Benchmarking for
Best Practices
Gemini Consulting
Objectives
• To review how world-class companies use benchmarking
• To introduce Gemini Consulting’s approach to benchmarking
• To review a real case example—and the benefits that benchmarking can
provide to our clients
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Agenda
•
The Value of Benchmarking
•
Overview of Gemini Benchmarking Activities
•
Benchmarking for Best Practices
•
Benefits of Benchmarking—Case Examples
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BENCHMARKING
Benchmarking Deals with Uncovering and Implementing
Best Demonstrated Practices
“The search for industry best practices that lead to superior performance” —
Robert C. Camp
“A surveyor’s marker of previously determined position . . . used as a reference
point . . . standard by which something can be measured or judged” —
Webster’s Dictionary
“Benchmarking is the continuous process of measuring products, services,
and practices against the toughest competitors or those companies recognized
as industry leaders”—David T. Kearns, Xerox
establishes
how width—7.30.
much a company
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BENCHMARKING
60% to 70% of the Largest U.S. Companies Now Have Some
Form of a Benchmarking Program in Place
•
Many major companies initiated benchmarking programs in the 1980s:
- Motorola
- General Motors
Pepsico
- Oryx
- First Chicago
Weyerhaeuser
- Alcoa
•
-
General Electric
-
Xerox
Certain companies are perceived to be “best in class” along specific dimensions:
Benchmarking Company
Benchmark Target
•
Kellogg
•
•
Motorola
•
•
•
Focus
•
Improving supply chain
•
Leading Japanese
manufacturers
Domino’s Pizza
•
Xerox
•
L.L. Bean
•
IRS
Alcoa
•
•
•
American Express
Du Pont
General Electric
•
•
•
•
Milliken
•
Shortening cycle time from
order receipt to delivery
Boosting productivity in
logistics and distribution
Improving billing procedures
Improving safety
Managing organizational
processes
Cross-functional processes
U.S. companies must
benchmark
to bedriven
considered
Malcolm
Baldrige
Benchmarking’s
popularity
is partially
by thefor
facta that
U.S. companies
National
Quality Award.
must
benchmark
to win a Malcolm Baldrige National Quality A
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BENCHMARKING
Example: Xerox Used Benchmarking to Face New Market
Entrants from Japan
Benchmarking process
Issues faced during 1980s
•
Xerox lost market share to
Japanese competitors
•
“We did not understand the
severity of the competition . . .
we were arrogant to think that
no one could do anything
better than we could”
— David Kearns, Xerox
Chairman
•
•
Addressed most functions in
value chain:
- R&D
- Manufacturing and QA
- Marketing and product
management
- Salesforce
- Logistics and purchasing
Selected best-in-class
regardless of industry, e.g.:
- Drug wholesalers
- Appliance manufacturer
Benefits Achieved
• Suppliers reduced by
70%
• Manufacturing costs
cut by 50%
• Quality problems cut
by 60%
• Accelerated cycle time
• Increased market
share
- Catalogue retailers
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BENCHMARKING
Example: GE Believes That Its Own Managers Have Much
to Learn from Other Companies
•
GE scanned companies to find those that achieved faster, sustainable
growth:
- Screening out direct competitors and noncomparable companies
- Selecting a few best-in-class examples: AMP, Ford, HP, Amex
•
Benchmarking centered on process and management practices, not just
functions:
- Emphasizing approaches to optimizing processes (e.g., product introduction, partnering with
suppliers)
- Helping GE focus on how to get things done
•
GE is using the findings to fine-tune its change process:
- It has now turned its benchmarking learnings into training seminars
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BENCHMARKING
Benchmarking Affords Companies the Opportunity to Make
Step Changes in Their Work Processes
Benchmarking
Improvements
Degree of
Improvement
Internal
Improvements
Time
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BENCHMARKING
Benchmarking Also Improves Your Process Performance
and Competitive Advantage
Key Indicator
(e.g., Accounts Receivable Outstanding)
IndustryAverage
Average
Industry
CompanyPerformance
Performance
Company
CompanyGoal
Goal
Company
WorldClass
Class
World
1988
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1989
1990
1991
1992
Goal
1995
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BENCHMARKING
As a Result, Companies Experience Strong Financial and
Cultural Benefits
•
Benefits are both financial . . .
