The strength to compete, once developed, may not last long as competitors will soon develop such strengths with them. There is thus a need for continuous augmentation of such strengths by such magnitude that will be significantly more than the competitors achievements. This is the purpose for which western management have today recognized the need for an approach called ‘Benchmarking’ which has been found to be a very effective structured method to develop continuously the requisite strengths to compete, argues the author.
With the ongoing economic liberalization most of the Indian Organisations are facing severe competition in their businesses. Many firms have been found to react in a limited manner. Corporate level measures – breaking total activity into many smaller businesses, developing collaborative arrangements with foreign firms and diversifying into different business areas of future importance, etc. – have been found to be the common response to face the rising competition. Such are responses are often necessary but may not be sufficient to attract new customers or even to retain existing ones. Customers will patronize over a time those products and services that will give them greater benefits. Many well known strategists [ Porter, 1990] recognise that it is an individual business entity operating in a specific industry / market that competes. ‘It is now widely accepted that it is at that level where competitive advantages are to be built in. Many of the domestic firms do not appear to have been paying sufficient attention towards developing such intensive power within their businesses. Over time, they would have to give more emphasis to business level, strategy, products and services because it is only through these that customers could be attracted in.
Customers will patronize over a time Those products and services that will give them greater benefits
The strength to complete, once developed may not last long as competitors will soon develop such strengths with them. So there is a need for continuous augmentation of such strengths by such magnitude that will be significantly more than the competitors’ achievements.
This is the purpose for which western management have today recognised the need for an approach called ‘Benchmarking, which has been found to be a very effective structured method to develop continuously the requisite strengths to compete.
In most of the developing countries like India, almost all the industries until recently, have a few number of products and services which differ markedly in their utilitarian characteristics. Customers had limited choices and therefore had been buying products, depending mainly upon their availability in accessible markets. Marketing muscles often attempt generate quite superficial differentiation among products over those offered by various competing firms. However, such a situation is unlikely to be sustainable with increasing competition from foreign goods and services. In such a situation, competing firms have to continuously keep on improving various features of their products and services. The benchmarking approach not only provides a comparative profile but all also help the management team to identify generating innovative products and services, The benchmarking approach not only provides a comparative profile but will also help the management team to identify generating innovative products and services.
Marketing muscle often attempt to generate
Quite superficial differentiation among products
Over those offered by various competing firms.
As a sequel to building up competitiveness, many of the Indian firms have been upgrading core technologies of their business but there are many other work practices to support the core technologies, which are too inefficient, resulting in sub-utilization of the core technologies themselves. Many of these supportive processes, whether technical or administrative, have been in practice for a long time. These have been designed based on age-old management principles of extensive managementation, divide and rule, checks-and-balances, etc. There is, therefore, considerable scope for improvement of such process. An organisation without efficient and effective operating and management infrastructure could not build competitive advantage even when it has a state-of-the art core technology and an excellent brand image. In fact, it is for this reason that there is emphasis on continuous process improvement under Total Quality Management [TQN]. Such process improvement not only is time consuming but also require management to create appropriate cultural environment. It also requires that every employee change their mindset to evolve better process. Benchmarking approach has been found to be effective not only in providing new ideas for changes but also helps in building up appropriate commitment for change.
Benchmarking approach has been found to be effective
not only in providing new ideas for changes but also
helps in building up appropriate commitment for change.
Benchmarking as an approach for improvement helps build-up competitive advantage with businesses in a developing country like ours. This article, after explaining some of the salient features of the technique, also demonstrates applications of its different types in developing countries like India. Applications will be cited based on the experiences of the author and his colleagues in the National Productivity Council [ NPC].
The term ‘Benchmarking’ gives different meanings to different persons. In fact, dictionary definition says “ a standard against which something can be measured. A survey mark of previously determined position used as a reference point”. Though this is not entirely wrong, it misses an important aspect viz. Learning.
