benchmarking prof.a.s.sastry s.s.associates management consultants & trainers 18, magna...
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BENCHMARKING
PROF.A.S.SASTRY
S.S.ASSOCIATES
MANAGEMENT CONSULTANTS & TRAINERS
18, MAGNA CHAMBERS, TOP FLOOR,
LENAINE ESTATE, ABIDS, HYDERABAD – 500001
TELE FAX - 23387896 MOBILE: 9848204283
E-mail : [email protected]
Only a mouse finds its hands full with a
Couple of food grains. Small desires do
not behove you. Commit yourself to a
lofty target worthy of you. Be convinced
that you will succeed.
Mahabharata. Udhyoga Parva
Mother Kunti’s exhortation to the
Pandava Princes and Krishna2
TOTAL VALUE – INDEX FOR MEASURING AN
ENTERPRISE COMPETITVENESS Unscheduled Changes
Cost - of- Quality
Maximize Quality
Unit Circle
Inventory
Maximize
Overall
Productivity
Time – to- Market
(Schedule)
Desirable State
Maximize Profitability
World Class Level
Undesirable State Key
World class Level
Areas to be maximized
……. Undesirable State
- Desirable state
MaximizeCustomer
Satisfaction
Minimize
Minimize0.0
Minimize
Minimize
3
THE CUSTOMER LED VALUE CHAIN.
Assets / Core competencies Customer Priorities
Inputs, Raw Materials Channels
Product / Service Offering Offering
Channels Inputs, Raw Materials
The Customer Assets / Core Competencies
OLD NEW
4
DETERMINANTS OF CUSTOMER ADDED VALUE
.
Product Value
ServicesValue
Personnel ValueImage Value
Monetary Price
Time Cost
EnergyCost
PsychicCost
TotalCustomer
Value
TotalCustomer
Cost
CustomerDelivered
Value
5
RE-ENGINEERINGCost – cutting opportunities through prevention ( measurement of cost –quality)
Total Cost – to-correct-quality
Total Cost-to-ensure-quality
(Initial)
$
T0 T1 T2 Tn
(c-t-c-q)
key c-t-c-q: Cost-to-correct-quality C-t-e-q-: Cost-to-ensure-quality
External failures Internal Failures Appraisal, Inspection
Continuous Improvements
Error Proofing preventions Monitor
Cost – to - correct -quality (c-t-c-q)
The Cost of Doing Business
Cost-to-ensure-quality C-t-e-q-
(c-t-e-q)Waste Elimination
Additional Cost-cutting Opportunities at Time T1
(c-t-c-q)
Time 6
WHAT IS BENCHMARKING
Are you certain your benchmark
was the right way up?
The process of identifying, understanding and adapting outstanding practices and processes from organizations anywhere in the world in order to help your own organization to improve its performance.
A reference or measurement standard for comparison
7
WHY BENCHMARK ?
Uses a disciplined, structured approach
Identifies what needs to change
Identifies how to change it
Identifies the potential for improvement
Creates the desire for change
8
REASONS FOR BENCHMARKING
Strategic planning – for developing short long-term plans
Product comparisons – comparing with competitors or best – practice organizations.
Forecasting – predicting trends in relevant areas
Goal setting – establishing performance goals in relation to state-of-the-art practices.
9
BENEFITS OF BENCHMARKING
It develops realistic stretch goals and strategic targets.
It establishes realistic action plans for implementation
It encourages a striving for excellence, breakthrough thinking and innovation
It creates a better understanding of competitors and dynamics of industry
It emphasizes sensitivity to changing customer needs.
10
LEVELS OF BENCHMARKING P
erfo
rman
ce le
vel
BASELINE LEVEL
ACHIEVABLE LEVEL
BENCHMARK LEVEL
LONG-TERM GOAL
Time
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LEVELS OF BENCHMARKING
1. The baseline or current performance level
2. The achievable level, which is the best performance that can be achieved using current resources in order to eliminate waste and improve the cycle time
3. The benchmark level, which is the potential level of performance that has been identified from the benchmarking study.
