Understanding benchmarking

No organisation, however good, is the best at everything it does. Even good performers can easily become also-rans if they fail to strive for continuous improvement in what they do. Many of Tom Peters' "excellence" companies of the 1980s have failed the test of time. Learning from the successes and failures of others helps to keep an organisation on its toes, aiding the creation of a sustainable competitive advantage and ensuring its longevity. Benchmarking is considered one of the best management techniques to guard against complacency and support continuous improvement. Systematic and continuous benchmarking to identify "better, best - if not world class - practices" can help prevent failure and is considered an essential part of managing improvement in today's business environment.

Aside from being an integral part of the continuous improvement process, Robert Camp, head of benchmarking at Xerox in the early 1980s, also believes benchmarking's many attributes include: bringing vigour to the goal-setting process; convincing sceptics of the need to change; affording accountability; and facilitating cultural change.¹ Managers tend to agree that benchmarking can produce these and other corporate benefits. A joint CBI and Coopers & Lybrand survey in 1993 reported that more than four out of five companies (82%) said their benchmarking programmes had proved to be highly successful, especially in terms of setting meaningful and realistic targets; motivating staff by showing what is possible; providing an early warning of competitive disadvantage; and promoting teamwork and cross-functional learning.²

Our own research has uncovered similar findings. Of the 14 organisations questioned about their benchmarking experiences in chapter four , all but one say that the most common benefit is to act as a stimulus for change. This was the case at life assurance and pensions business Friends Provident, Kettering General Hospital NHS Trust and transport and logistics group TNT UK, for example. Other popular benefits of benchmarking expressed by employers include improving business processes and allowing realistic performance targets to be set.

One illustration of the benefits of benchmarking comes from the Office for National Statistics (ONS), which in 1996 participated in a benchmarking exercise run by the Cabinet Office, involving 10 civil service departments and agencies. The ONS benchmarking project examined the internal administrative service supporting the training function. Senior training manager George Walker believes that:

"In addition to substantial improvements to our training administration process, the benchmarking exercise has triggered a sea change in the way that we consult with our customers and value their feedback … What's more, we have acquired a range of new skills which we are sharing within our organisation and which we shall use to conduct further benchmarking exercises."³

Following the civil service benchmarking exercise, the Cabinet Office highlighted the main benefits from applying benchmarking to HR activities:

A further example of the positive outcomes of benchmarking comes from UK-based TNT Express, which believes that benchmarking improves corporate performance for four main reasons, namely by:

The potential benefits of benchmarking are summarised in figure 2.1 .

Figure 2.1: Potential benefits of benchmarking

DEFINING BENCHMARKING

Definitions of benchmarking are plentiful (see figure 2.2), ranging from Roger Milliken's brusque "stealing shamelessly"⁶ to the more extensive explanation from the American Productivity & Quality Centre (APQC):

"Benchmarking is a systematic and continuous measurement process; a process of continuously measuring and comparing an organisation's business processes against business process leaders anywhere in the world to gain information which will help the organisation take action to improve its performance."⁷

The APQC's definition and the others in figure 2.2 all contain some common threads, with almost all referring to good practice, comparison and learning. However, while the definitions of benchmarking by commentators are broadly similar, research indicates a degree of confusion among employers. The CBI/Coopers & Lybrand survey noted earlier found markedly different respondents' definitions of benchmarking, which tended to be more narrowly focused than the survey authors thought appropriate.⁸

Figure 2.2: Definitions of benchmarking

"A systematic, continuous approach to identify the benchmark (the best-in-class achievement which becomes a recognised standard of excellence), compare yourself to the benchmark, and identify practices that enable you to become the new best-in-class."

Source: Boeing, Digital, Motorola and Xerox, quoted in Dence R (1995), "Best practice benchmarking", in Holloway J, Lewis J and Mallory G (eds), Performance measurement and evaluation (Sage, London), p.125.

"The continuous process of measuring your current business operations and comparing them to best-in-class operations. Application of knowledge gained from a benchmarking study provides a foundation for building operational plans to meet and surpass industry best practice."

AT&T Benchmarking Group.

"A structured process of learning from the practices of others, internally or externally, who are leaders in a field or with whom legitimate comparisons can be made."

Post Office.

"Benchmarking is nothing more than comparing yourself with, and learning from, others who have achieved high standards of excellence."

Rob Walker, director Xerox (UK), in "Rank Xerox - management revolution", Long Range Planning, vol 25 (1), p.9.

"The continuous, systematic search for and implementation of best practices which lead to superior performance."

Rover benchmarking guide, quoted in the Benchmarking toolkit (Industrial Society, 1998), p.59.

"The process of comparing business practices and performance levels between companies (or divisions) to gain new insights and to identify opportunities for making improvements."

