Understanding the Purpose and Use of Benchmarking

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y J. DeLayne Stroud

Benchmarking is a way of discovering what is the best performance being achieved – whether in a particular company, by a competitor or by an entirely different industry. This information can then be used to identify gaps in an organization's processes in order to achieve a competitive advantage. Thus it is important for Six Sigma practitioners to:

• Understand fully the purpose and use of benchmarking.
• Understand the difference between benchmarking and competitor research.
• Gain insight to ensure that benchmarking is in alignment with the company's management objectives.

Benchmarking as a Tool

Benchmarking is a process for obtaining a measure – a benchmark. Simply stated, benchmarks are the "what," and benchmarking is the "how." But benchmarking is not a quick or simple process tool. Before undertaking a benchmarking opportunity, it is important to have a thorough understanding of the company's guidelines. Some companies have strict guidelines as to what information can be gathered, and whom practitioners can contact to get that information. Depending on the size of the company, practitioners may be surprised at what is readily available in-house.

Benchmarking is not just a matter of making inquiries to other companies or touring and documenting another company's facilities or processes. When making use of benchmarking, a company should not limit the scope to its own industry, nor should benchmarking be a one-time event.

Benchmarking Versus Competitor Research

While competitor research is neither a better nor a worse practice than benchmarking, the important thing is to understand that there is a difference between the two. Available time and resources will help decide which tool will add the most value. The following table represents experience in dealing with the two practices:

Differences Between Benchmarking and Competitor Research
Benchmarking	Competitor Research
Focuses on Best Practices	Focuses on performance measures
Strives for continuous improvement	Bandage or quick fix
Partnering to share information	Considered corporate spying by some
Needed to maintain a competitive edge	Simply a "nice to have"
Adapting based on customer needs after examination of the "best."	Attempting to "mirror" another company/process

Three Primary Classifications of Benchmarking

Although there are many forms of benchmarking, they can be classified into three categories – internal, competitive and strategic.

About Strategic Benchmarking Going outside one's own industry is often challenging for a company. Keep in mind, however, that customer satisfaction is driven by critical-to-quality measures that are similar regardless of the industry. For example, when considering the metric, "wait time," it does not matter whether waiting for a car repair at a body shop, or to make a deposit in a bank lobby, customers do not want to wait in long lines. Similarly, whether using a telephone help line of a cable company or of a favorite department store, customers do not want to remain on hold. They want their concerns addressed quickly and efficiently. In 2004, a leading company identified customer satisfaction to have a benchmark of 92 percent. A key dissatisfier was wait time. The gap between an organization's current customer satisfaction score and the benchmark of 92 percent represents the ultimate goal to strive for in a multigenerational plan. Bottom line: A lot can be learned from going outside one's own industry because many customer concerns are the same.

Internal benchmarking is used when a company already has established and proven best practices and they simply need to share them. Again, depending on the size of the company, it may be large enough to represent a broad range of performance (i.e., cycle time for opening new accounts in branches coast to coast). Internal benchmarking also may be necessary if comparable industries are not readily available.

Competitive benchmarking is used when a company wants to evaluate its position within its industry. In addition, competitive benchmarking is used when a company needs to identify industry leadership performance targets.

Strategic benchmarking is used when identifying and analyzing world-class performance. This form of benchmarking is used most when a company needs to go outside of its own industry. Six Sigma often uses Hoshin to ensure that all employees are knowledgeable about the strategic direction for the company. Within a company's Hoshin plan, goals are established relative to benchmarks set by world-class organizations. Often, these benchmarks are obtained from outside industries.

Steps Involved in Benchmarking

It is important that Six Sigma practitioners have a thorough understanding of their own company's guidelines before undertaking a benchmarking opportunity. The following is a list of the vital few steps involved in benchmarking. These steps should be tailored based on company policies, resource availability and the project or process one is dealing with:

1. Understand the company's current process performance gaps. This will help decide what needs benchmarking.

2. Obtain support and approval from the executive leadership team. That approval and support will assist with eliminating roadblocks, providing adequate resources and expediting the benchmark-gathering process.
 
3. Document benchmarking objectives and scope. This is a necessity for any project.

4. Document the current process. Without up-to-date knowledge of the current process:

a. Time and resources can be wasted collecting process documentation and data that already exists.
b. The project may lack focus, purpose and/or depth.
c. Benchmarking visits may appear to be random exercises in information-gathering.
d. The team could select a partner whose performance is actually worse than that of its own organization.
e. Collected benchmarking data will be difficult to compare "apples to apples" in terms of process requirements.

5. Agree on the primary metrics. Benchmarking measurements are used as the basis of many comparisons:

a. To determine the gap between current performance and that of partner organizations.
b. To track progress from the present (with the current process) into the future.
c. To track partners' progress toward their goals.
d. To determine superior performance with process improvements.
e. To use a measurement systems analysis (MSA):
         i. These comparisons will be valid only if everyone participating in the study measures performance in exactly the same way – every time.
        ii. It is important to make sure metrics are being established that potential benchmarking partners are probably already tracking or that can be easily derived from existing measurements.

6. The metrics should be put in writing. In particular:

a. What is being measured
b. How the units of measure will be classified.
c. What should be included in the measurement.
d. What should not be included.
e.How to make any necessary calculations.
f. Examples of typical measurements.

7. Agree on what to benchmark. Everyone must be in agreement on what to benchmark prior to any benchmark gathering initiative in order to:

a. Understand gaps of low performers.
b. Understand impact to customers, associates and shareholders.
c. Prioritize and select one to three metrics to benchmark.

8. Develop a data collection plan.

9. Identify research sources and initiate data gathering.

10. Design a screening survey to assist with partner selection. Characteristics of the survey are important:

a. Crisp focus on indicators of excellence
b. Two pages maximum
c. 30 minutes maximum to complete
d. Objective, multiple-choice questions
e. Communicates the plans, objectives and resource requirements for the study
f. Reflects focus areas for subsequent in-depth questionnaires

11. Determine how to contact and screen companies.

12. Design a detailed survey to gather information.

13. Decide if gathered information meets original objectives.

14. Conduct a site visit.

15. Apply the learnings to performance gaps.

16. Communicate to the executive leadership to ensure continued support.

17. Develop a recommended implementation plan with process owner.

18. Know when to update and recalibrate.

External Resources for Benchmarking

Some may find it surprising that there is a world of benchmarking information already gathered and available. While there may be a fee associated with obtaining this information, the fee can easily be offset by the savings in time and resources that come from not having to gather the benchmarking information needed to meet agreed-upon objectives. Here are some available sources:

1. American Productivity & Quality Center (APQC)
2. APQC Knowledge Sharing Network
3. The Benchmarking Exchange
4. Best Practices, LLC & Global Benchmarking Council
5. In addition, there are several great books on benchmarking.

About the Author: J. DeLayne Stroud is a Six Sigma Black Belt project manager with DeLeeuw Associates, a division of Conversion Services International. He retired from Bank of America in 2005 with more than 20 years of experience as an executive in project and change management in the banking industry. He has led multiple Design for Six Sigma and Lean initiatives. During his career, Mr. Stroud was a senior project manager in some of the largest mergers and change initiatives in the history of the financial services industry, including former banks such as General Bancshares, Boatmen's Bank, Centerre Bank, Barnett Bank and BankAmerica. He can be reached at jstroud@deleeuwinc.com.