4. The long-term goal, which is the future target performance level.
12
BENCHMARKING - PERSPECTIVE
Functional best practices – world class
Functional best practices – any company in India
Industry best practices (includes non - competitors)
Competitors best practices
Internal best practices by function
13
BEST PRACTICE BENCHMARKING
Internal
Competitive
Functional
Generic
14
DIFFERENT TYPES OF BENCHMARKING
Best practice Benchmarking
Competitive Analysis
15
COMPETITIVE ANALYSIS
Focus Market Business
Strategic ● Industry Analysis ● Customer satisfaction
● Employee Satisfaction
● Community perception
● Business results
Tactical ● Product positioning ● Process performance
● Reverse engineering ● Measures
16
GENERIC BEST PRACTICE BENCHMARKING
17
Where do we start?
The level of effort
● Reduced costs
● Increased sales
● Greater customer retention
● Enhanced market share
Benchmark Months 1 2 3 4 5 6
1,45,000
18
BENCHMARKING
The key factors for success
Adopting a formal approach to Benchmarking The total involvement of the top management No competition in the information shared Two-way exchange of information Building a relationship of trust and alliance Benchmarking firms should be of the same size Target Managers should not be overburdened.
19
THE KEY ELEMENTS OF BENCHMARKING EFFORTS
Management support and direction A systematic approach Research facilities Networking A code of conduct Training for team members and process owners An internal database of study plans, programme reports and
results Internal communication to share successes learning
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THE BENCHMARKING GUIDE
Don’t go on a fishing expedition – Pick a specific area where you want to improve and do your homework well.
Make people implement the changes – It wont help if Senior Executives do the Benchmarking, involve process owners.
Be prepared to share information – you should be willing to answer any questions you ask another company
Avoid legal problems – Don’t poach information - discussions that imply illegal activities spell trouble.
Respect confidentiality – companies that do not mind sharing data with you may not want it going to a competitor.
21
PLANNING THE STUDY
Critical Success Factors
Form the benchmarking team
Establish the process to be benchmarked
Document the current process
Define the topic areas for data collection
Critical Success factors
22
IDENTIFYING POTENTIAL BENCHMARKING PARTNERS
Standard’s setting organizations ● Government offices
Opinions ● Market – research groups
Press, particularly editors of trade and ● International organizations
Local press
Where facilities or headquarters are ● Watching groups
Located
Local organizations ● Financial community
Universities and authors who publish ● Agencies involved in regulation
in the field ● industry promotion and financing
23
IDENTIFYING POTENTIAL BENCHMARKING PARTNERS
Internal sources: Service organizations:
● Market –research staff ● Trade associations● Sales force ● Investment banks● Service organizations ● Consultants● Engineering staff ● Auditors● Purchasing department ● Commercial banks● Research and development
Industry observers
Suppliers INDUSTRY Dealers Customers
24
Analyzing and using the Data
Normalize the performance data Construct a comparison matrix Identify the best practices Isolate the involved process enablers
Constructing a comparison matrix
The Study Subject The Business profile The environment / culture Organization results Study measures
26
ADAPTING THE BEST PRACTICES AND ENABLERS
Successful implementation will be dependent on two things. These are:
Support from upper management and process stakeholders An organized strategy with realistic, actionable improvement goals
The key steps in the ‘Adapt’ stage are:
Communicate findings and gain a commitment to change Set goals to close the gaps Adapt the enablers Develop the implementation plan and implement it Monitor the report on progress
27
Constructing a comparison matrix
Study measure Own Hospital Hospital A Hospital B Hospital C
First contract on entering 00:04:00 00:08:30 00:08:30 00:00:30Casualty department
Patient enters treatment 00:28:00 01:07:00 00:12L45 00:15:30Room
Doctor begins treatment 00:41:00 01:24:00 00:48:00 00:29:00
Number of annual 44,000 52,500 44,000 36,500Casualty
Average number of 60 72 81 67Visits per day per doctor
Study Subject : minimizing the time taken to process a patient (cycle time)
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Developing the implementation plan and implementing it
Process studied
Related Critical Success Factor
Process owner: Date:
Benchmarking team members
Objective of study :
Summary of study results
Benchmarks observed
Measure Our performance Benchmark Benchmark company
Short – term goals Date Long-terms goals Date
Bench marking implementation plan summary sheet29
The concept of business strategyP
rodu
ct p
erfo
rman
ce
Now Time (years)
Fig. 1.5 Benchmark projection of product performance.