The term has been originally coined by Xerox Corporation, U.S.A. to mean “ the continuous process of measuring our products, services, and practices against our toughest competitors or those companies known as leaders” work-measurement and comparision. But one of the subsidiaries of Xerox-Rank Xerox, U.K. has looked at it some what differently. It views the technique as “a continuous systematic process of evaluating companies recognised as industry leaders, to determine business and work process that represent best practices and establish national performance goals” [Eross & Iqbal, 1995]. In operational terms, this is frequently condensed to “the search for industry best practices that lead to superior performance” [Camp, 1989]. B y “best practices” is meant here the methods and procedures used in work process that best meet customer requirements. Benchmarking is then not simply about what we want to achieve – the benchmarks or the measurements of best performance – but also how they are achieved i.e. processes in action. This has been very succinctly noted by Spendolini [1992] as “find and implement best practices for high performance process that fully satisfy customer needs”. In fact, cook understanding and adapting outstanding practices from within the same organisation or from other business to help improve performance”. Thus, benchmarking is an ongoing task, at all levels of business of finding and implementing world best practices in the key things that are done to deliver customer satisfaction.
Thus, benchmarking is an ongoing task, at all
levels of business of finding and implementing
world best practices in the key things that
are done to deliver customer satisfaction.
On deeper reflection on all of the above mentioned definitions, it could be visualized that the benchmarking process consists of the following three elements or components.
An effort, which does not include all, the three above components should not be labeled as ‘Benchmarking’, surveys could not be considered as benchmarking. Because of the obsession with analytical thinking and the sharp demarcation between thinkers and doers, prevalent in many societies, it is sometimes difficult to visualize the full significance of a benchmarking process. The original concept of benchmarking had been in practice in India about 3000 years ago. The dominant method of learning, which was known then to people, used to be watching the actions of leaders. Footprints of wise men are what common people are told to follow. Lord Krishna, according to Hindu philosophy, is believed to have taken various reincarnations only to demonstrate how an ideal leader should behave under different situations. Lord Krishna is, therefore, believed to be universal benchmark. Such principles of learning got subsequently spread to countries for away from India like Japan, for example, and transformed into a practical method of application in an industrial context. Japan calls it ‘Dantatsu” a method of choosing the best of the best. Subsequently, a US organisation, faced with severe competition from Japanese firms, made use of this principle to develop a structured method of adaptive innovation and termed it as ‘benchmarking’.
Benchmarking methodology when used with all its three elements has a sound psychological rationale behind its working. “Analysis’” stage prepares the benchmarking group to form a common understanding and develop focused attention to a given issue. At ‘comparison’ stage, first, a sense of deprivation is generated with the revealed gap in performance and thus the individual’s mind is activated to look around for ideas to overcome the anxiety developed out of a gap revelation. ‘Synthesis’ stage creates a new situation out of ideas directly borrowed or those sparked off out of observations. The benchmarking group is thus, highly energized to see its creation taking a shape in reality and thus contributes formally or informally to implementation. Benchmarking thus, is a true innovative adaptation. Many psychologists call it as a ‘vicarious learning method’.
Looking from the user’s side, such adaptive innovations are faster and productive than learning during working or learning from the fundamentals. Chew and others [1991] identified four primary ways in which an organisation learns:
This study showed that there was a clear hierarchy existing among the four methods of learning as shown in Fig.. As we move from vicarious learning towards on-line learning, information accuracy increases, no doubt, but cost of learning increases too. Thus benchmarking/vicarious learning provides the fastest approach to learning and exposes the organisations to outside views and experiences.
Since benchmarking is essential learning from comparison with others, it is categorised in to different types depending upon either objects being compared or the units with which comparison is made. Based on the objects, benchmarking has been classified into 4 categories:
This is also alternatively termed as ‘Customer Satisfaction Benchmarking’ or ‘ Customer Value Profiling’. This refers to both engineering and qualitative comparison of products and services among competing offerings. Many of the manufacturing organisations have been implementing several kinds of reverse engineering to benchmark various features of their products. Recently several. Organisations especially in service sector showed concern in comparing their services with others. Product benchmarking also could help in identifying activities where improvement could be done. Product benchmarking quite often leads to redesign of existing products and services.