Coopers & Lybrand, IPD Conference, October 1995.

"Benchmarking [is] the process of identifying and learning good practices in other organisations."

European Benchmarking Code of Conduct, http://www.efqm.org

"A means of building and sustaining competitive advantage by achieving major improvements in corporate performance."

William Tracey (1991), The human resources glossary: a complete desk reference for HR professionals (American Management Association, New York), p.279.

"Benchmarking is simply about making comparisons with other organisations and then learning the lessons that those comparisons throw up."

John Bramham (1997), Benchmarking for people managers (Institute of Personnel and Development, London), p.ix.

The definitions were analysed into four categories: competitive analysis (for example, "systematic analysis of competitor activity so you can improve your performance"); best practice ("looking for best practice associated with the way companies do things"); performance comparison ("a means of assessing company and department performance"); and "other" ("to set common standards"). A follow-up survey several months later reported a similar state of confusion among respondents.⁹

A survey of benchmarking in the financial services industry by the Warwick Business School also found a level of "confusion about the nature of process benchmarking and how it might be applied".¹⁰ It also concluded that employers, despite a willingness to engage in benchmarking, typically lack the skills and knowledge required to make a success of it. Andrew Forrest, the Industrial Society's HR director, suggests that some of the employers' uncertainty might stem from the fact that many organisations remain "unclear about the different forms of benchmarking", and are often unsure of what to benchmark and what they want to find out.¹¹

Understanding the benchmarking process

The best way of understanding benchmarking is to look at the process. The basic benchmarking process has been depicted using a variation of W Edwards Deming's "plan-do-check-action" (PDCA) approach to quality control. The model replaces the four stages of the PDCA cycle with the following:

(figure 3.1, in Approaches to benchmarking, also shows the typical benchmarking process). The Cabinet Office benchmarking report highlighted a six-stage process, consisting of:

Put simply, the typical benchmarking process involves identifying the benchmark (defined as a "standard point of reference"), usually the acknowledged "best" in a specific activity, against which to measure one's own corporate performance. Once the size of the gap between the benchmark and current performance has been identified, the next stage of the benchmarking process is to analyse how the best achieve their level of performance. Adapting the findings, or the best practice, to suit your own organisation completes the basic benchmarking process, though, as with any change, implementation will require careful monitoring. Constantly repeating the benchmarking process ensures that the organisation does not fall behind in the search for competitive advantage. Benchmarking should only be undertaken if the aim is make improvements.

Successful and effective benchmarking must focus on five key areas:

Benchmarking should be used to activate a continuous process of improvement and not just as a one-off exercise to achieve best practice. It is important to remember that market leaders will be seeking continuous improvement. Aspiring to imitate the best today is not enough because by the time change has been implemented the best will have moved on.

Employees have an important role to play in a benchmarking exercise. They should visit comparators to see for themselves how market leaders operate and that the benchmark performance is realistic and attainable.

Organisations seeking to observe the best should identify the key areas that are important to them and seek comparators on a global scale.

Benchmarking should not only be done against organisations making similar products or providing the same service, but should attempt to identify businesses of all types that are good at a particular process key to the organisation's own performance.

The key to effective benchmarking is to discover how the best achieve their level of performance and how their systems can be applied to the organisation's own activities.¹³

From benchmarks to benchmarking

As the above process outlines, a benchmarking exercise will identify two outcomes:

the numerical standard against which to compare; and

the processes by which the benchmark organisation achieves superior performance.

It is the second stage that is vital if real improvement is to be made. Alan Fowler has commented: "If benchmarking goes no further than data collection, it has been a waste of time."¹⁴ The joint CBI/Coopers & Lybrand benchmarking surveys have echoed Fowler's concern, reporting in 1994 that:

"It is only in recent years that companies have recognised that focusing simply on performance measures and metrics leads to frustration because even if the 'apples and pears' issues [of comparability] are resolved it is not clear as to how the leading performer achieves that performance."¹⁵

And recommending that:

"[L]eading edge benchmarking should emphasise processes and that the key word should now be learning rather than just comparison."

Yet the emphasis of many benchmarking studies is simply to compare figures. Naturally national and international industry-wide "benchmarking" exercises focus only on statistical comparisons. Although these studies provide a snapshot of a sector's comparative position against domestic and overseas competitors on a range of variables, they provide little understanding, other than the relative strengths and weaknesses, of why one country's performance, for example, is better or worse than another. The CBI, using figures produced by the Cranfield School of Management, estimates that among UK engineering companies staff absence in the "average" performers is 3.3%.¹⁶ This compares with a figure of 1% in best performing businesses (defined as the top 10%). Such analysis indicates that organisations with absenteeism running at a higher level than 1% should seek an improvement if they are to compete with the best. Companies wanting to achieve a best practice level of absenteeism need to ascertain how and why the top performers have much lower rates of staff absence.