- “Our program resulted in a 32% reduction in operating expenses per well, per day”—Oryx
Energy
- “[Benchmarking] led to 50% savings in materials movement expense at several plants”—
General Motors
- “We’ve streamlined many functional areas using benchmarking”—First Chicago
- “Product development time was cut by 50% and total costs by over 60%”—Xerox
- “Global benchmarking led to 50% reduction in selected product development cycles”—AT&T
•
. . . And cultural:
- Creates organizational understanding and commitment to change
- Stimulates interfunctional/departmental dialogue and brainstorming
- Works as a motivational tool to get employees to stretch
- Broadens view of employees to include best practices of other industries
The Japanese have transformed benchmarking into a long-term strategic
weapon by integrating it into their planning processes.
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Agenda
•
The Value of Benchmarking
•
Overview of Gemini Benchmarking Activities
•
Benchmarking for Best Practices
•
Benefits of Benchmarking—Case Examples
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GEMINI BENCHMARKING SERVICES
Gemini Benchmarking Activities Vary According to the
Issues Our Clients Face
Examples of Gemini Activities
Examples of Issues Our Clients Addressed
Best Results
•
Strategic benchmarking
•
How do they rate in creating value for their
shareholders?
•
Key indices benchmarking
•
How do they measure along key indices for
a selected function?
•
Cost benchmarking
•
What are the competitor costs to perform a
given function? Overall costs?
•
How do their functions or processes
perform against those of best-in-class
companies?
Best Practices
•
Functional or process benchmarking
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GEMINI BENCHMARKING SERVICES
Strategic Benchmarking Addresses the External
Stakeholder’s Assessments of a Company’s Performance
P/E Ratio or Market/Book Value
Gap with
Best of
Peers
Average
of Peers
Gap with
Average of
Peers
Client
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Company A
Company B
Company C
- 13 -
GEMINI BENCHMARKING SERVICES
Key Indices Benchmarking Focuses on Key Indices and
Cost Drivers across Competitors
Example: Sales per Salesperson
($ Million/Person)
$4.0
$4.1
$4.2
$3.8
$3.0
Net Sales
Direct Sales Headcount
Client
Company A
Company B
$54
18
$80
20
$90
22
Company C
$300
70
Company D
$300
80
benchmarking
translates
drivers into
cost estimates
ACost
kicker
box is always
the samecost
width—7.30.
It grows
vertically.toIfassess
the text
economic
advantages
or
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14 Point Bold Italic type with punctuation.
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GEMINI BENCHMARKING SERVICES
Best Practices Benchmarking Compares Practices and Performances of
Specific Value Chain Functions or Processes
Example: Telecom Client Value Chain
Pdt/Svc Development
Pdt/Svc Realization
Market
Planning
Product/
Service
Structuring
Operations
Pdt/Svc Delivery
Product Delivery
• Risk Assessment
• Information
Customer Service
• Service
• Billings
Technical
Planning
Sales and
Promotion
Support Activities
Best-in-Class
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GEMINI ACTIVITIES
Most Current Benchmarking Efforts Center on Best
Practices
Best Results
Best Practices
•
Provides a scorecard across current
competitors
•
Highlights the “whats” and “hows”
•
Shows how efficiently or effectively a
function is performed
•
Shows how best-in-class companies
perform selected functions or processes
•
Data collection
•
Action
•
Indices- or cost-based
•
Work practices–based
•
Asks questions
•
Answers questions
Let’s discuss best practices benchmarking in more detail.