Product-Benchmarking involves comparison of different features and attributes of competing products and services either through engineering analysis or through analysis of perception of customers. The method normally known as reverse engineering is basically technical: engineering based approach comprising tear-down and evaluation of technical product characteristics. Most of the consumer goods and capital equipment – manufacturing firms have been, one or the other way, doing reverse engineering to finalise product specifications. Some of the Indian firms also carried out value analysis in conjunction with reverse engineering. Value analysis facilitates searching for cost- effective alternatives for the chosen components or sub-assemblies, specification of, which are comparable, if not better, to competitive offering..
Comparison of customer-perceived-quality assumed great significance during the end of 70‘s when it was revealed to be the most important factor driving market share in competitive economic conditions. The later observation was made based on the PIMS [Profit Impact of Market Strategy] database containing relevant information of about business units. It was observed that customers make their judgement relative to value i.e. quality and price. The relative perceived quality is from the customer’s perspective, with respect to alternative competitive offerings in the market. PIMS observations on relationship between market share and relevant perceived, quality shows that profitability with the same market share is more when relative perceived quality is higher [Table ] [Buzzell& Bradly, 1987]. Product benchmarking involving comparison of customer- perceived-quality could help a company to plan right positioning of its products and services.
It may be noted that there is a strong linkage between customer satisfaction and product design as found out by a Japanese scientist-Noriaki Kano. Kano’s model indicates that companies exhibit types of performance as they design their products for customers [Watsan, 1993] as represented by the curves in Fig. innovative performance, competitive performance and basic performance. Product benchmarking could help a company to identify basic performance as well as other features present in a product offered by a specific firm to increase customer satisfaction.
The technique could also help identifying any innovative features, which have been included in the competing offerings.
Product benchmarking could help a Company to
identify basic performance as well as other
features present in a product offered by a specific
firm to increase customer satisfaction
A famous example for product benchmarking has been found to be the one used by Ford Company during the development of their Taurus mode of automobile. Ford learned that competitive product analysis can provide perspective and guidance on critical design and development issues.
In India, no firm is known to have used product benchmarking by comparing customer- perceived-quality. In fact, the author and his colleagues in NPC have used such benchmarking in a limited number of product and service businesses. The method develop has been found to be quite feasible even when Indian farmers with low education level are customers. It can be foreseen that the use of such benchmarking will become popular with increasing competition.
By such benchmarking, one can easily identify critical attributes of products and services, not delivered to customers better than competitors, resulting in loss of market share. A matrix, which is quite often used as a part of product benchmarking, is given in Fig.3.
The matrix plots importance to customers on the X-axis and relative perceived quality score on a specific feature along the Y-axis. All the features are mapped on this matrix table. Individual position of an attribute in the map shows what kind of action is necessary for further improvement. For example, a feature like reliability of a compressor in a particular model of domestic reliability of a compressor in a particular model of domestic refrigerator has been shown in the bottom right side of the matrix table. It indicates that this is a very important requirement from the customers. But the product as provided by the firm in question has been perceived to be equipped with a lower reliability of the compressor. Therefore, this aspect should be immediately taken up by the engineering department to investigate and improve.
Products and services from many Indian firms are of much lower perceived quality compared to the world class offerings. The gap is very high. Under this situation, one can easily perceive use of product benchmarking to identify immediate priority areas for improvement. This should be done on a continuous basis so that all the important attributes as sought by the customers are supplied thereby increasing the relative customer-perceived-quality and, in turn, increasing market share….
