Benchmarking started in the US in the late '70s as a means of fighting back against aggressive competition from the Japanese. Now companies in Europe and the UK are using it, matching their own practices with the best practices of others in a bid for excellence.
'You can and should benchmark everything,' exclaims one enthusiast. But what exactly does benchmarking mean? One straightforward definition comes from Chris Simmons, managing director of Benchmark Communication, a New Zealand-based consultancy specialising in human resources best practice: 'Benchmarking involves learning about your own practices, learning about the best practices of others, and then making change for improvement that will enable you to meet or beat the best in the world.' The stress, in other words, is on understanding how your own company carries out its activities; learning how other companies that excel in similar processes carry out theirs; and then adapting and reinter-preting what you have learnt in a way that makes all the difference. Instead of aiming to improve only against previous performance and scores, companies can use benchmarking to inject an element of imagination and common sense into their quest for progress, while simultaneously scrutinising their time-honoured processes (such as double-checking the double-checking) in the cold light of reason. Inevitably, the perspective is international, the idea being to beat the 'best in the world'.
The technique was pioneered by Xerox Corporation in the US in the late 1970s, as a (successful) means of fighting back against aggressive competition from the Japanese. All aspects of the business, through production and selling to servicing, were assessed and measured against the standards of other companies - the group's Japanese affiliate for unit production costs, American Express for customer procedures, and Milliken for employee suggestion schemes, for example - and whenever a process was performed better elsewhere, the aim was for Xerox to perform it at least equally well. (This well-nigh legendary Xerox experience is recorded in Robert Camp's Benchmarking: the search for industry best practices that lead to superior performance - the one book which all enthusiasts exhort you to read but which, perhaps because British bookshops have not yet started benchmarking, is one book which is never in stock.) The use of best practice benchmarking spread among US companies in the 1980s, and is now gathering its devotees in Europe and the UK - and Australasia, as Simmons explains, where companies have had to face up to deregulation and intensified international competition. Interestingly, New Zealand companies adopting the benchmarking process have to scan global horizons for examples of best practice simply because their own business world is so tiny.
The Japanese have no specific single term for the concept, but practise it all the time. Indeed, for an early example of the technique, remember the chairman of Toyota in the post-war years, observing and studying the way US supermarkets restocked their shelves overnight to meet the morning's demands, and then translating the process into the just-in-time approach in car production. For a more recent, British example, listen to David Smith, operations manager enterprise technology at ICL. The company has been a benchmarking aficionado since 1990, explains Smith, and one of its many projects aimed at improving the company's technical manuals. 'We could have gone to other companies that produce technical manuals, like IBM or Hewlett-Packard. But looking at their process would mean that ours would be only as good as theirs,' he says. Instead, the benchmark team consulted with the publishers of recipe-books, railway timetables and DIY handbooks, all of whom are engaged in the task of conveying complex information in a simple accessible form. 'The point is to look at the process, not at the end company: there are so many companies which will carry out similar processes.' Practitioners also insist that the benchmarking process is neither industrial espionage nor industrial tourism. 'It is not a matter of getting a group of managers together to visit a leading-edge company, and coming back with some interesting ideas,' writes Gregory Watson in his Benchmarking Workbook, but of finding out the leading company's 'secrets', adapting and improving on them, and implementing them: 'The visiting or data-gathering activity is not an end in itself.' Nor indeed is benchmarking: it works best as part of a continuous improvement or TQM programme, and should not be seen as a panacea. But it does add 'an external stimulus to TQM brain-storming sessions', says Simmons; and because it is is carried out by an internal team, who become enthused by what they learn, it gains more commitment than wholesale prescriptions from external consultants (as well as being less expensive).
There are different types of benchmarking. At its simplest level, you have ad hoc observations, gleanings from conferences, magazines or encounters with strangers on a train, on how other companies handle customer service, for example. More formally, you have internal, external (competitive and non-competitive) and best practice benchmarking.
