What is Benchmarking?
John Langley said “Benchmarking provides an inventory of creative changes that other companies have enacted.”
Benchmarking is a part of an improvement process wherein an organization measures its current performance and compares it against a standard, for example ISO 9001. Then measure it against the world class performers and the best-in-class companies.
Once the comparison is done then combine the best of organization process and their processes to get the best possible performance. The standard may be competitors but benchmarking generally happens in unrelated business segments.
Process measures are not publicly compared against others. One more answer to the question “What is Benchmarking” is that it can also be defined as measuring company against a standard (though the process also include measuring against others).
An organization might benchmark another if they both are in same field (for example, make vehicles), but they are not competing in the same markets. Ex. General Motors might benchmark the best practices of John Deere because they are not competing in the same market, yet both manufacture vehicles. Organization must learn from other organizations’ mistakes.
Someone who makes computers may think of memory modules and microprocessors. These metrics get changed when one wants to have the reliable memory and fastest processor that one can afford. However, life gets easier when we turn to the benchmarking examples.
When we look deeply into the details, we find all kinds of irregularities. Different systems are used for the different memory modules. It means different buses and different processors, which can really distort the results. Do not mention the differences in temperature on identical systems while testing several modules in a row.
The same happens to executives in their normal lives. A decision-maker who is unfamiliar with Six Sigma needs to know what to do first. This dilemma is faced generally in start-ups and small companies that are ready to grow.
Executives rely on their own experiences. Benchmarking examples are generally confused with competitor analysis. In competitor analysis, the executive committee performs an ad-hoc analysis and provides all required details.
Perhaps opinions are gathered from subject matter experts in the company. And even when you make critical decisions, you notice no improvements. Many companies fail at this point.
We know the deal and the right tools for the right job. Competitor analysis has its time and place but that is done once company’s processes are well-established. So that is where benchmarking examples come in.
What is Benchmarking Purpose in Six Sigma?
Benchmarking is a method that companies use to compare the performance of their output to that of a standard. The benchmarking is done as a Six-Sigma DMAIC project. During the measurement phase “Standard” is benchmarked by an organization.
The standard may be a compliance standard used in the business, or it may be an industry leader. For this discussion, the standard will be an industry leader. It will have similar outputs, but a different customer base.
The standard may be a vendor or a customer, but not a competitor. Outputs may be a process, a service, or a product. Competitor research that compares performance of a competitor company to gain an advantage is not benchmarking example. It is a process of comparing your processes with an industry leader to learn how to be better.
Benchmarking affords a competitive edge through the development of best practices. So it focuses on the best ways to meet customer needs.
There are four types of benchmarking:
Strategic Benchmarking is a benchmarking example that inspects how companies compete in the marketplace. The company and the standard may be from different industries. Albeit, the competitive positioning within an industry should be the same.
Project Benchmarking is a benchmarking example that inspects techniques such as product introduction and project management. Again, the company and the standard can come from different industries. Development cycles should be similar in complexity and time.
Performance Benchmarking is a benchmarking example that does assessment of competitive positioning. The focus would be either on price or quality. A company can rarely be competing while focusing on both.
The Process Benchmarking is a benchmarking example that is the actual work. It may concentrate on customer service, best-operating practices or manufacturing.
What is Benchmarking Sequence?
The benchmarking sequence is as follows:
- Determine current practices
- Select the problem area.
- Identify key performance indicators.
- Understand how your process work and how other group’s processes work
- Select performance criteria based on priorities
- Identify best practices
- Measure performance
- Determine a world class leader
- Find an external partner
- Analyze best practices
- Collect information & data
- Evaluate & compare
- Model –improve current practices by make significant changes
Benchmarking Role in Six Sigma Methodology
Since stakeholders’ expectations are constantly increasing and they expect better and better products & services at a lower price in a shorter time, organizations must thrive to improve and innovate all the time.
Six Sigma methodology is one of the best known methodologies used by organizations for continual operational performance improvement. It has its roots in statistical engineering. It is an integrated and data-driven approach for reducing the defects and producing measurable financial results.
Through the use of 5 core stages, a cycle generally known as DMAIC – define, measure, analyze, improve and control – Sig Sigma aims at generating continuous improvement, optimization and stabilization of a business.