Though some of the marketing departments of Indian firms have been doing some forms of product perception analysis, many such analyses falls short of requirements as mentioned above. Further, it has been found that product benchmarking should be done by an inter-disciplinary group instead of marketing departments alone, to provide maximum benefits.
Performance benchmarking refers to comparison of indicators related to a business as a whole or to the group of critical activities or processes. Business level performance benchmarking which was previously used under the banner of ‘Inter firm Comparison’ done through a set of well-defined financial ratios, has again drawn attention of world class organisations. It has been found to be a very important tool to identify different functional areas where scope for improvement is greater. However, such business level comparison now includes many performance issues like innovativeness of the firm, customer the firm etc. Performance benchmarking at process/functional levels includes comparison of process indicators in terms of those issues, which are critical to the implementation of a business strategy. These indicators to resource efficiency, resource allocation and many other issues which are relevant for the processes. Performance benchmarking is an important technique to secure external feed backs to the concerned persons involved in the processes or in any of the constituent activities. Though improvement is implicit in both kinds by performance benchmarking, there is no explicit attempt to design new courses of action as part of performance benchmarking.
Alternatively known as ‘Result Benchmarking’ or ‘Benchmark Studies’, the technique often includes business or process outcomes. Performance benchmarking is also termed as ‘industry benchmarking’ as participants of such a study belong often to a single industry. For this kind of benchmarking, all kinds of system performance variables like efficiency, effectiveness, productivity, quality, quality of work life, flexibility, innovativeness and profitability could be measured and compared either for a whole business or for any of the constituent functions or processes (Nandi, 199. Criticality in a business context decides which variables are relevant and of common interest to all the participating organisations in a performance benchmarking study.
Performance benchmarking which was used to be known earlier as ‘Interfirm Comparison’ has been in practice in India since 1960’s. In some of the industries like textiles, fertilizers etc, performance benchmarks were in vogue. However, such comparisons included mostly financial ratios at aggregate levels and were often used for management control purposes. Performance benchmarking which has been recently promoted by the National Productivity Council includes all the strategic and critical issues both at business and functional levels that are of current concern to managements of participating companies. These issues are expressed either in financial or in operational terms. For example, in two recent studies made for sugar and pharmaceutical industries typical issues are included some of which are given in the Table 2. Each industry does have different sets of issues and related activities which are significant in the light of conditions of external environment and business strategies pursued by various firms. Appendix 1 shows some selected findings from recent industry benchmarking studies by the NPC.
It is also necessary that measurement and comparison are made at tactical levels i.e. functional or process levels to find out the efficacy of different work practices and enablers used for carrying out such functions. For example, marketing department of a pharmaceutical unit should be concerned about:
Some observations that could be made from Table 3 are:
All the above mentioned observations, are important for the marketing head to plan and control his functional performances. Firms having productivity lower than the average may examine the possible sources for improvement.
Performance benchmarking may not explicitly exact improvement actions but it provides clues for identification of areas for improvement. In fact, improvement oriented management should have feedback discussions with a specially constituted group to find out scope for improvement after benchmarking results are obtained. Our experience show that Indian firms are yet to recognise such follow up actions though they do discuss informally.
Process Benchmarking refers to comparison of processes. A process is a set of sequential activities as performed on an item to increase its value to its customers. There are 3 major categories of processes-business process, support process and management process depending upon nature of customers served. In a developed country where competition in product market has become fierce, business process benchmarking is fast becoming a standard management tool to maintain market share. Process benchmarking requires explicit conduct of all the 3 elements of benchmarking as mentioned earlier. In other words, it leads to the redesign of new processes which is to be implemented by the management.
It is now realised that it is not enough to know ‘where’some company is but it is also essential to know ‘how’ and ‘why’ it has reached that stage. Process benchmarking provides us with a more effective and efficient process to be implemented. Process benchmarking is a complete method containing all the elements of ideal benchmarking process i.e. analysis, comparison and synthesis. It is, thus, an essential tool when an existing process is to be redesigned or re-engineered.