Internal benchmarking is carried out with partners from within the company - comparing the way different sales departments, whether on the same site or on the other side of the globe, handle customer complaints, for example. Sylvia Codling, managing director of Oak Business Developers, a consultancy specialising exclusively in benchmarking, and author of Best Practice Benchmarking, the first UK guide to the subject, comments that internal benchmarking is unlikely to result in the much sought-after quantum leap, but is a useful beginning: 'Companies traditionally have not looked at their own best practices, thinking that if we're doing it, it can't be all that good; but they are finding there's a lot to learn. And there are lots of advantages. People within the same company do speak the same language; communication channels exist; it's easy to find the relevant person to speak to. It's also useful to start with internal benchmarking to find out how it works, without exposing yourself to outsiders.' The next step is to move to external benchmarking with partners from companies outside your own. Says Simmons: 'At first people groan: "But we're always looking at our competitors: we don't want to look at them again." ' To which he would counter: 'Indeed you don't. If you look only at your competitors and your own industry, you're just creating change within a small radius. If you look outside, you're changing the way the game is played. The more lateral you get, the better.' As Codling puts it: 'The more externally focused the benchmarking exercise the greater the potential for removing blinkers, overturning paradigms and overcoming the "not-invented-here" syndrome.' Thus, in an oft-cited example, BAA benchmarks not only against foreign airports, but with companies in similar industries with similar problems, like Wembley Stadium and Ascot racecourse, faced with the similar challenge of moving, parking and feeding thousands of people in a confined space within a short period. One hospital in New Zealand benchmarks with airlines and hotels. Apple Computers studied primary school practices when designing the Apple Mac. Undertakers would be useful partners for companies wishing to improve customer service - or selling to reluctant customers. Rank Xerox in the UK compared its distribution against 3M in Dusseldorf, Ford in Cologne, Sainsbury's regional depot in Hertfordshire, Volvo's parts distribution warehouse in Gothenburg and IBM's International warehouse and French warehouse. And so on.
In benchmarking with direct competitors, there will obviously be reluctance to share certain information as well as problems such as legal constraints and ethical considerations (perceived collusion, for example). However, Dr Derek Wright, director of business development for the Centre of Logistics and Transportation at Cranfield, comments that in his experience of the Logistics Benchmarking Network (run jointly by Cranfield and Logistics Consulting Partners), 'Most companies have a rule of thumb knowledge of what their competitors are doing, and it is only the detailed cost information which is sensitive. What people really want to know about is the structure and form of a process, rather than about detailed cost.' And there are, as Codling points out, instances where competitive benchmarking can be highly beneficial, where the process is particularly critical to an industry, such as health and safety in the chemical sector: Du Pont is recognised as the 'best' in this area, and has no problem sharing information with other companies, whether chemical or otherwise. Her advice is that 'direct competitors should only benchmark with each other in very specific circumstances, where a process is unique to the industry, for example, or where very clearly defined guidelines are agreed on from the outset'. The Benchmarking Centre, a thriving subscriber organisation and one-stop shop (providing benchmarking groups, workshops, clinics, research and the leading annual European forum on benchmarking), sets out very clear ethical guidelines on the topic of working with direct competitors. 'Establish specific ground rules up front,' it advises. Don't ask competitors for sensitive data; use an ethical third party to assemble any blind competitive data, with inputs from legal counsel, for direct competitor comparison.
Finally, there is best practice benchmarking, where partners are sought that are undisputed leaders in a process, in whatever industry and corner of the globe. This involves careful definition of the 'best', as well as finding these paragons, but potentially offers the greatest opportunities for improvement.
So, how to go about it? Comments ICL's Smith: 'It doesn't matter which process you use, whether it's ICL's or AT&T's, three steps or five or 12, as long as you do use a process '-a systematic, structured programme. And however the stages of this process are numbered, all proponents agree that the initial stages of planning and preparation are the most vital. As with project management, says Smith, the more time spent on planning wisely, the greater the results (achieved with the involvement of fewer, well-chosen partners) at the end. All are also agreed that an absolutely crucial ingredient for any successful benchmarking exercise is the commitment, or sponsorship, from the senior management team. 'It is senior management who will release resources, not so much money as such but time and people,' says Graham Hoenes, general manager of the Benchmarking Centre, 'and who will oil the wheels for talking to different functions.' The sponsor, too, keeps an eye on projects, making sure that really important issues are tackled.
Next, select your team. This will be small, although opinions differ on exact numbers. Smith suggests two or three at most, one of whom is the process-owner, who communicates best with people but is also ready to ask the right awkward questions. In the course of the project, he says, other members are pulled in, but only as needed - somebody who knows nothing about the process chosen for benchmarking; someone to do the legwork and research; somebody who can facilitate or guide the benchmarking process, explaining what to do when. Sarah Cook, consultant and author of Practical Benchmarking, envisages five to eight members, drawn from across the organisation, with sufficient clout to get their recommendations approved. Ideally, she says, the team should consist of both managers and staff and include a mix of seniority and knowledge.