The comparative data to undertake such benchmarking exercises is often hard to come by and potentially unreliable, making meaningful comparisons difficult. A recent Industrial Relations Services study of labour turnover benchmarking concluded that such exercises are extremely difficult since the available sources of comparative data tend to be "patchy, flawed and inconsistent".¹⁷

Richard Duggleby, Yellow Pages' head of external relations, explains the need to take simple performance comparison a stage further and examine why the "best" are better: "You knew where you were, say, third out of 13 in respect of sales generated per employee, or orders processed per hour. Fine, but benchmarking is only of real value when you find out who the top two are and visit them to discuss and share the processes that make them best in class." (See case study 5, in Benchmarking in practice.) Similarly, Steve Dougill, quality manager with Xerox UK, comments that performance statistics are "just another performance metric, it's not benchmarking as we understand it". (See case study 4, in Benchmarking in practice.) )

The problems of comparing only statistical data can be illustrated by using a comparison of customer response times as an example. Raw data gives no indication of the quality of service - whether customers are satisfied or dissatisfied. Indeed, good figures may actually conceal poor performance: for example, if a quick response is not accompanied by good customer service. The Rover Group's Benchmarking guide makes a distinction between the difference in performance and how the gap is achieved. The guide stipulates that benchmarking:

"aims to understand both the difference in performance - the metric [the benchmark] - and how this performance is achieved - practices [the enablers]. Both are critical to a successful benchmarking exercise. Finding out what the numbers really mean becomes apparent once the practices used are understood".¹⁸

David Bowers, Rover's director of personnel, further elaborates on the need for benchmarking to discover the how, not just the what, stressing that the "real value in benchmarking is in understanding the process of delivery rather than a precise measure of the result".¹⁹

An example of how the distinction between benchmarks and enablers works in practice comes from the Belfast-based Harland & Wolff (H&W).²⁰ In the aftermath of privatisation, the shipbuilder agreed a link-up with Kawasaki Heavy Industries (KHI) of Japan, enabling H&W to benchmark its activities. KHI operates an "open door" policy, allowing full access to information - such as: how much it costs to build a ship; how many person hours are required; and what methods, tools and materials are used. By benchmarking its activities against KHI, an acknowledged world class producer, H&W was able to identify the areas in which it was deficient. It found that the main issue H&W needed to address was productivity. To help eradicate the identified productivity gap, H&W sent more than 170 employees to Japan to experience how a Kawasaki shipyard operates, especially how KHI uses its staff, prior to applying the same techniques and management system in Belfast.

THE EVOLUTION OF BENCHMARKING

The origins of today's business benchmarking lie not with Xerox as most people believe, but with General Electric (GE), though Frederick Taylor's scientific management philosophy had, in the early-1900s, encouraged companies to compare work processes. Over the past two decades benchmarking has developed from the relatively simple process of comparing performance against industry standards to the more complex examination of evaluating alternative approaches to improving performance. The various steps in the evolution of benchmarking are illustrated in figure 2.4.

Figure 2.4: The evolution of benchmarking

Stage one - comparing standards/benchmarks

In the 1950s, GE used value control, a form of value analysis, to evaluate alternative approaches to basic functional activities to identify their overall effectiveness and cost.²¹ Benchmarks or standards were commonly in use during the 1950s to measure business performance in terms of cost/sales and investment ratios, allowing companies to compare their performance with that of their peers. This form of assessment enabled enterprises to identify their strengths and weaknesses.

Also, the post-World War II Japanese companies which copied western products were engaged in a form of benchmarking (commonly known as reverse engineering). Indeed, the Japanese have excelled at product benchmarking in particular, enabling companies in Japan to "market similar products within a few months".²² Toyota's kaizen system - itself a benchmark nowadays for other automotive manufacturers - was largely developed from Ford's materials handling process, which Eiji Toyoda, the Japanese motor company's long-time CEO, had witnessed on a trip to the US in 1950. Toyoda realised that incremental changes, based on suggestions from employees, could be accomplished without further expenditure.²³ US supermarkets also provided Toyoda with the inspiration for Toyota's famed kanban system (just-in-time manufacturing).²⁴ He had seen how supermarkets quickly replaced stock bought by shoppers and adopted the same principle on the Toyota production lines.

The joint CBI/Coopers & Lybrand benchmarking surveys highlight how the technique has evolved from a comparative statistical activity, starting in the 1960s with a comparison each year of internal financial performance. This was followed in the 1970s with comparing financial metrics, such as profitability and return-on-capital-employed (ROCE), against major competitors.