There are many models available in the west regarding the methodology to carry out process benchmarking (Zairi & Leonard, 1994). But NPC team has evolved a 8-step process to suit Indian conditions. According to the NPC model, process benchmarking methodology consists of following steps:
Step 1:Identify the object or process to be redesigned or improved.
Step 2:Mapand measure the existing process in its entirely in terms ofdimensions.
Step 3:Identify the partner where the same process is known to be between performed.
Step 4:Analyse the partner’s process and find out the differences. This often requires collection of data though a checklist/questionnaire and/or physical visit to the partner’s site.
Step 5:Redesign the process and put up the proposal for management approval.
Step 6:Implement the re-designed process.
Step 7:Monitor the performance of the redesigned process
Step 8:Recalibrate the process
Benchmarking partner could belong to the same company or to the same industry. Major change in the process performance could be achieved when the partner is drawn from an organisation whose products and services are quite dissimilar. However, in such benchmarking, acceptance by the company personnel could be an important factor.
Re-engineering experts recommend that a new process should be visualised from a scratch. However, the vision of a new process could be created not out of vacuum but only through some kind of references formed out of earlier experiences or of formal efforts put in during the study. Thus process re-engineering involves process benchmarking. Many organisations today have several kinds of process improvement programmes, but often these efforts find limitation due to mind blockage of concerned people. Improvement through process benchmarking creates an environment where a better performing process witnessed in partner’s organisation provides confidence and commitment to the change as well.
Several studies have shown that almost all the leading American and Eurpean firms have gone for process benchmarking. In India, each process provides the scope as it has been established based on traditional management thinking. Business process linking the organisation directly with customers is a high priority area for benchmarking in a highly competitive situation. But quite often an improved business process like distribution, customer service provision, etc. could not be sustained over a long time if supportive processes are not equally efficient. So, support processes like procurement, manufacturing, machinery maintenance, are required to be improved or reengineered before an efficient business process is fully functional to its optimum performance level. In the Indian circumstances, support processes should be priority areas for improvement. These also include management processes.
In one of the recent applications in a sugar mill in India NPC team carried out process benchmarking on sugar cane procurement process. The existing process as shown in Fig.4 is not only costly but also causes lower industry. After a thorough benchmarking study, a modified process has been found to be more simple and effective in quality control. Similarly, a large number of support process that have been undertaken by NPC in recent times have shown considerable scope for improvement. A management process-a-customer satisfaction measurement methodology used by a leading Indian high tech. Service company-has also been improved substantially by the application of process benchmarking. All the studies including those, made on smaller work processes have been pointing out tremendous potential in application of process benchmarking in process improvement and innovation which are gradually getting recognized as real sources of competitive advantages.
This refers to a study of corporate level or business level strategies perused by some of the selected companies reputed for reformulation of strategies or policies in recent times.
Many of the top managements have been constantly reviewing business portfolios of their companies. Benchmarking corporate strategy of other successful companies could give some additional insights in their efforts. Business strategy refers to the direction in which a specific business is moving to ensure its attractiveness to customers and other stakeholders. A company could study business strategy of other successful business and
Identify those kinds of attractiveness and sources of building up such attractions. Such kind of strategic benchmarking will gain more and more significance as markets becomes competitive.
Although benchmarking of all the above types is being done by all organisations in informal way, formal benchmarking process requires organisations to have certain amount of management maturity and preparedness besides conductive market environment. It will be easier for a multi-divisional organisation which has been working in a competitive market situation to make best use of strategic benchmarking. It is for the same reason that General Electric Company, U.S.A. could embark upon strategic benchmarking programme sometimes in 1970’s. On realization of steady falling of market share in automobile sector, Ford Company, U.S.A. went for product benchmarking during later part of 1970’s. With declining market share in the product market which was originally created by themselves, Xerox Corporation, U.S.A. introduced aggressively process benchmarking during the end of 70’s. It was subsequently accepted by the then Chairman of Xerox Corporation that process benchmarking contributed a lot towards their turn around during 80’s. Many of the process industries like refinery, pharmaceuticals, paper and pulp industries etc. have been carrying out both business level and process level benchmarking since 80’s to learn impact of various functional management practices and tools and techniques in their respective industries.