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Benchmarking plays a significant role in the Six Sigma Process. It enables the Six Sigma practitioners to ensure improvement by helping them obtaining the measurements or the standard for the data they want to analyze.
Better said, in the analysis phase of Six Sigma, benchmarking examples help set the “what” that needs to be measured in order to identify performance gaps. Moreover, benchmarking enables the Six Sigma practitioners to make the strategy and set goals for the benchmarks selected according to the industry standards.
When using a benchmarking project for choosing the benchmarks against which to measure the current performance of an organization with the purpose of generating improvements, Six Sigma practitioners have to take into consideration several aspects.
Firstly, the selected benchmarks need to align with the strategy of the organization. Comparing the strategic objectives of the benchmarking partners with your own organization’s strategic objectives is the first step in choosing the benchmarks correctly.
One has to ensure that the indicators measured reflect what they want to improve, not what other companies focus on. For example, if an organization’s strategic objective is to improve their performance within the customer service department and their benchmarking partner’s objective is to optimize production it is common sense that most of the indicators measured by the benchmarking partner will reflect production measures and fewer will assess the customer service department.
Hence, when choosing the benchmarks for a particular functional area, an organization has to ensure that the indicators compared reflect directly their focus areas. Also, their benchmarking partners do perform at an optimum level in that area, even though they focus on a different one.
Secondly, as already discussed above, improvement specialists will have to take into consideration the profile and strategy of their benchmarking partners when deciding on the benchmarks upon which to base their improvement process.
Going beyond just the strategy, if a newcomer on the market is benchmarking itself with the best in class, the company profile and features need to be taken into consideration because the benchmarking partner will most likely face different challenges.
For the newcomer, the biggest challenge might be to secure their place on the market, while for the best in class to innovate in order not to lose market share. This implies that the indicators and the targets set by each organization for the indicators will be different. Moreover, Six Sigma specialists should make sure that they understand what their benchmarking partners measure through a particular indicator.
Given the fact that the name of the indicators might not be standardized within the entire industry and most organizations use they own way of formulating the name of indicators, one has to check the definition of the indicators as understood by the other organization and standardize or normalize the results as to make them comparable.
We also argued that benchmarks can be a helpful tool for shaping the strategy. This is because all functional areas within an organization are interconnected and change, be it positive or negative, in one of them triggers change in other areas as well.
Going back to the previous example, although our focus is on the customer department, a benchmarking project with partners which have a different strategy can pinpoint to greater issues in other departments. For example, the low performance in production can lead to dissatisfied customers and negatively impact the customer service department.
This will make the improvement managers to shift focus to the performance of the production department in order to address the root cause and so it will force them reshape the strategy and its objectives.
Thirdly, benchmarks can help the target setting process and the graph below shows how benchmarking can help Six Sigma practitioners with target setting in the case of % Customer retention. However, when setting the target, it is important to know the resources available and be able to set a target according to the resources.
For example, a new organization on the market will surely not have the financial and human resources needed to set their targets according to the performance results of the best in class, but they can aim to set the target according to the industry average or to the average of the best performers among organizations which entered the market in the last two years.
Benchmarking Process and Analysis
It is very critical that a right company is chosen for the benchmarking standard. Benchmarking includes site visits, interviews, and documentation of processes. Hence, it is important to understand the desired type of benchmark for knowing the best standard.
You must clearly define and document the scope and desired outcome. It is crucial to ensure that there will be no competitive issues, as trust is paramount to the exchange of information. Transparency from the very beginning will help ensure the best benchmarking experience and good benchmarking examples.
The benchmarking process is outlined by numerous resources. Adopting the following guidelines is a great place to start:
- Performance gaps documentation
Performance gaps are the one that compare the current state with an ideal future state. If this state was fully understood, benchmarking might not be necessary. So a lack of parameters should be a reason for benchmarking.
- Preparation of the case for benchmarking
Think ahead and have a framework in place for the get-well plan. Be able to support the need for benchmarking. Consult the other business units like finance and sales. They may provide insight.
Discuss with the functional managers to find out what is their team load. Think about what speaks to executives. Be ready to show the business case.
- Getting the executive approval
A complete buy-in is essential. The approval process will afford internal collaboration and maximize the benefit to the company. Be sure to engage with the executive team at all steps.
- Finding the project team members
These members include all key stakeholders as with any DMAIC project. Do not forget to discuss with the key decision-makers. If the executive team has not assigned a champion, identify the one.