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Agenda
•
The Value of Benchmarking
•
Overview of Gemini Benchmarking Activities
•
Benchmarking for Best Practices
•
Benefits of Benchmarking—Case Examples
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BEST PRACTICES
Effective Benchmarking Must Avoid Usual Pitfalls
Independent Initiative
vs.
Direct Competitor Only
Integrated with Other
Efforts
vs.
Staff Consultant Exercise
vs.
Best-in-Class
Common Errors
Line Ownership
Data Collection
Gemini Approach
to Benchmarking
Unfocused
vs.
Action
vs.
Cost Comparisons
CSFs in Value Chain
vs.
Multiple Measures
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BEST PRACTICES
Benchmarking for Best Practices Revolves around
Continuous Improvement
Continuous
Improvement
Collect
Implement
Plan
Analyze
Benchmarking is an ongoing cycle, not a one-shot process.
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BEST PRACTICES
Deciding What and Whom to Benchmark
Three questions must be answered . . .
• What should be benchmarked?
• What are the key performance metrics?
• Whom should we benchmark?
. . . By taking the following steps:
• Identify the alternatives
• Develop selection criteria
• Make the selection
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BEST PRACTICES: WHAT
In Selecting Functions or Processes, We Consider
Major Opportunities for Change
•
Which functions represent the greatest percentage of costs?
•
Which functions add the most value to the customers, shareholders, and
internal organization?
•
Which functions have the most room for improvement?
•
Which functions can realistically be improved?
There is no set answer to determining appropriate functions to benchmark.
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BEST PRACTICES: WHAT
For Each Selected Process or Function, We Identify
Activities, Practices, and Metrics
Definition
Functional Example:
Special Orders
Process Example:
Sales Agents
Key Activities
Best Practices
Metrics
The value-added
steps in each
function or process
The way best-inclass firms perform
those steps
The performance
measurements best-in-
Order entry
How best-in-class firms
translate customer
requirements into orders
Number of changes per
order
Converting sales calls
How best-in-class firms
manage priorities and
scheduling
Number of customer
contracts per producer
class firms use
A key question: how “deep” do we need to benchmark the selected process
function
extract actionable learnings?
type
withto
punctuation.
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BEST PRACTICES: WHO
Identifying Whom to Benchmark Against Is
Key
Examples: How to determine best-in-class analogs for a manufacturer:
Process or
Function
•
Sales support
Analogous
Industry
Criteria
Key Activities
•
•
•
Order entry
Order tracking
Handling customer
inquiries
•
•
•
•
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•
Transaction-based
Multiple orders from
multiple customers
Combination of
technical products and
services
Orders often
customized per
customer requirements
Analogous
Industries
Direct order PC
maker
Best-in-class
Firms
•
Dell Computer
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BEST PRACTICES: WHO
Target Companies Offer Trade-offs between
Benchmarking Cost and Returns
Value and Difficulty of Benchmarking
for Different Types of Companies
High
Value/Returns of
Benchmarking
Internal
(e.g., other
businesses
of
corporation)
Best-in-Class
(functional
or process
leaders
from
other
industries)
Direct
Competitors
Low
Low
High
Difficulty/Cost of Benchmarking
selected
must
be width—7.30.
accepted as truly
comparable
by Ifthe
AThe
kicker
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always the
same
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14 Point Bold Italic type with punctuation.
