The Six Benchmarking Steps You Need

The Six Benchmarking Steps You Need

Everyone talks about benchmarking, but few know what to do. Learn the six steps in most any benchmarking initiative, from building support, to designing and improving a plan.

Benchmarking, step-by-step:

* Introduction

* Step One: Select the process and build support

* Step Two: Determine current performance

* Step Three: Determine where performance should be

* Step Four: Determine the performance gap

* Step Five: Design an action plan

* Step Six and Beyond: Continuously improve

The new economy represents a transformed business environment brought about by changes related to technology, people, culture and process; a marketplace created by significant shifts in business and cultural value dynamics which demand that we place a greater emphasis on non-physical assets, such as organizational structure, customer satisfaction and employee growth. The new economy values one thing above all else: knowledge - the currency of the new millennium.

Knowledge comes in many forms. One such form is the knowledge that is distilled from comparing one organization's performance against another's in order to gather critical information about business processes, risks and controls, and develop metrics by which to improve performance. In a word, benchmarking.

Benchmarking is well suited to the new economy, an economy which requires that successful companies create value in new ways, namely by recognizing that competitiveness now demands emphasis on both tangible and non-tangible assets. Benchmarking incorporates what we know is true about sustained, long-term business success in this new economy.

Consider the American Productivity and Quality Center's definition of benchmarking: "Benchmarking is the practice of being humble enough to admit that someone else is better at something and wise enough to try and learn how to match and even surpass them at it." Put another way, effective benchmarking requires that you are wise enough to realize your organization has weaknesses, which translate into business risks, and determined enough to do something about those risks.

True benchmarking is quantitative and qualitative, and it involves both competitor comparison and exploration outside your industry. It is a management process built around motivation, measurement and improvement. It is the perfect tool for new economy companies.

However, benchmarking is not a silver bullet; it must be managed correctly and methodically to be successful. It is not simply a venue for collecting data, rather it is a tool for critical insight, which can motivate change and lead you to more efficient, effective and innovative business practices.

Step One: Select the process and build support

The first step is to select the business process to benchmark and build support from both upper and middle management in order to gain the appropriate resources and to foster the spirit of participation required in an effective benchmarking initiative. Not targeting a specific process to examine or attaining management support will almost certainly mean that your benchmarking attempt will fall short of its goals.

For example, a recent Arthur Andersen client wanted to benchmark many processes, from the purchasing function to post-sales customer relationship management. This client also wanted to accomplish this goal in less than 30 days and with no formal resources or budget.

We suggested breaking the larger project into smaller, more manageable subprojects. Specifically, we encouraged the client to target the supply-chain function, which could be further divided into purchasing, inventory management, logistics and order fulfillment. Purchasing was the natural place to begin because, as a benchmarking project, this process was manageable. The client agreed and focused initial benchmarking efforts on the purchasing process. As a result, the positive suggestions that originated there were used to fuel additional projects.

Selecting the process means determining which processes or issues are critical to the goals of the organization and whether benchmarking is the appropriate method to determine the efficacy of the process. In this initial step, it is important to gain commitment from management, process owners and staff to participate eagerly on the benchmarking project, and then to develop an action plan to focus efforts and keep information organized.

Step Two: Determine current performance

In the next step, it is crucial to determine the state of the current business environment. Too often, companies embark upon benchmarking efforts because they want to achieve the well-known results of such companies as Motorola or General Electric. This is misguided because benchmarking is company- and issue-specific. Without a clear understanding of the business environment and the impact of specific business processes on overall business performance, benchmarking will fail to yield meaningful results.

Before benchmarking your company against another to discover how they achieve high levels of business performance, you must understand your own performance. An initial self-assessment should include questions to determine if the process has been flowcharted; if the process owners have been correctly identified; where key handoffs exist within and outside of the process; if automated and manual activities have been identified; and finally, if redundancies or inefficiencies have been targeted.

We have found that an exercise called process mapping will facilitate a thorough understanding of any business process. Interviews, focus groups and charting help process owners understand the inputs, activities and outputs of the process. If benchmarking is a new economy tool, process mapping is also a tool - a vital component of effective benchmarking. It raises the level of knowledge before the benchmarking effort begins ensuring that any information gathered during benchmarking will be highly relevant to the issues at hand.

Determining the "as is" requires selecting the appropriate tools to study the business process, such as process mapping which involves interviews, focus groups, flowcharts and self-assessment. It is necessary to document the inputs, activities and outputs of the process under study, and finally to identify any key performance