As Simmons explains, the team will need coaching in the necessary techniques of how to devise questionnaires and structure interviews. Contrary to the popular image, most benchmarking can and should be done over the telephone; but telephone interviews need to be professional. In particular, team members need to learn how to approach the chosen companies: 'You're asking somebody to share information with you. You need to empathise with the person you're calling: what would entice you? What will they get out of it?' It is useful to employ a consultant to get things started, to help with one or two projects, says Simmons, who acts in precisely this role; thereafter, in his experience, companies are ready to go it alone.
How do you choose what to benchmark? In one sense, you have carte blanche across the entire spread of the organisation: Xerox has now conducted some 850 benchmarking studies, while the Weyerhauser foresting company in Seattle has done over 670. In the UK, however, according to Codling, companies which in the early 1990s set out with the idea that benchmarking could happen anywhere in the organisation have, in the harsh light of the recession, concluded that the scattergun approach is not of much benefit, and are drawing back, focusing on key processes that are tied in with strategic purpose. Simmons suggests: 'Ask your customers; interview your employees; talk to senior managers; and you'll get a good feel' for what can and should be improved.
The subject should not be too huge; and there must be a commitment to change: there is no point in tackling issues such as the numbers of female graduates who leave the company, for example, unless you're willing to do something about it. Areas being studied at Oak Business Developers include new product development, risk analysis, order placing, forecasting, despatch, warehousing, reducing cycle time, customer service. In human resources, Simmons and his team deal with employee communication, training and continuous learning, performance management, culture development, staffing and selection, team-based management. At the Logistics Benchmarking Network, reports Alan Braithwaite, managing director of LCP, there are now study groups for forecasting and planning; execution including accuracy; physical operational design (where to put your warehouses and trucks, and what they should cost); change in logistics; and customer service. The Benchmarking Centre reports partnerships in economic modelling, management of employee surveys, delivered quality audits, services and projects; benchmarking groups in payroll handling; collection and use of competitor information; mass enquiry handling; relationship marketing; supply chain management and modelling; training and development; management information systems.
Once you've chosen your process for improvement, the first task is to analyse current practice - to examine the process from start to finish. Many companies that think they do this anyway may be in for a bit of a surprise. Simmons reports on one company, comfortable in the assurance that performance management was handled according to its manual, only to discover that everyone was using said manual in their own way, or not at all. Codling, too, remarks that assessment of processes, if done at all, is frequently done in a very fragmented way: 'I thought we already did that - it's so obvious' is an oft-heard comment. 'One of the first benefits of benchmarking is that companies look at what they're actually doing,' she says.
Sarah Cook, in Practical Benchmarking, provides a useful 10-point checklist for analysing processes (output; customer; customer requirements; process owner; start and end points; steps involved; people, departments, suppliers involved; timescales; cost; perceived problems). It is useful to map the process, through using post-it notes, or fishbone diagrams, or flow diagrams. Make sure that everybody is speaking the same language, talking about the same thing; and that measurements used as in-house standards are documented, so that when you do come to compare with your benchmarking partners it is clear what is being compared. All practitioners warn of the danger of comparing apples with elephants, or whatever. Says Andrew Mawson of Advanced Workplace Associates, which runs a benchmarking network on the use of the workplace, for example: 'Take an apparently simple metric in energy use, like kilowatts per square metre: the problem is, which square metre?' It is obviously best to know what you mean yourself before you ask others.
Next comes finding those best practice partners. If internal, this is no problem. If external, this is a suitable case for lateral thinking and brainstorming. Ask customers and suppliers whom they consider to be best in class in your chosen activity. Ask industry observers, suggests the DTI: 'journalists, academics or stockbrokers'. Think of companies to which this particular process would be critical. Consult the databases available, such as those of the International Benchmarking Clearing House and the Benchmarking Centre. There are also specialist databases and reports: in the human resources field, for example, Simmons's HR Best Practices gives instructive accounts of best practices in around 50 Australasian companies. Join a benchmarking club or network.