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BEST PRACTICES
Collecting Data
Internal
(based on readily
available data)
•Reviews
•Libraries
•Surveys
•Internal site visits
•Interviews
Easier
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Secondary
•
•
•
•
•
•
•
Industry reports
Professional
associations
Seminars
Technical journals
Vendors
Academia
Consultants
Primary Sources
•
•
•
•
•
•
•
Industry surveys
Focus groups
Industry experts
Customer feedback
Site visits
Exchange of
information
Recent competitor
hires
More Difficult
- 25 -
BEST PRACTICES
Many Gemini Benchmarking Efforts Have Included
Broad Client Participation
Example:
Telecom
Team Member
•
Role
Client person
• Provides oversight and leadership
• Updates other executives
• Participates in site visits
Core Team (full-time) •
•
2 Gemini consultants
2 client staff people
•
•
•
•
•
Coordinate benchmarking effort
Develop plans
Conduct secondary and primary research
Analyze gaps
Help develop implementation recommendations
Content Experts
(part-time)
Several client staff
people
Gemini consultants
and academics
•
•
•
•
Provide expert insight into functions and processes
Participate in collecting external data
Participate in gap analysis
Validate benchmarking plan
Other team [Gemini
and client] members
•
•
•
•
Participate in site visits
Validate benchmarking plans
Collect internal data
Implement
Champion
•
•
Other Participants
(ad hoc)
•
participation
increases buy-in
andvertically.
facilitatesIfthe
ABroad
kickerclient
box is
always the usually
same width—7.30.
It grows
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change
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Use 14 Point Bold Italic type with punctuation.
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BEST PRACTICES
Analyzing Gaps between Internal and External
Performance Suggests Change Programs
Four Types of Change Programs
to Meet Best-in-Class Standards
Try
Harder
•
•
•
Vague
Unactionable
Demoralizing
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•
•
Long-run
mediocrity
Band-Aid
Change
the Process
Leap
Frog
Emulate
•
•
•
Dynamic
Creative
Out-of-industry
(often)
•
•
Strategic or
operational
paradigm shift
“Position”
builder
- 27 -
BEST PRACTICES
These Programs and Actions Need to Be
Implemented Quickly and Monitored over Time
•
Speedy implementation ensures you won’t get left behind
•
Monitoring allows constant internal and external comparison:
- Systems must be put in place
- Someone must own the process
•
Improvement should be a continuous goal, based on annual recalibrations
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Agenda
•
The Value of Benchmarking
•
Overview of Gemini Benchmarking Activities
•
Benchmarking for Best Practices
•
Benefits of Benchmarking—Case Examples:
- Human Resources Function for a Service Company
- Corporate Planning Process for an Industrial Company
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A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
A Recent Gemini Assignment Illustrates the Process and
Benefits of Benchmarking
•
A joint client–Gemini team benchmarked the Human Resources function
•
Identified potential savings of $31 million (NPV) over the next five years
•
Recommendations are currently being implemented
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A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
Historically, Benchmarking and Competitor Awareness Had
Been a Low Priority at Our Client
Background
• “Upper management does not realize the importance of benchmarking”
• “It’s unbelievable how little we know about competitors and our
marketplace”
• “We don’t even benchmark our competitors, let alone those considered
best-in-class”
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A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
The Benchmarking Team Identified Improvement
Opportunities in Eight Key Activities
Improvement Opportunities
•
Benefits Administration
•
Management Employment/Staffing
•
Outplacement
•
Management Development/
Succession Planning
•
HR Data
•
Salary and Wage Administration
•
Communications
•
Exempt Staff Employment
We will use staff employment to illustrate the data collection, analysis, and
recommendation
phases.
type
with punctuation.
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A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
The Team Visited Four Best-in-Class Human
Resources Organizations . . .
•
Companies benchmarked:
- Merck
- 3M
- GE
- Xerox
•
These best-in-class companies shared three common elements with our
client:
- A quality orientation
- The pursuit of a differentiation strategy
- Recognition of HR’s critical role in implementing strategy
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A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
. . . And Conducted In-Depth Interviews with Many
Additional Companies
Benchmarked
Motorola
American Airlines
MCI
Marriott
The Travelers
Hewlett-Packard
United Airlines
IBM
Pepsico
Exxon
PEPCO
Federal Express
DEC
Reason for Inclusion
Baldrige winner
Employment
Workforce
Workforce
Workforce
HR status
Employment
Baldrige winner
Management development
Recruiting
Local utility
Baldrige winner
Outplacement
Intensive telephone interviewing provided depth and a basis for “apples-toapples”
type
withcomparisons.
punctuation.