Stage two - competitive benchmarking

Xerox's formal embrace of benchmarking as part of its competitive strategy in 1978 proved a turning point for the ailing photo-copy business which had given its name to document reproduction. At the time Xerox, which until 1974 had control of the patent for reprographic technology, had seen its market share halve as competitors beat it on both price and quality, so that profits plummeted from $1.14 billion in 1980 to $600 million in 1981. Benchmarking was the beginning of Xerox's fightback, and initially included an examination of how the competition:

"developed a product, how much it cost them to make it, how they distributed it, how they marketed and sold it, how they billed it, how they supported it, how their organisation worked and what technology supported them."²⁶

This initiative, which involved a team of Xerox staff visiting Japanese competitors, revealed that Xerox's growth over a five-year period would have to be 18% each year to match the Japanese. The following year (1982), Xerox spread the scope of its benchmarking activities to study organisations outside the reprographic industry. As was noted in chapter one, this included American Express for its billings and collections process; American Hospital Supply for its automated inventory control system; and L L Bean for its distribution, warehousing and order-taking facilities. According to Rob Walker of Xerox UK, the findings of the company's competitive benchmarking programme:

"ended a period of denial and forced senior management to acknowledge both the size of our problem and the degree of change needed to get our business healthy again."²⁷

In 1983, Xerox established its Leadership through quality philosophy and programme, which dictates the way the company operates at all levels. It is in part based on the company's benchmarking initiatives, activities that over the past two decades have become totally integrated at all levels within the business (see figure 2.6). Case study 4, in Benchmarking in practice, takes a closer look at Xerox's current benchmarking activities.

Figure 2.6: Historical perspective of benchmarking within Xerox

Stage three - generic benchmarking

Since Xerox began its competitive benchmarking in the late-1970s, the process has evolved further. Others have followed Xerox in benchmarking against non-competitors. This form of benchmarking, known as generic benchmarking, became popular because it provided a neat fit with the clamour in the 1980s for improved quality as a way of securing a competitive advantage. The comparison of processes and functions against non-competitor organisations, but not necessarily best practice enterprises, is known as functional benchmarking. The natural restrictions placed on process comparisons between competitors do not apply when they are not in direct competition.

Gregory Watson has described generic benchmarking as the third generation of benchmarking, and an approach that led to a broadening of the technique: "Instead of targeting only competitors, they target companies with recognised strong practices independent of the industry."²⁸

Chapter one provided some examples of generic benchmarking. Milliken Industries, the US-owned carpet and textile manufacturer, uses benchmarking as an integral part of its corporate strategy. The company's generic benchmarking activities include benchmarking:

"safety with Du Pont, innovation with 3M, teams with Goodyear and Procter & Gamble, customer satisfaction with AT&T and IBM, education with IBM, goals with Motorola, and, of course, it benchmarks how to benchmark with Xerox."²⁹

Xerox's observations of L L Bean's distribution activities in 1982 compared with its own can be found in figure 2.7. The exercise found that Bean's productivity was around three times that of Xerox, and provided the document business with examples of how it could improve its own operations.³⁰

Figure 2.7: Xerox's observations of L L Bean's distribution arrangements

Put Away - At Bean, computer-selected storage locations for incoming materials were based on availability of specific rack locations; volume requirements of the incoming materials; and minimisation of the travel distance to the rack locations.

Compared to traditional methods, which either assigned incoming inventory to specified locations or required visual searching for open storage areas, this approach proved to be a time-saver and better utilise limited rack space.

Picking Order - The put-away logic of the computer-located inventory matched the daily order activity: fast-moving items were stocked closest to the beginning of the picking route. Infrequently ordered items (and some bulky items) were located farthest away. The travel route of the stock picker was thereby minimised.

The computer accumulated orders for short periods (usually hourly) throughout the day, and then consolidated like items. Described as "short interval scheduling," this methodology further minimised the travel route of the stock picker. It also accumulated all orders of a single stock item so that only one visit would have to be made to that stock location during a given period.

Shipping - Bean documented the shipping weight and dimensions of each stock item. Supportable computer records of items shipped in any given period allowed Bean to pay UPS charges based on these records. Transactional labour time and money were substantially reduced.

Activity Analysis - Bean's computerised systems made it possible to track both the level of activity and the error rates of both individual order-fulfilment personnel and teams. Thus, productivity measures and standards could be established, managed, and rewarded.

Source: Camp R C (1989), Benchmarking: the search for industry best practices that lead to superior performance (Quality Press, Milwaukee).

Stage four - strategic benchmarking

Watson describes strategic benchmarking - stage four of the evolution of benchmarking - as "a systematic process for evaluating alternatives, implementing strategies, and improving performance by understanding and adapting successful strategies from external partners who participate in an ongoing business alliance".³¹ He points out that strategic benchmarking differs from its generic counterpart "in terms of the scope and depth of commitment among sharing companies".