Step change
Company
Incremental change
Competitor
30
The benchmarking principle:
Source: Adapted from C.Y. McNair and K.H.Y. Leibfried : Benchmarking : A tool of continuous improvement ( New York, Harper Business, 1992). P. 33. Copyright 1992 C.J. McNair and K.H.Y. Leibfried. Reprinted by permission of Harper Cottons Publishers. Inc
Performance benchmarks
Tomorrow's world class
Today's world class
Leadership
Next level
Current level
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Outline of Benchmarking steps:
● Interview Internal Staff ● Establish entity goals
● Gather internal information ● Develop action plans
● Prepare questionnaire ● Communicate results
● Conduct external intern vies ● Implement specific action
● Analyze and contract data ● Monitor programmes
● Report ● Recalibrate benchmarks
32
ANALYSIS
CHANGE
MEASUREMENT
● Identify scope for benchmarking
● Identify appropriate drivers and performance drivers
● Identify potential external organization to benchmark
Source: W. Kreuz : Competitive benchmarking : Will it change your strategy ? (Unpublished paper, 1992)
33
THE BENCHMARKING ROADMAPKey players Main steps
1 Stakeholders
2 Executive champions
3 Process sponsor
4 Benchmarking team (leader / facilitator)
5 Benchmarking (team)
6 Functional/technical (experts)
7 Research resource (team)
8 Benchmarking partners
Trigger for change
Step 1Planning
thestudy
Support Step 4Adapt
Step 2Collect
data
Step 3Analyze
data
34
THE BENCHMARKING ROAD MAP
1. Identify the criterion (What to Benchmark)
2. Identify the Benchmark Sources
3. Select the appropriate Benchmarks
6 Agree on the steps to achieve this performance
5 Set appropriate target for your performance
4 Analyze the processes and practices rival use
7 Implement your benchmark plan
8 Measure & control to new performance level
9 Ask the question, can we improve?
35
Communicating findings ands gains an commitment to change
Setting goals to close the gaps
Per
form
ance
leve
l
Per
form
ance
leve
l
Best practice
Benchmark gap
Your performance
Today Time
Current performance compared to benchmark
12 months 6 moths To day T1 T2
Time
Predicting future performance
Best practice
Party goal
Leadership goal
Your
performance
36
Capability Gap AnalysisHigh
Impo
rtan
ce o
f P
roce
ss
Low
Process Performance
5
4
3
2
1
0 1 2 3 4 5 High
surgery
High importance Low performance
High importance High performance
Low importance Low performance
Low importance High performance
37
A PROCESS FOCUSED APPROACH
Focus
Waste
w
High
The need for the
process
LowThe performanceof the process
High
Based on Need:
•Refine•Redesign•Reengineer
If Process is not Needed, Can it be eliminated?
38
Benchmark and BPR
A Word about business process re-engineering
Per
form
ance
leve
l
Time
Benchmarking accelerates
innovation and change
Breakthrough improvement
Continuous improvement
Continuous improvement
39
RE-ENGINEERING
The fundamental rethinking and radical redesign of business processes to achieve dramatic improvement in critical, contemporary measures of performance such as cost, quality, service and speed.