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A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
The Team Found That World-Class Companies Were
Significantly Outperforming Our Client’s HR Practices
Measure
Client
Company Company
A
B
Company
C
Company Company
D
E
HR headcount/jobs filled
1:64
1:107
1:189
1:180
1:150
N/A
Applicant yield
7%
<5%
<5%
10%–12%
6%
<5%
Employment budget per
jobs filled
$920
<$400
$300
$625
$666
N/A
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A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
We Identified a Variety of Successful HR
Models
Company
Distributed
Services
A
¦
¦
B
¦
¦
Centralized
C
D
Decentralized
Common
Policies
Employ
by Major
Site
Applications
Screen
¦
¦
¦
¦
E
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
¦
G
¦
¦
¦
¦
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¦
¦
¦
¦
AdvertiseReferrals
ments
¦
¦
¦
¦
Interviews
¦
F
H
Testing
Screen
¦
¦
¦
¦
- 36 -
A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
We Recommended Major Changes within the Scope
of a Gemini Transformation Project
Recommended Approach
•
Rationale
Make HR facilitator in hiring process:
- Manages recruitment channels
- Keeps applications on file
- Screens applicants for manager
- Allows managers to decide who will
work for them
•
•
Utilize three major recruitment channels:
- Advertising/job fairs
- Employee referrals
- Site-based applications distribution
(centralized processing)
•
•
•
Cuts employment office costs
Avoids “perishable inventory” problems
Uses methodologies successfully employed
both inside and outside the client
•
Redesign applicant screening process:
- Aggressively screen applicants
- Utilize on-site and remote testing
•
Eliminates “bricks and mortar” and support
costs of employment-related headcount
Moves closer to “best practices” model
Close several employment offices:
- Hiring and testing to occur on site or at
job fair locations
•
•
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•
•
Current system is passive, creating unneeded
HR support
New model is consistent with the client’s
notion of empowering managers
Reduces employment overhead:
- Cuts headcount
- Reduces corporate facilities costs
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A CASE EXAMPLE
Aggressive Timeframes Were Set for
Implementation
Action
Timeframe
(from Benchmarking Date)
•
Develop implementation team
•
Three months
•
Select and put in place set-up team
•
Four months
•
Begin distribution of applications and
model recruiting sessions
•
Six months
•
Phase out employment offices
•
Eight months
•
Ten months
•
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Complete implementation
- 38 -
Agenda
•
The Value of Benchmarking
•
Overview of Gemini Benchmarking Activities
•
Benchmarking for Best Practices
•
Benefits of Benchmarking—Case Examples:
- Human Resources Function for a Service Company
- Corporate Planning Process for an Industrial Company
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A CASE EXAMPLE: PLANNING PROCESS
Another Gemini Assignment Sheds Additional Light
the Process and Benefits of Benchmarking
•
on
A joint client–Gemini team worked on the planning process for a large
industrial corporation:
- Two natural work teams (NWTs) looked at the current process
- A benchmarking team reviewed best practices from other companies
•
Identified major improvement areas for the corporate and business planning
groups
•
Recommendations have been and are still being implemented across the
corporation
The benchmarking findings energized the group and accelerated change—
the NWTs realized that major improvement could be introduced.
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A CASE EXAMPLE: PLANNING PROCESS
We Visited Several World-Class Companies to
Discuss Their Corporate and Business Processes
•
The benchmarking team visited professionals in more than a dozen U.S.
