Benchmarking The Key to Continuous Improvement
Benchmarking. Best practices. Competitive analysis. All these terms are used in business today. But are they just buzzwords, or do the words have real meaning for maintenance and reliability professionals? Are they useful tools that can be used to improve business practices today? In order to answer these questions, it is necessary to begin with some definitions.
A basic definition for benchmarking is: An ongoing process of measuring and improving business practices against the companies that can be identified as the best worldwide.
This definition emphasizes the importance of improving, rather than maintaining the status quo. It addresses searching worldwide for the best companies. Most companies have international competitors. It would be naive to think that best practices are limited to one country or one geographical location. Information that allows companies to improve their competitive positions must be gathered from the best companies, no matter where they are located.
Companies striving to improve must not accept past constraints, especially the “not invented here” paradigm. Companies that fail to develop a global perspective will soon be replaced by competitors that had the insight to develop a comprehensive perspective. In order to make rapid continuous improvement, companies must be able to “think outside the box” that is, to examine their business from external perspectives. The more innovative the ideas that are discovered, the greater the potential rewards that can be gained from the adaptation of the ideas.
Research shows that major innovations in any business sector come from an external sector and are adapted to improve the practices of the company within their business sector. In today’s competitive business environment, the need to develop this external perspective is critical to survival.
The common thread of studying other companies to gain information that allows the company to become more competitive is clear. Unless a company clearly understands the processes and procedures that allow a company to become the best, little value is derived from benchmarking.
Defining Core Competencies
As a continuous improvement tool, benchmarking is used to improve core competencies, the basic business processes that allow a company to differentiate itself from its competitors. A core business process may have an impact by lowering costs, increasing profits, providing improved service to a customer, improving product quality, and improving regulatory compliance.
Several authors have defined core competencies for businesses. In his 1997 text Operations Management, Richard Schonberger defines core competencies as a “key business output or process through which an organization distinguishes itself positively”. He specifically mentions expert maintenance, low operating costs, and cross-trained labor.
In the American Productivity and Quality Center’s (AQPC) text The Benchmarking Management Guide, core competencies are identified as “business processes that should impact the following business measures:
- Return on net assets
- Customer satisfaction
- Revenue per employee
- Asset utilization
Figure 1. Gap analysis – Current state.
The maintenance and reliability processes in any company provide this advantage in many ways. These include enhancing any quality initiative, increasing capacity, reducing costs, and eliminating waste.
In its GSA Office of Government-wide Policy, the Best Practices Ad Hoc Committee developed the following definition for best practices: Best Practices are good practices that have worked well elsewhere. They are proven and have produced successful results. They must focus on proven sources of best practices.
The committee goes on to state: They [Organizations] should schedule frequent reviews of practices to determine if they are still effective and whether they should continue to be utilized.
This definition suggests that best practices evolve over time. What was once a best practice in the past may only be a good practice now, and perhaps in the future even a poor practice. Continuous improvement calls for movement, not business processes that are stagnant.
Types of Benchmarking
Several types of benchmarking can be employed in conducting a benchmarking project. They include:
- Similar Industry/Competitive
- Best Practice
Internal benchmarking typically involves different departments or processes within a plant or site. This type of benchmarking has some advantages in that data can be collected easily. It is also easier to compare data because many of the hidden factors (enablers) do not have to be closely checked. For example, the departments will have a similar culture, the organizational structure will likely be the same, and the skills of the personnel, labour relations, and management attitude will be similar. These similarities make data comparison quick and easy.
The greatest disadvantage of internal benchmarking is that it is unlikely to result in any major breakthrough in improvements. Nevertheless, internal benchmarking will lead to small, incremental improvements and should provide adequate Return On Investment for any improvements that are implemented. The successes from internal benchmarking will very likely increase the desire for more extensive external benchmarking.
Similar industry or competitive benchmarking uses external partners in the same vertical market or in a market with similar processes. In many benchmarking projects, even competitors are used. This process may be difficult in some industries; many companies however are open to sharing information that is not proprietary.
With similar industry/competitive benchmarking, the project tends to focus on organizational measures. In many cases, this type of benchmarking focuses on meeting a numerical standard, rather than improving any specific business process. In competitive benchmarking, small or incremental improvements are noted, but paradigms for competitive businesses are similar. Thus, the improvement process will be slow and will typically not result in any breakthrough strategies.
Best Practices Benchmarking
Best Practice benchmarking focuses on finding the unarguable leader in the process being benchmarked. This search, which crosses industry sectors and geographical locations, provides the opportunity for developing breakthrough strategies for a particular industry.
The organization that studies business processes outside its industry, then adapts or adopts the superior business processes, will make a quantum leap in performance compared to its competition. Being the early adaptor or adopter will give the organization an opportunity to lower costs or aggressively capture market share.
When looking for Best Practice companies, it must be understood that no single best practice company will be found. All companies have strengths and weaknesses. There are no perfect companies. Because the processes that are in need of improvement through benchmarking vary, the companies identified as the “Best” will also vary. A company that wants to insure it is benchmarking with the best requires systematic and thorough planning and data collection.