Re-Engineering an ImperativeFor Survival
The Three C’s ● Customer ● Competition ● Change
Re-Engineering –Focus
● Customer Orders ● Customer Service ● Customer Feedback
40
RE-ENGINEERING
Business Process Reengineering Implies :
Putting aside the wisdom of two hundred years of Industrial Management (based on Adam Smith’s Concept)
At the Heart of Business Reengineering lies the notion of DiscontinuousThinking
41
RE-ENGINEERINGReengineering revolves round “ processes” rather than on structures,
jobs and tasks.
Reengineering challenges much of the wisdom of two hundred years of industrial management and getting free from the influence of Adam Smith’s notion of breaking work into tasks, assigning tasks to people and managing.
Reengineering is not same as reorganizing or flattening or delivering an
organization reengineering may result in these.
Reengineering and TQM also have different focus.
Information technology (IT) plays a critical role in reengineering
Focus shifts from
Deductive Thinking To Inductive Thinking42
RE-ENGINEERING
Process CentricRedesign RuledRadicalDramatic
Fragmented process and specialized structures of companies bred for an earlier day are unresponsive to large & change in the External environment and market
To day fragmented organizations display appalling diseconomiesOf scale quite the opposite of what Adam Smith envisioned
Inflexibility Should ProvideAbsence of customer focus Change Customer FocusObsession with To AndActivity rather than result Overall
Performance 43
RE-ENGINEERING The need is urgent, the vision exists, and the environment is right.
Reengineering is no longer a choice, it is imperative for survival.
Reengineering, in fact, often involves commonly available technology applied uncommonly well in order to achieve dramatic improvements in process performance.
Any old system that cannot be seamlessly integrated with the new systems has to be eliminated, because allowing it to survive beyond its life expectancy may result in the infant morality of the re-engineering project.
…… need to transform our enterprise which lie anchored on First Generation systems and procedures, soaked in Second generation perceptions and attitudes, managed through third generation concepts using fourth generation computers to achieve Fifth generation aspirations and longings.
44
RE-ENGINEERING
Sales
StrategicTacticalSenior managementMiddleManagement Operational
+ =
Functional Barriers Management Barriers
Purchasing Design
Prod -uction
Product concept
Begins
Product evolves
Product concept Begins
Product evolves
Islands of inefficiency & secrecy
Business Process Re-engineering versus Taylorism
Process output
Process output
Process output
Process input
Process output
Islands of inefficiency & secrecy
From To
BPR Change
45
BUSINESS CHANGE & REENGINEERING GRAI Conceptual Model
Information System
DecisionSystem
Decision Centers
Level of Decomposition
Physical System
Operational resources
ProductsRaw Material46
BUSINESS CHANGE & RE-ENGINEERING signal data channel verbal articulation Role teamwork leadership culture
Individual
Conduct
Interactions
Technology
A Model of Process
standard of acceptable behavior codes rules laws
Purpose
Performance vision / forecast performance criteria measurement practices
Transformation
control technologies e.g. robotics
communication technologies
user
interface
structure management hierarchy information “system” skill
cognitive style knowledge meaning motivation emotion Self – discipline personal development
◤
47
CASE STUDY FORD MOTORS
Ford
(Bills Payable System)
Purchase
Reconcile Correspondence
Purchase OrderVendor
Payment
500 People taking 6 weeks to do !
Copy of
Purchase
Order Goods Received
Invoice
ƆC
48
CASE STUDY FORD MOTORS
MAZDA
MAZDA Computer Direct Link Vendors Supply Get paid same day through EDI Just 5 People Empowered 100 times
Just – in- Time Production Line
1
49
Mission
Envisioning Mission, Vision, Values, CSF’s
Current Stateof the Organization
Why are you in business?
Future state of the
Organization
CSF
CSF
CSFCSF
CSFCSF
CSFCSF
CSF
CSFValues
CSF56
STRATEGIC QUALITY / BUSINESS PLANNING
Vision/Mission
Objectives
Critical Success Factors
CoreProcess
Strategies
Process Improvement
Projects
Results
To move from current state to future state requires a significant change in the way business is conducted.Business is conducted through processes.