Certainly Rover learned much from its collaboration with the Japanese company Honda, as did Harland & Wolff from its tie-up with Kawasaki Heavy Industries (see above). The DTI benchmarking document explains that Rover's association with Honda provided the UK car company with a "useful route for comparison, for example, in benchmarking change over time".³² One Rover director said that "growing awareness and understanding of the capabilities of Honda … led to uncomfortable comparisons".³³

Robert Kaplan and David Norton's balanced scorecard approach to measuring performance is based on developing challenging, yet realistic goals. Kaplan and Norton acknowledge that benchmarking is one of the best methods of establishing the performance standards upon which to base strategic goals, explaining that: "The company looks to one industry to find, say, the best distribution system, to another industry for the lowest cost payroll process, and then forms a composite of those best practice to set objectives for its own performance."³⁴ Benchmarking organisations benefit from borrowing good ideas from partners by saving time and effort in exploring different ways of working. It also has the added advantage of helping to prevent failure so long as the approach is compatible with the existing organisational culture.

The importance of altering another organisation's approach to ensure it fits with the culture of the benchmarker is acknowledged by Kay Stammers, director of re-engineering and benchmarking for human resources at Kodak's head office in Rochester, New York. She explains that:

"Benchmarking isn't about duplicating what others are doing, it's about implementing ideas and modifying them so they'll work within your own culture."³⁵

Best practice partners can be in the same, similar or non-comparable sectors. Benchmarking clubs have proved popular largely because they provide access to other organisations - potential partners - willing to talk about their processes, and their successes and mistakes. Yellow Pages, the BT-owned business directory company, subscribes to both the Benchmarking Centre and the Best Practice Club. Both act as dating agencies by maintaining extensive databases which are used to bring organisations with similar interests together. These matchmakers also host networking seminars and case study days. Yellow Pages actively participates in these events, viewing it as an opportunity to showcase its best practices to other "best-in-class" organisations. This helps the company expand its all-important circle of benchmarking contacts. The company currently has 50 active external partnerships, and in the past two years extensive links have been forged with organisations as diverse as British Airways, Marks & Spencer and Norwich Union. Moreover, Yellow Pages is constantly striving to increase this total (see case study 5, in Benchmarking in practice).

PowerGen is another organisation that benefited greatly from partnerships. In this case with other electricity generators, especially US companies.³⁶ In the mid-1990s, PowerGen approached the 17 best-performing coal-fired power stations in the US to examine their business practices. PowerGen discovered a large gap between the costs of US generators and its own expenditure. One area where PowerGen copied US practice was in the introduction of "right first time" contracts for external maintenance contractors. This led to big productivity gains.

The three basic business levels at which benchmarking can be used - performance, processes and strategy - are discussed in more depth in chapter three, Approaches to benchmarking.

WHY BENCHMARKING?

The various stages of the development of benchmarking provide clues as to why the technique's popularity has grown, often mirroring the most pressing corporate concerns of the time. Xerox's first use of benchmarking was in response to a significant decline in corporate performance. Its problems, which remained hidden while it occupied a monopolistic position in the market, became obvious when competitors began to emerge. In the late-1970s, Xerox's position in a industry that the company had pioneered, and, until 1974, had been able to monopolise because it held the patent to reprographic technology, was for the first time threatened. Competitors, especially from Japan, made substantial inroads into the market previously occupied almost exclusively by Xerox. Other companies have followed Xerox and adopted benchmarking as part of a strategy to gain or retain competitive advantage and market share.

Certainly industry-wide benchmarking studies have helped to fuel corporate interest in benchmarking. The publication, in 1990, of The machine that changed the world, which compared the big differences in quality and productivity between world-class auto companies and their less successful counterparts, gave a boost to benchmarking among car companies.³⁷ In this country, the lean enterprise report, first produced in 1992, had a similar impact. The follow-up study, published in 1994, found a 2:1 gap between world-class performers and the rest on productivity, inventories and schedule variation, and a bigger difference in quality - 9:1 in seats; 170:1 in exhausts; and 16:1 in brakes. The two reports led UK-based car manufacturers to examine, and, in most cases, change their production processes, and their management and quality systems.³⁸

Quality

Quality has proved to be one area particularly suited to the application of benchmarking, and the search for quality improvement was therefore one of the main initial influences on corporate decisions to make use of the technique. A 1996 Management Review survey of quality initiatives reported that 47% of employers were making use of benchmarking in their quality programmes.³⁹ The Baldrige quality award in the US and the European Foundation for Quality Management's (EFQM) excellence model both promote benchmarking as a key improvement activity. Indeed, many organisations are attracted to these programmes because they provide benchmark areas against which to compare performance, as John Bramham has explained of the EFQM model:

"It provides an organisation with key benchmarks that can be used for tracking progress under the various headings."⁴⁰

Claire Stone and J Maria Banks' study of the use by the UK Times top 500 of the EFQM excellence model reported that such frameworks "significantly encourage the use of benchmarking".⁴¹ Both the Baldrige and the EFQM models make reference to an organisation's ability to benchmark. One examination category for the Baldrige quality award stipulates, under a heading entitled "Competitive comparisons and benchmarks", that an organisation must:

"Describe [its] approach to selecting quality related competitive comparisons and world class benchmarks to support quality planning, evaluation and improvement."⁴²

And the EFQM excellence model is, according to its founders, "now treated as a benchmark for organisations throughout the world"⁴³. Alan Jones, managing director of logistics group TNT UK, has declared that: "We have discovered that the EFQM model is the most effective blueprint for achieving sustained improvements in competitiveness."⁴⁴

Companies using the EFQM model to evaluate performance include Anglian Water, which uses it as a framework to track progress, and Olivetti UK, which embraced the process in 1996 as a means of identifying priority areas for improvement.⁴⁵

Change

Whereas quality was seen as the key to competitive advantage in the 1980s, good quality standards are now so commonplace that they are no longer a distinguishing business feature. The speed at which an organisation responds to technological change and shifting customer preferences has now become a decisive factor in determining its success or failure. Corporations that establish a competitive advantage in one field are not guaranteed the same success when technology moves forward and renders their existing product or service obsolete.⁴⁶ As Kaplan and Norton make clear:

"Companies that compete in industries with rapid technological innovation must be masters at anticipating customers' future needs, devising radical new product and service offerings, and rapidly deploying new product technologies into efficient operating and service delivery processes. Even for companies in industries with relatively long product life cycles improvement in processes and product capabilities is critical for long-term success."⁴⁷

Several companies have in the past failed to keep pace with either technological innovation or customers' increasing desire for more diverse and customised products and services. For example, National Cash Register (NCR) experienced a calamitous decline in its market share from 90% in 1972 to 10% in 1976 because "product technology shifted from electromechanical cash registers to systems based on computer technology".⁴⁸ James Womack and Daniel Jones point out that: "Big companies like IBM, General Motors and Pratt [& Whitney] usually receive (but ignore) a number of warnings that the world has changed before the roof finally caves in."⁴⁹

Benchmarking enables an organisation to monitor product, service and technological changes in other industries (as well as its own). As a result, the potential for these changes to be applied in its own business, or their effect on existing processes and systems, can be evaluated. Gaining a better understanding of developments and trends both inside and outside the industry enables companies to establish long-term goals and helps to achieve sustained improvement. Under such circumstances, benchmarking is an integral part of the strategic planning process.

In addition, both step change, including a major culture shift, and incremental change, such as those emanating from kaizen (continuous incremental change) activities, can benefit from the benchmarking process. Examining how others have approached change, and applying the knowledge gained, can help to make the process a success.

ICL Product Distribution provides an example of how benchmarking can be both the catalyst and the facilitator of change.⁵⁰ Following an examination by a group of ICL staff of best practice in the supply and support of personal computers, a number of changes were suggested to the service offered by the company. The proposed shift was more radical than that initially envisioned by ICL's management. Nonetheless management accepted the recommendations largely because the benchmarking data convinced them of the need to make the shift. (ICL's benchmarking activities are the focus of case study 1, in Benchmarking in practice.)

Focusing on core processes

Re-engineering, which involves a complete overhaul of business processes, organisational structures and management systems to boost performance, has also helped to fuel interest in benchmarking. Indeed, the objectives of business process re-engineering are "to be the best" and to become "world-class process-led organisations."⁵¹ Joan Ballantine and Stan Brignall claim that: "It seems obvious that benchmarking may be used to stimulate and guide business process re-engineering."⁵² This is because a benchmarking programme involves a thorough examination of existing processes and the identification of best practice. For example, benchmarking customer service against the acknowledged best may uncover poor performance, indicating the need for a complete redesign of the process.

Re-engineering focuses on the key business processes - the critical few which "produce outputs that contribute directly and materially to the operation of the business" - rather than the functional distinctions common in many organisations.⁵³ By isolating the core value-adding processes, companies are able to benchmark in these areas and identify scope for improvement and potential changes. Typically this involves cutting out unnecessary stages through integration, replacing functional departments with teams and using information technology more readily to improve efficiency.

