profitability; whether it serves a diverse market; service business; ongoing relationships (with customers); local (California) presence; technology-driven; and be subject to regulatory control - Bell was interested to see how an organisation dealt with changing regulations. Profitability, which was considered a must, was seen as the key indicator because its absence would undermine the validity of the project.

Rover's benchmarking guidelines for selecting comparator companies include the following:

The Employment Service, which was involved in the Cabinet Office's benchmarking consortium and sought to compare its internal vacancy filling, undertook extensive research to identify suitable external organisations to benchmark, basing its final selection on the following characteristics:

The ideal number of benchmarking partners to choose is around four or five. Any more and the volume of data and time taken for visits and analysis becomes unmanageable. Any fewer and the information gathered becomes limited in usefulness without a breadth of practice on which to draw. Teams involved in the Cabinet Office's benchmarking consortium, for example, visited between three and six organisations from different sectors and industries.²⁶ However, some organisations occasionally involve more than four or five organisations in a benchmarking project. At Rover, for example, the maximum number of benchmarking partners is seven.²⁷

In practical terms, it is advisable to look for partner organisations that are physically accessible. Although generic benchmarking may entail examining an overseas organisation, in Japan or the US, for example, long distances can hamper the development of the long-term relationships that can be very beneficial. However, new technology - the internet, e-mail and video conferencing, for example - make this issue increasingly irrelevant.

One of the first places to look for potential partners in generic benchmarking may be among regular suppliers. You start with the advantage of knowing that they must have the edge on other organisations in the same business since otherwise one assumes you would do business with their competitors instead. The existing relationship between the two organisations could well mean that establishing a benchmarking relationship is more straightforward than with other organisations that are unknown to you.

Another source of partners is through benchmarking clubs and other similar associations. Many of the clubs are run by consultants who use their databases of clients and other contacts to identify potential partners for a fee. Certainly, Yellow Pages has found benchmarking clubs a useful source of potential partners (see Benchmarking in practice). Alternatively, seminars and networking events can provide an efficient way of meeting potential partners and assessing their suitability through direct and informal channels.

MAKING A VISIT

When a shortlist of potential benchmarking partners has been assembled, much work still needs to be done before any company visits can be undertaken. It is important to establish the expectations of both parties well in advance. At a basic level, it is necessary to ensure that potential partners do actually have the sort of data that you seek and that they are capable of comparison with your own organisation. The first approach to the organisation will need to clarify in detail the sort of relationship you seek. It is important to demonstrate a professional, organised approach. In particular, potential partners will not be impressed if you have not already gathered as much information on their organisation as is available in the public domain. This point was made by several members of the Cabinet Office's benchmarking consortium, who advised: "Do your homework well."²⁸

In approaching potential partners, consultant Peter Griffin suggests some guidelines that are worth observing:

In addition, potential partners will want to know why you have chosen them and how significant a commitment in time and resources they are being asked to make. So, for example, you should make clear whether you wish to make site visits and, if so, how long these would take. You should also identify who in your company is involved in the benchmarking team and, in particular, their seniority.

If the partner agrees to a benchmarking arrangement, it is sensible to cover as much ground as possible before any site visits are undertaken. This can mean preparing a questionnaire to gather available data before the visit which should be completed by both partners. This will help clarify the areas where you seek information and ensure that all data that is already available is exchanged prior to the visit to save valuable time.

Fisher recommends documenting all stages of the process so that if new management join during the partnership it is clear to them what is being done:

"If the partnership process itself has been documented, you are more likely to get continuing cooperation from a new management team. If it is undocumented and informal, it may be the first activity to be challenged by new owners and all your pioneering work will be wasted."³⁰

Site visits are not a necessary feature of benchmarking - questionnaires coupled with follow-up telephone interviews can often gather sufficient quantities of useful information to render a visit unnecessary, and many experts counsel against forming a habit of "industrial tourism" for the sake of it.³¹ Nevertheless, site visits can provide invaluable insights into the way an organisation is run and allow a better feel for the culture of the place that can help when trying to translate benchmarking findings into changes back home.