You need to be innovative and flexible in looking for partners, advises Simmons, because companies like Hewlett Packard or Rank Xerox are by now weary of requests for benchmarking. So look at smaller companies: no company should be considered too odd or too different from your line of business to benchmark, according to Gregory Watson, while smaller companies have consistently proven their ability to innovate and implement new ideas faster. Look abroad; consult your trade association for overseas counterparts; contact the local British embassy for advice.
Sift through all the potential companies carefully, asking whether their experience really is relevant, and whether their reputation for the activity under scrutiny is still justified. Make your approach, making it plain what the partner company will derive from the exercise. A code of conduct has been evolved (and is usefully published in the Benchmarking Centre's brochure), the core of which is 'Do as ye would be done by'. So, be willing to exchange the same type and level of information that you request from your benchmarking partner; treat the information as confidential; and use it only for the purposes of formulating improvement of operations or processes within the companies taking part in the study. If a site visit is entailed, send the host company details of the topics of interest, get there on time, and do not outstay your welcome.
Those present on the visit should always include the process owner but also an informed observer, who will see and hear objectively. During the visit, advises Codling, 'the question uppermost in the mind should be "how is this done?" ' Do not succumb to information grazing, she warns. If what is seen or heard is not understood - ask. And try to feel behind the visible for the hidden attitudes, skills or values which help to explain superior performance.
Writing up the facts and perceptions gleaned on the visit should take place as soon as possible: Xerox Corporation teams, Codling points out, write their report immediately, regardless of the hour. Particular attention should be paid to differences in the actual process; in systems and support practices; in the structure of the organisation; and in the culture. From this will follow mapping the differences between the partner's process and your own.
When setting targets for your company's future performance, Codling warns, remember that these should be well beyond the current gap (for the best practice partner will presumably continue improving): she quotes the chairman of Toyota's claim that his company already had in place enough ideas to double its rate of improvement over the next five years as a salutary reminder that the race is to the swift. So, make the ultimate goal a bold one, but set milestones along the way.
It is at this point that the team should spread the word on the benchmarking project, sympathetically and imaginatively, throughout the company but in particular to those whose jobs will be directly affected. Portray a vision of the future, and an explanation of benchmarking and how it works; take care not to slide into incomprehensible, rebarbative jargon. To overcome resistance to change, some companies send people on a tour of the partner company's premises before involving them in any benchmarking programme, for inspiration. Recommendations should, according to Simmons, drop out of the earlier three steps: 'And if you've done a good job of communicating, everyone says, "Well, what else would we be doing?"' Once recommendations have been signed off, draw up action plans, split into manageable steps - individual action plans, with unambiguous goals and deadlines, for those directly involved. Set up an uncomplicated monitoring and reporting system. If a major change is involved, test and, if need be, improve the new system at one location before rolling it out across the whole company. In the actual implementation, attention to detail is critical. And then, Codling urges, 'When the benchmark goal has been achieved, tell the world, and then - set bolder goals.' Not everyone is quite so convinced about the benefits of benchmarking. A slightly sceptical Professor Colin New of Cranfield (who is responsible for the Best Factory database on the performance characteristics of 750 UK factories, to be used in the DTI's national benchmarking service) believes, 'Everyone can learn from every other plant', but warns that 'process benchmarking done properly involves enormous effort and detailed measurement. This could be a very poor utilisation of good management time. You might get a better pay-off by thinking through the basics in your own company.' Braithwaite of the Logistics Benchmarking Network, however, points out that companies can effect change through investing in technology (which often disappoints); through business process re-engineering (which has 'much more potential, but has also been the graveyard of many disappointed hopes'); or through best practice benchmarking. 'We're saying that in a modest way companies can use benchmarking to identify where they are doing well, where badly; that there is no one totally excellent company; and that everybody can learn something.' It's a long-term programme, he stresses; and the company has to internalise the process. But it does invigorate thoughts on good practice, and on how to think about problems.
Entrants to the Best Factory Awards 1996 - run by Management Today in association with Cranfield School of Management - will have the chance to participate in the free benchmarking exercise provided by Cranfield. Past entrants and winners have stressed that the benchmarking service is one of the most important reasons for entering. It is available to every entrant in every category. The report positions each factory in relation to others in the same sector and, where appropriate, provides an objective view of year-on-year progress. Further details can be obtained from William Pecover at Management Today on 0171-413 4267.