WATCH YOUR STEP

"Benchmarking is not as easy as it sounds because you are always looking at a moving target."⁵⁴

These words, spoken by Yotaro Kobayashi, chair of Fuji Xerox, highlight one of the main problems associated with benchmarking. The "best", if they are to retain their position among the world leaders, do not stand still: they continuously search for, and make, improvements. Consequently by the time best practice has been disseminated, modified and applied in the benchmarking organisation, the goalposts have shifted. As a result, benchmarking can bring an organisation level with its competitors a year or so after they have moved further ahead.

A recent Harvard Business Review article suggested that because so many corporate planning processes produce discontent the problems lies with the tendency to benchmark. The author, Andrew Campbell, believes that though benchmarking can be valuable, it can also "mislead and distract", and fail to add value.⁵⁵ As Stammers noted above, benchmarking should be much more than simply trying to emulate what world leaders are doing; improvement should be based on what others are doing, not a carbon copy. What works in one organisation or industry may not be appropriate in another. A related concern is that the popularity of benchmarking against other enterprises may discourage systematic analysis of an organisation's own processes.⁵⁶

As with other management techniques, benchmarking should not be seen as a panacea or a quick fix for an ailing company. It is a tool that can help to identify potential solutions to problems and to highlight processes where improvement is possible. An organisation should have realistic expectations as to what a benchmarking project will achieve, understanding that great improvement or change is simply not feasible. Organisations thinking of engaging in benchmarking should establish clear goals and leadership for the project or they are likely to be disappointed with the outcomes. Poorly developed objectives will only confuse and disappoint.

John Bramham has suggested that benchmarking projects often fail because of the "not invented here" mentality, which rejects ideas for change that originate outside the organisation.⁵⁷ If the organisation or its people are unwilling to learn from others, benchmarking will undoubtedly fail.

Collecting and analysing information can be costly and time-consuming. Making changes in line with the recommendations of a benchmarking project also requires patience and resources. People, especially those affected but not involved in the benchmarking study, will need to be convinced of the need to change. The provision of adequate training and support in the new processes will not only help to smooth the transition, it will also ensure that benchmarking itself receives a favourable response.

Benchmarking entails a high degree of trust. Letting another organisation into your business to examine your processes is not something that many enterprises would have considered until recently. There is always the fear of losing valuable business information. An organisation that is unwilling to be transparent and to freely exchange information is unlikely to gain much from the process. Yet intimate business relationships in which the various parties share their experiences are the key to strategic benchmarking. Kawasaki Heavy Industries sees competitive benchmarking as helping it to maintain its position.⁵⁸ Such companies see this as a valuable technique to keep up with best practice elsewhere, helping to keep the business a world class organisation. Thus benchmarking should be seen as a cooperative process, providing mutual improvement and to help each other.

The Post Office identified the following possible pitfalls with benchmarking:

The problems associated with benchmarking and common reasons why the technique often fails to produce the expected results are summarised in figure 2.8. The DTI's benchmarking "troubleshooting guide" is reproduced in figure 2.9.

Figure 2.8: Why benchmarking can fail

Figure 2.9: Benchmarking troubleshooting

Key: BPB = Best practice benchmarking.

Source: DTI (1995), Best practice benchmarking.

¹     Camp R C (1995), "Why benchmarking improves business performance", in Inside UK Enterprise quarterly newsletter (1), September, p.4.
²     Survey of benchmarking in the UK - executive summary 1993 (CBI/Coopers & Lybrand, London).
³     Clulow C (1997), "Processing power", People Management, 25 September 1997, pp.32-34.

⁴     Benchmarking human resource activities (Cabinet Office, 1997).

⁵     Jones A, TNT Express (1992), "Benchmarking for best practice", paper presented at Practical Benchmarking conference, London, May, and quoted by Dence R (1995), "Best practices benchmarking", in Holloway J, Lewis J and Mallory G (eds), Performance measurement and evaluation (Sage, London), p.129.

⁶     Milliken R, CEO of Milliken Corporation, quoted in Watson G H (1993), Strategic benchmarking: how to rate your company's performance against the world's best (John Wiley, Chichester), p.2.

⁷     Planning, organising and managing benchmarking: a user's guide (1992, APQC), p.4.

⁸     CBI/Coopers & Lybrand, see note 2, above.

⁹     Survey of benchmarking in the UK - executive summary 1994, (CBI National Manufacturing Council and Coopers & Lybrand, London).

¹⁰    Poulson B and Arnott A C (1996), Process benchmarking in retail financial services (Top-Ix).

¹¹    Quoted in Personnel Today, 26 March 1998, pp.41-43.

¹²    Benchmarking human resource activities: consortium project - main report (Cabinet Office, 1997), pp.6-7.

¹³    IRS (1996), Quality through continuous improvement, IRS Management Review 1, April, pp.13-14.

¹⁴    People Management, 12 June 1997, pp.39-40.