- Determining the benchmarking objectives and the scope
The project team determines the benchmarking range and aim to make sure that everyone benefits. Examples of objectives include:
- Compare performance to an industry-standard
- Increase product performance
- Increase product quality
- Increase market share
- Reduce manufacturing cost
- Develop a measurement system
- Determine proper metrics
- Making a benchmarking project plan and taking the executive approval
Ensure that all stakeholders within the company are included. If the key decision-makers have been included, you will definitely get approval. If your company has a project plan template, use it.
Ask the executives what they need to see to approve the decision.
- Documentation of the current state
The current state, without improvements, is the process to be benchmarked to the standard. Do not waste time on the data collection. Do not include any ideas for optimization.
Include all stakeholders and functions. This is an excellent time for a Kaizen.
- Agree on the metrics
The metrics must be within the scope and these must be relative to the objective. At this point, you should be beginning to map the future state.
- Put the metrics in writing
Elements should include the following:
- What should be measured?
- What should not be measured?
- Accuracy of measurements
- Measurement method
- Repeatability and Reproducibility standards (Estimate R&R)
- Methods of calculation
- Measurement examples
10. Measuring the current state
The current state may already be known depending on the metrics chosen. The measurements for comparison to the future state need to be documented.
- Finding a benchmarking partner
Your benchmarking partner, in this case, the industry leader, is identified as the standard. The process may involve a lot of footwork and extensive research. So revisiting the metrics may be necessary. As the future state is yet unknown so it is fluid.
- Writing the benchmarking plan
Benchmarking plan is a clear project plan made in collaboration with the key contacts and the industry leader. The scope of the interviews should be clearly defined. So identify and document your questions.
Find out who you shall interview. Collaborate with your contact at the industry leader. This plan will have a significant effect on your relationship with the industry leader.
- Conducting the site visits and interviews
Do not deviate from the benchmarking plan. You may obtain further information via consensual collaboration. Albeit, you should agree on all partnerships in advance and writing.
- Applying the learnt lessons and measure the performance metrics
The elements of metrics must be same as measured prior to benchmarking visit. Any new parameters need to be discussed separately from “current state” that was established before the benchmarking.
- Document the findings and communicate with executives
This is a great use of your project champion. Communication should occur immediately after analyzing results. Findings include both negative and positive results.
Include implementation plans and potential further studies. Keep the executives engaged. Be prepared to make more changes and measurements before moving forward.
- Determining the best implementations for improvement
The entire project team is defined in the project charter. Project champion should be included to speed up the executive approval.
- Obtaining executive consent for the implementation
Build upon the original project plan and show the original “current state” and now “future state”. Prepare and keep a project plan in place with expectations and milestones. Then identify all the process owners and stakeholders needed to implement the improvements.
- Implementing and controlling the improvements
Collaborate closely with the process owners during the improve and control phases. This is critical for any Six-Sigma DMAIC project to ensure lasting and effective results. A process owner is a person responsible for the process, product or service that was benchmarked, or that was modified due to the benchmarking project. You have to document the new process in sufficient detail. You might need to arrange for training programs.
- Reporting on the outcome of the improvements once a steady-state is achieved
This step is critical. A fair comparison must be done so that the real benefit is known. You may choose to do this at a steady-state or when you have collected enough data. A good report will increase the chances of future project approvals.
It was a lot of hard work and extra time from a lot of people. Let them know you appreciate them. Give them credit so that they feel excited to say “yes” for working on your next project.
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Benchmarking Code of Conduct
Benchmarking with an industry leader is a collaboration. Hence, the organization must safeguard the trade secrets of the standard and intellectual property.
- Handle the confidential information with the paramount care.
- Use the information only as agreed.
- Do not get into any conversations that seem illegal, such as pricing methods.
- Personnel should be contacted only after getting the permission from key collaborators.
- Have a plan and be well prepared.
- Treat interactions as an exchange of ideas, not as an investigation.
- Seek clarifications rather than filling in the blanks.
- Above all, be respectful.
In conclusion, the benchmarking process can be a real help for Six Sigma practitioners, especially in the analysis given the fact that it helps them:
- Choose what they need to measure.
- Shape the strategy in order to make sure it is relevant and ensures improvements.
- Fix realistic goals aligned to the industry standards.
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