Careful planning and preparation, strict adherence to timetables and a unwavering focus on the primary purpose of the site visit should ensure that the experience is worthwhile. Cook lists a set of rules which benchmarkers should observe when making site visits:

All benchmarking visits should adhere to a recognised benchmarking code of conduct, such as the European version of the code produced by the American Productivity and Quality Centre (see figure 3.4, see also Yellow Pages guidelines, step eight, figure 4.11, Benchmarking in practice). A copy of the code, which covers the principles of legality, information exchange, confidentiality and the use of information, should be given to the comparator prior to a visit. The code of conduct also provides a starting point for those new to benchmarking, helping to clarify the conventions and expectations surrounding its practice.

Throughout a benchmarking visit the emphasis should be kept on the how and the why questions. For example, Rover has a list of the typical questions that might be asked:

The site visit also offers the opportunity to validate information and data gathered from other sources and to clarify the reasons for any discrepancies.

A formal report on the visit needs to be prepared as soon as possible afterwards which contains the comparative data, mapping of processes and conclusions. This report should be sent to the host company. The benchmarking partner would probably welcome an invitation to make a return visit either at this stage or when you have implemented any changes that result.

IMPLEMENTING THE FINDINGS

Further analysis and planning will be required to produce an implementation plan which will attempt to translate the lessons learned from the exercise into concrete changes in working practices. It is this stage of the process that is perhaps the most difficult to achieve.

It is likely that you will have performance data and process information from several organisations or, in the case of an internal investigation, from other divisions or functions. The first step is to determine the performance gap that exists between you and the comparators by quantifying for each party the various key performance indicators that were identified at the outset of the study as crucial to business success.

Some of these indicators will be hard data measures, but it may be the case that the "soft" issues relating to corporate culture and management style shed more light on the essential question of how improvements in performance are achieved. Quantifying these measures is clearly much more difficult, but if benchmarking is carried out on a consistent basis, particularly as part of a long-term partnership between organisations, then meaningful comparisons can be made.

Direct comparisons of processes can identify where the differences lie and what parts of the process can be removed or reformed to make it more efficient. The aim is to narrow the gap between your organisation and the more efficient of those of your benchmarking partners - remembering that they too will be constantly striving to improve their performance.

When an action plan to implement the reforms needed has been drawn up, consideration will need to be given to how this can be most effectively communicated to those involved in such a manner that they are willing to commit themselves to adopting it. One of the keys to this process, as was noted earlier, is a high degree of leadership and management commitment. The Employment Service's benchmarking project (above) involved regular updates to gain the full support of the director of human resources.

The findings of Boots The Chemists' internal benchmarking project, which led in 1995 to the principles of best practice benchmarking being applied in all the company's stores, were first communicated to all large store managers and all district managers to promote ownership and gain their commitment.³⁴ A two-hour communication exercise fronted by members of the benchmarking team consisted of the following activities:

From the outset of the Boots project, the benchmarking team stressed that it was not another one-off initiative, but a key tool to enable managers to better achieve their existing goals and objectives.

Answers to the most frequently asked benchmarking questions can be found in figure 3.5.

Figure 3.1: The benchmarking cycle

What is to be benchmarked?

What will be the benefits of improvements in this area?

Are you seeking to solve a specific problem?

What are the core processes, critical success factors and key performance indicators that need to be measured?

In-depth study or cursory overview?

Seek step change or incremental improvement?

Select benchmarking approach: performance; process or strategic and internal; competitive; functional; or best-in-class?

How do the objectives of the study link to strategic corporate objectives?