and European corporations:
- Half in the natural resources field
- The other half in diversified industries
•
These companies met stringent selection criteria:
- Large size (more than $5 billion in revenues) and organized into several divisions
- Multinational and well managed (“world class”)
- Have formal planning processes
•
Our discussions revolved around:
- Goals of the planning process
- Scenario planning and strategy formulation
- Planning process timetables, strengths, issues, and responsibilities
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A CASE EXAMPLE: PLANNING PROCESS
Findings: Corporate Planning Has Many
Responsibilities
Core responsibilities
• Review and oversee planning methodologies and processes
• Coordinate and oversee the planning process
• Test and challenge divisional plans
• Consolidate divisional plans
• Run corporate models
Additional responsibilities
• Help businesses formulate their strategies and develop plans
• Evaluate investment proposals (e.g., M&A opportunities)
• Develop macroeconomic and industry-specific outlooks
• Develop scenarios; coordinate scenario planning
• Coordinate and deliver ad hoc studies
Corporate planning is increasingly perceived as an internal consultant, or
“think tank,” organization.
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A CASE EXAMPLE: PLANNING PROCESS
Visits Highlighted That Companies May Have up to
Three Corporate Planning Cycles
A typical planning process
Planning
Cycles
1992
J F M A M J J A S O N D
1993
J F M A M
Board approves Operating Plan
3. Operating
Planning
Top executives approve Operating Plan
Businesses prepare Operating Plan
Corporate economists revise economic and
industry-specific outlooks
Top executives approve Long-Range Plan
2. LongRange
Planning
Corporate Planning tests/challenges Long-Range Plan
Businesses develop Long-Range Plan
Top executives approve and issue economic and industry-specific outlooks
Corporate economists develop economic and industry-specific outlooks
1. Strategy
Formulation
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Businesses formulate their strategies (at any time during the first half of
the year)
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A CASE EXAMPLE: PLANNING PROCESS
Findings: Several Corporations Are Modifying Their
Planning Processes
Commonly Perceived Weaknesses
•
Rely on time-consuming, numbersintensive activities
How Companies Address Them
•
•
•
•
Extrapolate historic performance instead
of “true” strategic thinking
•
•
•
Suffer from top management’s tendency
to “adjust” plans without reviewing
program-specific detail
•
•
•
•
•
Allow little time for planning
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•
Reengineer the planning process to achieve
higher efficiency and effectiveness
Streamline the corporate planning and
business planning organizations
Deemphasize numbers-driven nature of
plans
Introduce a strategy formulation cycle
separate from the long-range planning
process
Appoint high-level planning committees to
focus on major strategic issues
Introduce scenario-planning workshops
Eliminate mechanistic approaches to
planning
Decouple long-range plans from operating
plans
Encourage top management to overcome its
natural tendency to crunch numbers
Modify the planning schedule (e.g., conduct
strategic planning every two years as
opposed to every year)
- 44 -
A CASE EXAMPLE: PLANNING PROCESS
Findings: Companies Increasingly Rely on Outside
Parties for Their Macro-Level Assumptions
Interviewees mention several reasons for this trend
• “Our corporate economics group was dismantled eight years ago.”—Metal
Co.
• “. . . macroeconomic outlooks are bought rather than developed inhouse.”—Paper Co.
• “Our Corporate Economics department engages in high-value-added
activities such as promoting our company’s image with various
shareholders. We purchase [vendor] economic forecasts, review them, and
modify them as needed.”—Chemical Co.
• “It is becoming very expensive for us to maintain our models. . . . We are
constantly looking for more efficient ways of getting the work done.
Outsourcing seems to offer economies of scale for a number of economic
forecasting activities.”—Computer Co.
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A CASE EXAMPLE: PLANNING PROCESS
We Recommended Major Changes, Which the Client
Is Already Implementing
Sample of recommendations from benchmarking
• Role and responsibility changes:
- Corporate Planning to test validity of and consolidate divisional plans
- Businesses to develop stronger, more strategic long-range plans, not just budgets
• Scenario planning:
- Corporation to introduce scenario review and sensitivity analysis to major environmental
changes
• Outsourcing:
- Increased use of third-party providers (e.g., economic, industry-specific think tanks)
These changes have already been implemented and the client has
experienced that the increased flexibility in its long-range plans allows
better, “more strategic” decision making and communications.
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