All the above mentioned types of benchmarking have not been practiced today to an equal extent in many of the countries. In fact, benchmarking itself is a developing tool. Product benchmarking especially through reverse engineering was the first which has been in use in many countries, that has been followed by performance benchmarking, process benchmarking and strategic benchmarking in that sequence as shown in Fig. No.5.
Based on the organisations against which one is benchmarking, the methodology could again be categorised into 5 following types:
All these benchmarking do not have necessarily same depth of process coverage. Performance benchmarking often carries out ‘synthesis’ only in an implicit manner. Often it is done among organisations belonging to same industry and thus could be alternatively categorised as industry benchmarking. Process benchmarking covers all the elements. It could be also done with all kinds of organisations. Inter-relationships between the different types of benchmarking and depth of process coverage are shown in Table 4.
From the above table one can easily see that process benchmarking and strategic benchmarking are the most developed benchmarking tools and thus have maximum utilitarian values.
Strategy is the ability to see where one wants to go, and to do those things necessary to stay on track and get there. Using this definition, strategy is both forward-looking (pro- active) and side-looking (re-active). Looking around and learning from others are thus important enablers for such strategy planning.
Strategic thinking in business is the matching of a business’s opportunities with its resources in order to develop a direction. Such thinking is often reflected in a strategic plan that specifies goals and objectives and areas for resource allocation. Strategic benchmarking addresses all the patient issues involved in above mentioned strategic planning.
It is only during 90’s that many of the Indian firms have been seriously pursuing strategic planning and carrying out competitor’s analysis as a part of strategic planning. Such competitor’s analysis is often qualitative in nature. An established quantitative method of strategic benchmarking has been developed with the application of PIMS (Profit Impact of Market Strategy) model containing up-to-date strategic information of 3000 business units. None of the Indian companies has been known to be using PIMS model at present.
Alternatively, strategic benchmarking could also be carried out by the application of process benchmarking techniques and methods. Many strategic consultants in the west have now observed that strategic benchmarking of work processes, but it is different in scope. Some of the important issues, which are now-a-days, addressed are:
Watson (1993) cites a valuable illustration on strategic benchmarking as made by the General Electric Company of U.S.A. In mid 1980’s , when Jack Welch, a forward- thinking CEO of General Electric, wanted to position his company for the coming decade, he asked his strategic planning group to study how successful companies positioned themselves for continuous improvement. The General Electric benchmarking team conducted internal interviews of leading GE divisions and visited nine companies in the United States and Japan. They found that the companies that had set aggressive goals (such as halving the product development cycle time, or tripling the level of productivity) had high levels of sustained improvement. These leading companies viewed productivity as a combined issue of customer satisfaction and competitiveness. The benchmarking team also observed a common approach to change driven by top-down changes in the management system, (or, in their words, input over output). The conclusion of the study provided an operating definition of a company that is a world-class competitor.
NPC had been involved in one of the challenging strategic benchmarking studies till now known in India. The study related to formulation of strategies and approaches to be adopted by a large Government owned Research and Technology Organisation (RTO) in making it more industry oriented. A team of scientists was formed to benchmark strategies and practices of RTO’s in South and South East Asian countries. After getting acquainted with the benchmarking methodology as developed by NPC, the team identified the following critical issues and processes along with their details:
After developing a comprehensive questionnaire, the team went round all the benchmarking partners and collected the relevant information. Some of the findings that the team had finally arrived at are as follows:
Close interaction with clients through representation in the RTO governing body and other means on the one hand, and through linkages with institutions of excellence on the other, brings the clients. Need and RTO capability closer to each other.