Obtain management understanding, commitment and support

Identify and secure sufficient resources to fulfil objectives

Communicate objectives and plan to all concerned

Assess workload and knowledge requirements

Negotiate secondment of staff to team

Team should be balanced in terms of knowledge areas, seniority and access to networks of contacts

Train team as necessary in benchmarking theory and ethics; analytical tools and techniques; interpersonal skills; questioning techniques; and report writing

Record performance against agreed indicators

Analyse and map current process using flow charts

Seek customer feedback on most meaningful areas for improvement

Approach internal partners first

Use lateral thinking, brainstorming, contacts, seminars, reference material, industry or professional associations to identify potential external partners

Research shortlist thoroughly before establishing contact to ensure:

their experience is relevant

their reputation for excellence is current, not historic

there are no legal or anti-competitive reasons why an exchange of information should not happen

Follow the benchmarking code of conduct (see figure 3.4, for example)

Try to establish top-level relationships

Stress mutual benefits

Explain scope of project, information sought, resources required, methods to be used and membership of benchmarking team

Clarify confidential and sensitive areas

Personal interviews, site visits (if necessary), telephone contacts, surveys

For site visits, ensure that:

you have gathered all relevant publicly available data beforehand

seek to understand the why as well as the how of each process

try to understand the attitudes, skills and values that help explain superior performance

stick to the agreed agenda and timescale

Analyse performance gaps and map differences in processes

Seek reasons for differences

Creatively adapt lessons learned from partners to meet the context of the organisation

Set demanding but realistic improvement targets, with milestones to monitor progress

Integrate targets into business plans

Identify what changes are required to meet these targets

Identify and communicate tasks, responsibilities, resources and timescale for each change process

Implement improved process including staff training, overhaul of systems and procedures

Report to benchmarking partners on progress

Repeat exercise

Figure 3.2: HR benchmarking at BP Chemicals, Hull

CASELET

The success of an organisation-wide benchmarking exercise in 1991 inspired the HR function to benchmark its own activities in late 1993. As part of the "culture change to manufacturing focus" programme, HR had already become more customer focused, but it wanted to confirm that this was the approach taken by world-class manufacturers. Four HR people and two manufacturing managers, including two people who had taken part in the manufacturing benchmarking exercise, set out to obtain benchmarking data from nine organisations, including three other BP sites. The object of the exercise for the HR team was to find a way "to achieve best-in-class standards of human resource management, promoting the objective to become a world-class chemicals company".

Measures

The methods used to identify appropriate benchmarking measures included brainstorming, analysis by the HR department, and interviews with non-HR employees. Brainstorming produced the following list of quantitative measures:

The HR department thought that these measures did not take account of the business strategies that would have an impact - in terms of generating work - on the HR function, so it identified a list of these activity drivers. This included organisational changes, turnover, unionisation, technology, age profile, growth rate and staff development.

A diagonal slice of the organisation provided 37 employees who were interviewed by HR staff with a view to obtaining the department's customers' views on how well HR was performing. BP Chemicals' HR manager says that the interviews provided very useful feedback. It emerged that people did not really understand what HR did, that it had a very low profile within the organisation and that the making of even small mistakes in basic HR tasks, such as calculating pay, had a very adverse effect on the opinion people held of HR.

Armed with these insights, and the issues identified as significant in the preparations for the benchmarking visits, the benchmarking team members embarked on their investigations, which usually took the form of half- or full-day visits. BP, of course, supplied data on its own operations to the organisations that it visited, but it soon emerged that qualitative issues were more important than HR "numbers".

Best practice in HR

The benchmarking team concluded from their visits to other plants, and discussions with employees at all levels in the visited organisations, that best practice in HR in manufacturing includes:

Outcomes

Once its research was over, the benchmarking team withdrew to a local hotel for a day to try to decide how to apply its findings to BP Hull. It agreed that an HR function has four roles, and that while the emphasis on each of them will vary over time, none of them can be abandoned. The roles are:

The devolution of many HR responsibilities to the line means, however, that new ways have to be found to carry out the roles identified above, which would generally be achieved by reducing rules to a minimum of core policies, coaching and supporting line managers, and planning and championing change.