51
Organizational Assessment
Key Processes
Assessment
Report
Key Processes
ROI Summary $ $
$ $
Schedule
Actions 1
Commitment
52
Phase 1 Phase 2 Phase
UNDERSTAND ANALYZEIMPROVE
Macro BusinessProcess
IDCustomers
Extension And variation
Understand Process flow
Set Priorities / Goals / Objectivities / Cause & Effect / Pareto
New MeasuresIn-Process and at Completion
Data Collection Strategy For Process Analysis• Probable Causes• Sampling• Data Display
Process Measurements
Histogram ScatterDiagram
Run Chart Control Chart
Causes Identified
?
Propose ImprovementsSelect & Plan
Implement Plan
Collect and analyze data
Compare with Benchmark
& Previous results
QUALITY TEAM ROADMAP
Monitor
Objectives Met?
Document standardize
NO
NO
YES
YES
A
P
D
C
53
Forces for change Forces for Maintaining status QUO
New Technology
Better Ram Materials
Competition from other Groups
Supervision Present
Group Performance Norms
Fear of Change
Member Complacency
Well learned Skills
Current Level of Performance
Higher Level of Performance Fig-Force Field Diagram
54
MANAGEMENT OF CHANGE
Vision Skills Incentives Resources Action Plan Change
Skills Incentives Resources Action Plan Confusion
Vision Incentives Resources Action Plan Anxiety
Vision Skills Resources Action Plan Gradual Change
Vision Skills Incentives Action Plan Frustration
Vision Skills Incentives Resources False
starts
55
BUSINESS PROCESS REENGINEERING Establishment of Procedures Sharing Vision
Documentation Achievement of
Going Global.. cultural Change
cost reduction
profit improvement
rapid growth
Quality Enhancement Work life Enrichment
The TQM Organizati
on
TQM
Re-Engg. I.T.
Strategy
ISO
9000Change Mgmt.
Obliteration by
elimination of
unnecessary work
or process Reduction of Cost /
response Time
Reduction of
Paper work
Information
EmpowermentEnhanced Decision
Support
56
DIAMOND FOR BUSINESS EXCELLENCE
TQM (Total Quality
Management)
JIT
(Just-in-Time)
Total Cost Management
(TCM)
BPR (Business, Process,
Reengineering)
Information technology
(IT)
Supply Chain
Management
Total Productive
maintenance
57
Annexure
Some World class Companies Inventory Control Federal Express Marks & Spencer
Westing House Nissan
Bench Marking Xerox American ExpressMotorola British AirwaysIBM ICL
Billing and American Express MCIBritish Telecom Midland Bank
Customer Focus Ford Westing HouseCollection Xerox
GE ( Plastics)
Customer Service Federal Express British AirwaysFirst Direct (UK) L Bean
58
Annexure Some World class Companies
Manufacturing Motorola NCRDesign DEC Ford
Employee Toyota DigitalSuggestions Dow Chemical Olivetti
Empowerment Honds XeroxMilliken Ryman's
Engineering General Motors Hewlett Packard
Environment 3M Dow ChemicalManagement
Flexible Allen-Bradley Ford (UK)Manufacturing Motorola Swatch
Human Resource Hewlett Packard J Wlater ThompsonArthur Anderson Honeywell
59
Annexure Some World class Companies
Industrial Black & Decker PorscheDesign Bruin Rayban
Information Caterpillar MotorolaSystems Kodak Marks & Spencer
Leadership GE: Jack Welsh Body Shop:Virgin: R Branson A Roddick
Logistics Wal-Mart ToyotaHershey Foods B & Q
Marketing Proctor & Gamble BennettonMicrosoft Guinness
60
Annexure Some World class Companies
Product 3M MarsDevelopment Intel Sony
Purchasing Honda XeroxMazda Toyota
Quality Process Westing House Rolls RoyceIBM Mercedes
R&D AT & T SiemensShell British Aerospace
Sales Merck BennettonManagement Proctor & Gamble
61
Annexure Some World class Companies
Self directed Corning XeroxWork teams International Proctor & Gamble
Supplier Levi Strauss FordManagement 3M Intel
Training Polaroid MarsGeneral Electric Arthur Anderson
Warehousing and L Bean Hershey Foods
(Source: Share 7 Share, David Altany, Industry Week, July
62
PERFORMANCE OF DEVELOPING COUNTRIES (1994) Subject Worldwide Developing Countries
Stock Turnover 75 8(Times Year)
Rejection in the Final inspections 0.03% 3.8%(Per Million pieces)
Production Costs 57 100 (Relative)
Delivery Time from Date of Order 2 78(Days)
Utilization of the Installed Capacity (%) 97 68
Added Value 67.8 39.7
Costs of Guarantee Over Sales 0.11 7.8
Source: UNDP report63
WHICH PROCESS TO BENCHMARK?
