Idea 3 - Benchmarking
If someone is doing
something more successfully than you are, it makes sense to look over their
shoulder and see what you can learn from them. US manufacturers started doing
this when they realized that Japanese competitors were taking away their
markets. It's called benchmarking and it's become so widespread among big
companies that some business thinkers now caution against it.
The history books point to Xerox as being the first large US
Corporation to benchmark. That was in the late 1970s when, like many of its
compatriots, it was feeling the competitive heat. It took all the key parts of
the business, from production to sales and maintenance, and measured them
against their counterparts in other companies, abroad as well as at home. If
the performance of the other's process was better in some way - quicker, cheaper,
more efficient - Xerox determined at least to match it. In so doing, it
transformed its own overall performance and word spread. So did the practice of
benchmarking.
Another famous early benchmarking exercise was the
International Motor Vehicle Program me, which ran from 1985-90. Coordinated at
the Massachusetts Institute of Technology and involving US, European and
Japanese automobile manufacturers, it sought to establish why the Japanese were
performing so much better than everyone else. The conclusions led to the
adoption in the west of what is now known as lean manufacturing.
A benchmark is a standard of performance; it can apply to
anything from production rates and defect levels to how you answer the phone.
In benchmarking, you first assess your own performance, compare it with others
and, if they are superior, you do what it takes to match or - better - exceed
it. The Japanese, interestingly enough, don't have a word for it but, in the
spirit of continuous improvement, they do it constantly. There was a time when
no western trade show was complete without squads of earnestly polite young
Japanese scribbling in notebooks.
Inside and out Benchmarking comes in different forms.
Internal benchmarking may compare the way service departments in different
regions handle warranty claims, for example. If nothing else, that can be a
good way to find out how benchmarking works. External benchmarking is harder
and should be more productive. Doing it with direct competitors can be
delicate, since they will be reluctant to share certain information, though in
certain areas' - like health and safety - competitors may be more cooperative
for the sake of the industry as a whole.
Beyond your
market Benchmarking against practices in unrelated industries is
easier and usually more useful, since it is more likely to tell you things you
didn't know. Looking beyond one's own industry helps to remove blinkers and -
when it comes to implementation - is less likely to fall foul of the 'not
invented here' syndrome. British airport operator BAA provided a classic
example of cross-industry benchmarking when it compared notes with Ascot
racecourse and Wembley football stadium. It reasoned, with great good sense
that they too had to cope with mass arrivals and departures over short periods
of time.
Step by
step Benchmarking methodologies vary in detail but follow much the
same route. Pick a benchmark. It shouldn't be too broad in scope, and should be
capable of precise definition. One school of thought says that everything can and
should be benchmarked but this becoming a minority view, given the cost in time
and people. For that same reason, commitment from the top is important. Then pick a team. Some companies favor small
teams of two or three, others more, but at least some should be senior enough
to get their recommendations approved. Outside consultants can be used,
particularly if confidentiality is an issue or the company is inexperienced.
Either way, the first step is to analyze your own process from beginning to
end, so that you know what is being benchmarked. For those who think they know
their own processes, this can yield surprising results and may prove a benefit
in itself.
Select
partners - this is not always straightforward, as the most obvious
or attractive may well be suffering from benchmark fatigue. Decide on
measurement methods and - important - units, and then collect the data. The
data report should include any differences in the partner's practices and
structure as well as its processes. Analyze the results and, in the jargon,
determine the 'gap'
Then plan for change, identifying any ideas you can adopt or
adapt to improve your own process and determining how to implement them. The
plans should aim to take you well beyond the present gap. The next time you compare
notes - which you should - the partner will presumably have continued to
improve as well.
Why you
shouldn't this benchmarking model has become so embedded as standard
practice that, unsurprisingly, some voices are now being raised against it. One
argument is that such effort represents poor use of management time, which
could be better spent thinking about the fundamentals in one's own company.
Daniel Levinthal of the Wharton business school's management
department acknowledges that benchmarking can have value and power, but warns
that there may be dangers in imitating some policies and practices of other
firms. He points out that the different functional components of a firm are
both complementary and reinforcing- 'interdependent'. Firms that have sustained
their competitive advantage over time are the ones that are good at managing
those interdependencies. The implicit assumption of benchmark thinking is that
the policy adopted from outside can be independent of everything else the firm
is doing. However, for one these components - human resources, say - to adopt
the best management practice of another company may not only not be best for
the firm, but may actually be dysfunctional. It could disturb the internal
consistency of the company's interlocking set of strategy choices. Finally,
there is mounting criticism of the way in which benchmarking is making all
companies look the same, producing strategic convergence. And lack of
differentiation, as Michael Porter would say, is no source of competitive
advantage.
Reference: 50 Management Ideas You Really Need to Know
Book by Edward Russell-Walling
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