More specifically, HR at BP Hull set itself the objectives of:

Source: IRS (1997), "Benchmarking facilitates change and continuous improvement at BP Chemicals", IRS Employment Review 630, April, pp.13-16.

Figure 3.4: The European Benchmarking Code of Conduct

Introduction

Benchmarking is the process of identifying and learning from good practices in other organisations and is a powerful tool in the quest for continuous improvement and performance breakthroughs. The authors and sponsors have produced this European Code of Conduct to guide benchmarking encounters and to advance the professionalism and effectiveness of benchmarking in Europe.

It is based upon the Code of Conduct used by the American Productivity & Quality Centre (APQC) and the wording has been modified to take into account the rules of the European Union competition law. The layout and presentation have also been modified to provide a more positive chronological approach.

Adherence to this code will contribute to efficient, effective and ethical benchmarking.

1. Principle of Preparation

1.1     Demonstrate commitment to the efficiency and effectiveness of benchmarking by being prepared prior to making an initial benchmarking contact.

1.2     Make the most of your benchmarking partner's time by being fully prepared for each exchange.

1.3     Help your benchmarking partners prepare by providing them with a questionnaire and agenda prior to benchmarking visits.

1.4     Before making any benchmarking contacts, especially the sending of questionnaires, take legal advice.

2. Principle of Contact

2.1     Respect the corporate culture of partner organisations and work within mutually agreed procedures.

2.2     Use benchmarking contacts designated by the partner organisation if that is its preferred procedure.

2.3     Agree with the designated benchmarking contact how communication or responsibility is to be delegated in the course of the benchmarking exercise. Check mutual understanding.

2.4     Obtain an individual's permission before providing his/her name in response to a contact request.

2.5     Avoid communicating a contact's name in an open forum without the contact's prior permission.

3. Principle of Exchange

3.1     Be willing to provide the same type and level of information that you request from your benchmarking partner, provided that the principle of legality is observed.

3.2     Communicate fully and early in the relationship to clarify expectations, avoid misunderstanding and establish mutual interest in the benchmarking exchange.

3.3     Be honest and complete.

4. Principle of Confidentiality

4.1     Treat benchmarking findings as confidential to the individuals and organisations involved. Such information must not be communicated to third parties without the prior consent of the benchmarking partner who shared the information. When seeking prior consent, make sure that you specify clearly what information is to be shared and with whom.

4.2     An organisation's participation in a study is confidential and should not be communicated externally without their prior permission.

5. Principle of Use

5.1     Use information obtained through benchmarking only for purposes stated to and agreed with the benchmarking partner.

5.2     The use of communication of a benchmarking partner's name with the data obtained or the practices observed requires the prior permission of that partner.

5.3     Contact lists or other contact information provided by benchmarking networks in any form may not be used for purposes other than benchmarking.

6. Principle of Legality

6.1     If there is any question regarding the legality of an activity, take legal advice.

6.2     Avoid discussions or actions that could lead to or imply an interest in restraint of trade, market and/or customer allocation schemes, price fixing, bid rigging, bribery or any other competitive practices. Do not discuss your pricing policy with competitors.

6.3     Refrain from the acquisition of information by any means that could be interpreted as improper, including the breach, or inducement of a breach, of any duty to maintain confidentiality.

6.4     Do not discuss, disclose or use any confidential information that may have been obtained through improper means, or that was disclosed by another in violation of a duty of confidentiality.

6.5     Do not, as a consultant, client or otherwise, pass on benchmarking findings to another organisation without first getting the permission of your benchmarking partner and without first ensuring that the data is appropriately "blinded" and anonymous so that the participants' identities are protected.

7. Principle of Completion

7.1     Follow through each commitment made to your benchmarking partner in a timely manner.

7.2     Endeavour to complete each benchmarking study to the satisfaction of all benchmarking partners as mutually agreed.