To determine which process to benchmark, your benchmarking teamnow has the task of correlating the CSFs with the critical processes thathave been identified. To do this, complete the following steps:
1. Draw up a matrix, with the CSFs down the left-hand column and
the critical processes along the top.
2. Working down each process column, rate the importance of each process for each CSF using the following scale:
1 = Low impact2 = Medium impact3 = Major Impact
Write the impact rating in the top (left) half of each box.
64
WHICH PROCESS TO BENCHMARK?
3. Now rate the performance of each critical process using the following scale:
1 to 10
Write the process performance rating in the horizontal column provided at the top. Find Performance Gap
4. Multiply the CSF impact rating by the process performance Gap for each critical process to get the improvement priority score. Enter the result in the bottom (right) half of each box.
65
WHICH PROCESS TO BENCHMARK?
5. Total the priority scores for each process. The result will give a measure of the degree of importance, in terms of improvement, of each of the critical processes. The improvement, of each of the critical processes. The highest – scoring process is the one that should be selected as the prime candidate for the benchmarking study.
The calculation described above is shown graphically in the diagram
below. This exercise has assumed that there are five CSFs and three
critical processes.
Rating for impact of critical
Process 1 on CSF 1
66
PROCESS PRIORITIZATION MATIRXRating Key:
Critical Success Factors
Key Processes
1 Marketing 2 2 2 1 1 1 9 7 10-7 = 3 27
2 Sales 1 2 3 1 3 1 11 8 10-8 = 2 22
3 Investment Analysis 3 1 2 3 3 1 13 8 10-8 = 2 26
4 Record Keeping 1 3 1 2 2 1 10 6 10-6 = 4 40 3
5 Customer Services 1 3 2 1 1 1 9 7 10-7 = 3 27
6 Personnel Selection 2 2 1 2 2 1 10 9 10-9 = 1 10
7 Distribution & Mailing 1 3 3 2 2 1 12 5 10-5 = 5 60 2
8 Management info systems
3 3 1 2 2 1 12 4 10-4 = 6 72 1
Process impact Process Performance
1 Low 1 Inadequate2 Medium 2 OK3 High 3 Very well P
rofi
t o
n
Inv
es
tme
nts
R
es
po
ns
ive
t
o c
us
tom
ers
Dis
trib
uti
on
r
ep
ort
p
res
en
ce
P
rio
rity
W
eig
hte
d G
ap
*
Pro
ce
ss
P
erf
orm
an
ce
Ga
p
P
roc
es
s
P
erf
orm
an
ce
T
ota
l Im
pa
ct
S
kil
led
mo
tiv
ate
d
w
ork
forc
e
Co
st
eff
ec
tiv
e
o
pe
rati
on
s
A
ss
et
se
cu
rity
•10 = Perfect Process
PROCESS PRIORITIZATION MATIRXRating Key:
Critical Success Factors
Key Processes
1
2
3
4
5
6
7
8
9
10
Process impact Process Performance
1 Low 1 Inadequate2 Medium 2 OK3 High 3 Very well
T
ota
l Im
pa
ct
P
roce
ss
Per
form
ance
P
roce
ss
per
form
ance
Gap
Pri
ori
ty
68