Of the three types of benchmarking, Best Practice benchmarking is superior. It provides the opportunity to make the most significant improvement; the companies being benchmarked are the best in the particular process. Best practice benchmarking provides the greatest opportunity to achieve the maximum return on investment. Most important, best practice benchmarking provides the greatest potential for achieving breakthrough strategies, resulting in an increase in the company’s competitive position.
Gap Analysis – a Benchmarking Essential
A gap analysis is a key component of any benchmarking project and helps that project achieve the business objectives. A gap analysis is divided into the following three main phases:
- Baseline – the foundation, or where the company is at present
- Entitlement – the best that the company can achieve with effective utilization of their current resources
- Benchmark – the Best Practice performance of a truly optimized process.
In order to utilize gap analysis effectively, the benchmarking project must be able to produce quantifiable results. All of the measures must be able to be expressed clearly and concisely so that the improvement programme can be quantified.
The first step of gap analysis is to compare the company’s process in quantifiable terms to the Best Practice results that were observed. It is best to plot this comparison, as shown in Figure 1.
The gap between the observed Best Practice and the organization’s current performance is plotted on the vertical axis of the chart. The horizontal axis shows the time line. This chart highlights the need for the measures to be quantifiable if they are to be properly graphed.
The second part of gap analysis sets the time (T1) to reach what is called a current parity goal. This goal is focused on achieving the current level of performance that the Best Practice Company has reached at the current time. This goal also recognizes that the Best Practice Company will have made improvements during this time period and will still be at a higher level of performance (see Figure 2).
The next step is to set a real time parity goal. This level is reached when your company achieves parity on the benchmarked process with the Best Practice Company. It is highlighted in Figure 3 as T-2. The final goal is the leadership position, which occurs when your company’s performance in the benchmarked process is recognized as having exceeded your partner’s performance. This level is noted as T-3 in Figure 3. At this point, your company will be recognized as the Best Practice Company for the benchmarked process.
If a company is to effectively use gap analysis, all of the parameters must be quantifiable and time framed. If not, the gap analysis will be meaningless.
Improper Use of Benchmarks
When benchmarking is used properly, it can make a major contribution to the continuous improvement process. However, it can also be completely devastating to a company’s competitive position when used improperly.
Using benchmarking data
As a performance goal
When companies benchmark their core competencies, they can easily fall into the trap of thinking a benchmark should be a performance indicator. For example, they focus all of their efforts on cutting costs to reach a certain financial indicator, losing focus on the real goal.
A company receives greater benefits when the tools and techniques (enablers) used by a partner to achieve a level of performance are understood. This understanding allows the company not only to reach a certain number, but also to develop a vision of how to achieve an even more advanced goal.
By focusing on reaching a certain number, some companies may have changed their organizations negatively (e.g., by downsizing or cutting expenses). However, they may have also removed the infrastructure (people or information systems) and soon find they are not able to sustain or improve the benchmark. In such cases, benchmarking becomes a curse.
Figure 2. Gap analysis – Parity state.
Figure 3. Gap analysis – Future state.
When a company attempts to benchmark before the organization culture is properly developed, it may not have the data to compare with its partners. Therefore, someone makes a “guesstimate” that does the company no good since it is likely to be inaccurate.
The process of collecting data gives an organization an understanding of its core competencies and how it currently functions. Premature benchmarking will lead back to the first trap--just wanting to reach a number. Companies that step into this trap become “industrial tourists”. They go to plants and see interesting things, but don’t have enough of an understanding to apply what they see to their own businesses. The end results are reports that sit on shelves and never contribute to improved business processes.
Not every company is ready for benchmarking. However, companies should not avoid benchmarking just because of a previous bad experience or because they have the attitude of “We are already the best” or “We are different than everyone else”. Companies in which responsible individuals have such a mindset will have little chance of improving.
Benchmarking is valuable because trying to reinvent the wheel is an expensive way to try to make improvements. Once a company has the proper view of the benchmarking process, and disciplined guidelines are established and followed, desired improvements should follow. However, if the company does not benchmark for the right reasons, benchmarking efforts will become a curse.
Benchmarking helps companies find the opportunities for improvement that will give them a competitive advantage in their marketplaces. However, the real benefits from benchmarking do not occur until the findings from the benchmarking project are implemented and improvements are realized.
In summary, when benchmarking, it is important to remember:
- It is necessary to explore the tangible and intangible factors that combine to produce a superior performance and involve those people most directly concerned in the activity being examined.
- Benchmarks are not the end-all. A benchmark performance does not remain a standard for long. Continuous improvement must be the goal.
»»Who is Terry Wireman? Terry Wireman is Senior Vice President of Strategic Development for Vesta Partners, LLC . For over four decades, Mr. Wireman has been specializing in the improvement of maintenance management and reliability processes. He helps customers develop “Best-In Class” maintenance and reliability policies and practices. In addition, he has authored twenty textbooks and numerous white papers and articles related to maintenance management process and technology. This article was derived from his textbook “Benchmarking Best Practices in Maintenance Management”.
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