8. Principle of Understanding and Agreement

8.1     Understand how your benchmarking partner would like to be treated, and treat him/her in that way.

8.2     Agree how your partner expects you to use the information provided, and do not use it in any way that would break that agreement.

9. Benchmarking with Competitors

The following guidelines apply to both partners in a benchmarking encounter with competitors or potential competitors:

BENCHMARKING PROTOCOL

Benchmarkers

determined what to benchmark;

identified key performance variables to study;

recognised superior performing organisations; and completed a rigorous internal analysis of the process to be benchmarked before

initiating contact with potential benchmarking partners

When the benchmarking process proceeds to a face-to-face site visit, the following behaviours are encouraged:

Important notice

This code of conduct is not a legally binding document. Though all due care has been taken in its preparation, the authors and sponsors will not be held responsible for any legal or other action resulting directly or indirectly from adherence to this code of conduct. It is for guidance only and does not imply protection or immunity from the law.

Source: The European Benchmarking Code of Conduct - 1998-99.

Figure 3.5

Frequently asked benchmarking questions

What is benchmarking?

A systematic and continuous comparative performance exercise - in similar processes, for example - against primary competitors, organisations in different industries and sectors or internal functions and departments in order to understand how superior performance is achieved. Benchmarking can take place at three levels of sophistication: performance, process and strategic. The three levels build on each other and overlap but generally can be thought of as representing increasing degrees of complexity.

Put simply, performance benchmarking compares data; process benchmarking examines the underlying causes for superior performance; and strategic benchmarking looks at the less tangible factors, such as leadership, that drive performance. While acknowledging that comparing data has value, many benchmarking proponents would not consider an examination of performance data to be benchmarking, believing that it is necessary to understand the reasons for any performance differences.

There are four basic benchmarking approaches:

Is it the same as competitor analysis?

Competitor analysis attempts to understand the plans, strategies, capabilities and vulnerabilities of current or potential competitors and is crucial for the formulation of market strategy. Benchmarking differs from competitive analysis by focusing on best-in-class performers, whether they are competitors or not. Indeed, many benchmarking successes come from studies of organisations in other industries.

What are the benefits?

Benchmarking can act as a catalyst for change, convincing sceptics of the need to change and providing examples of what can be achieved from adopting a different way of working. Improvement can be accelerated through benchmarking because it bypasses the learning curve and capitalises on the experiences of others. Benchmarking can identify gaps between strategic objectives and current reality, highlighting measures that can be employed to achieve those goals. It can also inform the strategic planning process.

The "not-invented-here" syndrome, which often surfaces when external solutions to problems are proposed, can be overcome by involving process owners in the search for improvement. This will make change more acceptable and improve the chances of successfully making the transition.

Among our case study organisations (see Benchmarking in practice), Xerox UK has recorded significant improvement in the rates of very satisfied customers following a benchmarking study of its Belgian sister operation, while benchmarking activities have helped Quadrant to create a highly customer-focused business.

What can be benchmarked?

Almost any activity can be the subject of a benchmarking study, so long as the information is of value. Most benchmarking is of processes and the US-based Benchmarking Exchange (TBE) lists 153 business processes on its website which TBE members have benchmarked. The list ranges from communication systems and credit management to strategic planning and pollution control. Our own research shows that customer service and human resources are two popular areas for benchmarking studies. The Inland Revenue, for example, examined equal opportunities practices in other organisations to assess how its own policies measure up (see Benchmarking in practice).

Whatever business area is chosen for a benchmarking study must be one that, if improved, will further the strategic objectives of the organisation.

The DTI offers the following cautionary points when deciding what to benchmark:

When should benchmarking be used?

A benchmarking study entails a significant effort and requires adequate resources and top-level support. The US-based Strategic Planning Institute highlights several key conditions that should be met when deciding when to benchmark. The three most important are as follows:

How much will it cost?