¹⁵    CBI/Coopers & Lybrand, see note 9, above, p.4.

¹⁶    CBI (1997), "Fit for the future: how competitive is UK manufacturing?", Manufacturing Brief, September.

¹⁷    IRS (1998), "Benchmarking labour turnover: annual update 1998", Employee Development Bulletin 100, April, pp.10-20.

¹⁸    Rover Group, Benchmarking guide, in the Benchmarking toolkit (Industrial Society, 1998), p.59.

¹⁹    Bower D G (1993), "Unleashing the potential of people", Manufacturing Breakthrough, November/December, p.7.

²⁰    IRS, see note 13, above, pp.49-52.

²¹    Clive Bone, letter to Local Government Chronicle, 19 January 1996, p.19.

²²    Ohinata Y (1994), "Benchmarking: the Japanese experience", Long Range Planning, vol 27 (4), pp.48-53.

²³    Schroeder D M and Robinson A G (1991), "America's most successful export to Japan: continuous improvement programmes", Sloan Management Review, vol 32 (3), Spring, pp.67-81.

²⁴    Watson G H (1993), Strategic benchmarking: how to rate your company's performance against the world's best (John Wiley, Chichester), p.5.

²⁵    Main J (1998), "Benchmarking: more than just industrial tourism", Benchmarking, vol 2 (3) (Eclipse Information, London), pp.2-3.

²⁶    Walker R (1992), "Rank Xerox - management revolution", Long Range Planning, vol 25 (1), pp.9-21.

²⁷    Ibid., pp.9-10.

²⁸    Watson, see note 24, above, p.7.

²⁹    Main, see note 25, above, p.3.

³⁰    Watson, see note 24, above, p.161.

³¹    Ibid., p.8.

³²    Rover case study in Best practice benchmarking (DTI, London, 1995).

³³    Bower, see note 19, above.

³⁴    Kaplan R S and Norton D P (1992), "The balanced scorecard - measures that drive performance", Harvard Business Review, January/February, p.74.

³⁵    Quoted in Greengard S (1995), "Discover best practices through benchmarking", Personnel Journal, vol 74 (11), November, pp.62-73.

³⁶    Financial Times.

³⁷    Womack J, Jones D T and Roos D (1990), The machine that changed the world (Macmillan, London).

³⁸    Oliver N, Jones D T, Delbridge R, Lowe J, Roberts P and Thayer B (1994), The worldwide manufacturing competitiveness study - the second lean enterprise report (Andersen Consulting, London).

³⁹    IRS, see note 13, above.

⁴⁰    Bramham J (1997), Benchmarking for people managers (Institute for Personnel and Development, London), p.56.

⁴¹    Stone C L and Banks J M (1996), "Improving business performance through customers and employees: quality frameworks as a driver of new measurement practice", paper presented at the EFQM Learning Edge Conference, Paris, April.

⁴²    Malcolm Baldrige quality award: examination categories (category 2.2).

⁴³    www.efqm.org/

⁴⁴    Quoted in Kelly J (1999), "Benchmarking in the fast lane at TNT UK", Benchmarking , vol 3(1) February (Eclipse Information, London), pp.10-11.

⁴⁵    IRS, see note 13, above, p.33 and p.54.

⁴⁶    Bower J L and Christensen C M (1995), "Disruptive technologies: catching the wave", Harvard Business Review, January-February, pp.43-53.

⁴⁷    Kaplan R S and Norton D P (1996), The balanced scorecard: translating strategy into action (Harvard Business School, Massachusetts), p.5.

⁴⁸    Watson, see note 24, above, p.21.

⁴⁹    Womack J P and Jones D T (1996), Lean thinking: banish waste and create wealth in your corporation (Simon & Schuster, New York), p.162.

⁵⁰    Economist Intelligence Unit (1992), Making quality work: lessons from Europe's leading companies (London), pp.77-78.

⁵¹    Bramham, see note 40, above, 13.

⁵²    Ballantine J and Brignall S (1995), A taxonomy of performance measurement frameworks, Warwick Business School Research Bureau, 135 (University of Warwick, Coventry), p.14.

⁵³    Watson, see note 24, above, p.56.

⁵⁴    Quoted in Main, see note 25, above, p.3.

⁵⁵    Campbell A (1999), "Tailored, not benchmarked: a fresh look at corporate planning", Harvard Business Review, March-April, p.41.

⁵⁶    Herriot P (1998), "The role of the HR function in building a new proposition for staff", in Sparrow P and Marchington M (eds), Human resource management: the new agenda (Financial Times/Pitman Publishing, London), pp.106-116.

⁵⁷    Bramham, see note 40, above, pp.183-184.

⁵⁸    IRS, see note 13, above, pp.49-52.

⁵⁹    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.