Benchmarking comes at a price. Actual figures are hard to come by and are influenced by the scope and complexity of the study. In 1991, the American Productivity and Quality Centre estimated that the cost of a benchmarking study ranged from $5,000 to more than $100,000.³⁷ People time accounts for most of the costs and using external consultants can significantly raise expenditure. Most benchmark projects involve a team of between three and 12 people, although the make up may change as the project evolves.

The Industrial Society's Benchmarking Toolkit lists the following headings for costings:

Organisations can limit the costs of benchmarking by focusing their activities on key business processes. This has the added of advantage of producing demonstrable benefits, enabling the costs in time and effort to be more easily justified. Costs can be minimised by clearly defining what the project intends to accomplish. Establishing the study's boundaries will ensure it doesn't grow and gather a momentum of its own. Costs can also be kept to a minimum if benchmarking partners are fully aware of what information is required of them. This requires a thorough analysis of your own position - how we do it - and gathering as much information on the comparator organisation as possible before making a visit. Indeed, one of the fundamental rules of benchmarking is to know your own organisation, allowing the potential gap between your outcomes and processes and those of best-in-class companies to be more easily assessed. Moreover, examining your own activities may highlight internal benchmarking opportunities.

Whatever the financial cost of benchmarking, it should always be set of against the potential corporate cost of failing to continually improve. Companies which fail to innovate and achieve best practice in their core processes or which do not keep pace with change elsewhere are courting disaster.

How long does it take?

According to the consultancy company McKinsey, the typical first-time benchmarking project takes between six and nine months to complete (from project initiation to delivery of recommendations), including four to six weeks of pre-study analysis. A typical project will, according to the Strategic Planning Institute, consume about 60 person-days of time. The actual duration of a benchmarking project will depend on the complexity of the study: the more complex the scope of the project, the longer it will take. However, benchmarking is an on-going activity and once close links have been made with partners they can often help in other areas.

How do we select comparators?

Most external benchmarkers select between two and six potential comparator organisations. Industry associations, benchmarking networks, specialist consultants, suppliers and industry observers are just some of the sources to access to identify potential benchmarking partners. Gathering customers' views on who they think is the best in a specific business activity can also be a fruitful exercise.

The DTI lists the following important considerations in choosing benchmarking partners or comparator organisations:

It should be remembered that benchmarking is about sharing information, with learning a two-way process. Prospective benchmarking partners will want to know what they will get out of the relationship. Initiators of benchmarking projects will generally offer their partners a summary of the project's results, blinding the findings to protect confidential data from other comparators.

Most best-in-class organisations, although often keen to share information, tend to be overwhelmed with requests to benchmark and inevitably reject some approaches. Benchmarking against leaders can also be a daunting task, requiring the benchmarker to make a quantum leap to attain comparable performance. An alternative might be to narrow the study and benchmark against lesser known businesses that have excelled in a specific area. There is also much to learn from studying companies that are not necessarily the best, at least as a first step.

How do we collect data?

There are a myriad of information sources, including magazines and newspapers, business journals, trade association reports, professional bodies and specialist databases. Customers and suppliers may also be able to help, as will employees with specialist knowledge of the industry or area to be benchmarked. Networking can also provide opportunities for information gathering.

A first step is to identify how much data needs to be collected, the population from which the data will come, and the length of time over which it will be collected. Self analysis is essential, so data on your own performance or how you currently perform a process must be gathered. This may include:

Questionnaires and site visits are popular methods of gathering information on potential comparators. The former may help to identify the most compatible and appropriate partners, while the latter is essential for gaining an in-depth understanding of the systems and processes operating in best-in-class organisations.

How can the findings be applied?

Once the benchmarking data has been analysed and the gaps between your own processes and those of the comparator have been identified, strategies and action plans need to be devised to improve performance and close the gaps. This involves identifying the tasks, responsibilities and resources required to make the change. Proposed actions must be accompanied by clear objectives and a timescale for implementation. A pilot scheme may be appropriate in some cases. The change programme should be carefully monitored and the effectiveness of the new approach needs to be widely reported.

A key aspect of implementing the recommendations of a benchmarking study is to win the support of those affected by the proposed change. Ideally, process owners should be involved in the benchmarking process so that they can witness the new approach. An alternative is to highlight the positive aspects for change and how the organisation as a whole will benefit from making the switch. Regular communication with affected staff throughout the project can help to generate goodwill and make it easier to implement change.

The results of a benchmarking project should be widely disseminated to ensure the organisation as a whole, and senior management in particular, are aware of what action is necessary to improve performance. Any project recommendations should take account of, and be adapted to suit, the existing organisational culture.

²     Bramham J (1997), Benchmarking for people managers (Institute of Personnel and Development, London).

³     IRS (1997), "Benchmarking facilitates change and continuous improvement at BP Chemicals", IRS Employment Review 630, April, pp.13-16.

⁴     Main J (1998), "Benchmarking: more than industrial tourism", Benchmarking (Eclipse Information, London), pp.2-3.

⁵     Henderson B D (1989), "The origins of strategy", Harvard Business Review, November-December, p.5.

⁶     Watson G H (1993), Strategic benchmarking: how to rate your company's against the world's best (John Wiley, Chichester).

⁷     Ibid., p.35.

⁸     Jackson S (1998), "Benchmarking for a first-class supply chain: the Post Office", in Camp R C (ed), Global cases in benchmarking: best practices from organisations around the world (ASQ Quality Press, Milwaukee), pp.453-472.

⁹     Ibid., p.457.

¹⁰    Watson, see note 6, above.

¹¹    Ward M (1994), Why your corporate culture change isn't working … and what to do about it (Gower, Aldershot), p.xii.

¹²    Troy K (1994), Change management: an overview of current initiatives (The Conference Board Europe, Brussels).

¹³    Benchmarking human resource activities (Cabinet Office, 1997).

¹⁴    Best practice benchmarking, Department of Trade and Industry (1995).

¹⁵    Fisher J (1996), How to improve performance through benchmarking (Kogan Page, London).

¹⁶    Tolputt D, Squires P and Welsh J (1998), "Internal benchmarking at Boots The Chemists", in Camp R C (ed), see note 8, above.

¹⁷    Fisher, see note 15, above.

¹⁸    IRS (1997), Measuring performance, IRS Management Review 5, April, pp.48-49.

¹⁹    Watson, see note 6, above.

²⁰    Bramham, see note 2, above.

²¹    Cook S (1995), Practical benchmarking: a manager's guide to creating a competitive advantage (Kogan Page, London).

²²    Bramham, see note 2, above.

²³    Pozos A R, Miller J and Cartwright P (1998), "Applying benchmarking at Pacific Bell: skills, tools and techniques", in Camp R C (ed), see note 8, above.

²⁴    Rover case study in the Benchmarking toolkit, Industrial Society 1988, pp.55-58.

²⁵    Employment Service case study in Benchmarking toolkit (1998), Industrial Society (London), pp.35-43.

²⁶    Clulow C (1997), "Processing power", People Management, 25 September, pp.32-34.

²⁷    Rover, see note 24, above.

²⁸    Clulow, see note 26, above.

²⁹    www.quality.co.uk/benchadv.htm

³⁰    Fisher, see note 15, above.

³¹    For example, Main, see note 4, above.

³²    Cook, see note 21, above.

³³    Rover, see note 24, above.

³⁴    Tolputt et al, see note 16, above.

³⁵    Best practice benchmarking, Department of Trade and Industry (1995).

³⁶    Strategic Planning Institute (1998).

³⁷    Lambertus T (1992), Surveying industry's benchmarking practices (APQC, Houston).

³⁸    Industrial Society (1998), Benchmarking toolkit.