Benchmarking for Best Practices Gemini Consulting.

Benchmarking for Best Practices

Gemini Consulting

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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


Agenda

• The Value of Benchmarking

• Overview of Gemini Benchmarking Activities

• Benchmarking for Best Practices

• Benefits of Benchmarking—Case Examples


Benchmarking Deals with Uncovering and Implementing Best Demonstrated Practices

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“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

Benchmarking establishes how much a company needs to improve to be at world-class levels and is a critical component of the process for getting there.

BENCHMARKING


60% to 70% of the Largest U.S. Companies Now Have Some Form of a Benchmarking Program in Place

Benchmarking’s popularity is partially driven by the fact that U.S. companies must benchmark to win a Malcolm Baldrige National Quality A

U.S. companies must benchmark to be considered for a Malcolm Baldrige National Quality Award.

• 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:

• Kellogg

• Motorola

• Xerox

• IRS• Alcoa

• Leading Japanese manufacturers

• Domino’s Pizza

• L.L. Bean

• American Express• Du Pont• General Electric

• Milliken

• Improving supply chain

• 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

Benchmark Target FocusBenchmarking Company

BENCHMARKING


Example: Xerox Used Benchmarking to Face New Market Entrants from Japan

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

BENCHMARKING

Benchmarking process

• 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

- Catalogue retailers

Benefits Achieved

• Suppliers reduced by 70%

• Manufacturing costs cut by 50%

• Quality problems cut by 60%

• Accelerated cycle time• Increased market

share


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

BENCHMARKING


Benchmarking Affords Companies the Opportunity to Make Step Changes in Their Work Processes

Degree ofImprovement

Time

BenchmarkingImprovements

InternalImprovements

BENCHMARKING


Benchmarking Also Improves Your Process Performance and Competitive Advantage

Industry Average

Company Performance

Company Goal

World Class

Key Indicator(e.g., Accounts Receivable Outstanding)

Industry Average

Company Performance

Company Goal

World Class

1989 1990 1991 19921988 Goal1995

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.

BENCHMARKING


Agenda






Gemini Benchmarking Activities Vary According to the Issues Our Clients Face

GEMINI BENCHMARKING SERVICES

• How do they rate in creating value for their shareholders?

• How do they measure along key indices for a selected function?

• 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 Results

• Strategic benchmarking

• Key indices benchmarking

• Cost benchmarking

Best Practices

• Functional or process benchmarking

Examples of Issues Our Clients AddressedExamples of Gemini Activities


Strategic Benchmarking Addresses the External Stakeholder’s Assessments of a Company’s Performance


Averageof Peers

Client Company A Company B Company C

Gap withAverage of

Peers

Gap withBest of Peers

P/E Ratio or Market/Book Value


Key Indices Benchmarking Focuses on Key Indices and Cost Drivers across Competitors


Client Company A Company B Company C Company D

Net Sales $54 $80 $90 $300 $300Direct Sales Headcount 18 20 22 70 80

Example: Sales per Salesperson($ Million/Person)

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Cost benchmarking translates cost drivers into cost estimates to assess economic advantages or disadvantages.

$3.0

$4.0 $4.1 $4.2

$3.8


Best Practices Benchmarking Compares Practices and Performances of Specific Value Chain Functions or Processes


MarketPlanning

TechnicalPlanning

Product/Service

Structuring

Operations

Product Delivery• Risk Assessment• Information

Customer Service• Service• Billings

Sales andPromotion

Best-in-Class

Support Activities

Example: Telecom Client Value Chain

Pdt/Svc Development Pdt/Svc Realization Pdt/Svc Delivery


Most Current Benchmarking Efforts Center on Best Practices

GEMINI ACTIVITIES

• Provides a scorecard across current competitors

• Shows how efficiently or effectively a function is performed

• Data collection

• Indices- or cost-based

• Asks questions

• Highlights the “whats” and “hows”

• Shows how best-in-class companies perform selected functions or processes

• Action

• Work practices–based

• Answers questions

Let’s discuss best practices benchmarking in more detail.

Best Results Best Practices


Agenda






Effective Benchmarking Must Avoid Usual Pitfalls

BEST PRACTICES

Independent Initiative

vs.

Integrated with Other Efforts

Staff Consultant Exercise

vs.

Line Ownership

Unfocused

vs.

CSFs in Value ChainCost Comparisons

vs.

Multiple Measures

Data Collection

vs.

Action

Direct Competitor Only

vs.

Best-in-Class

Gemini Approach to Benchmarking

Common Errors


Benchmarking for Best Practices Revolves around Continuous Improvement

BEST PRACTICES

Plan

Benchmarking is an ongoing cycle, not a one-shot process.

Imp

lem

ent C

ollect

Analyze

ContinuousImprovement


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

BEST PRACTICES


In Selecting Functions or Processes, We ConsiderMajor 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?

BEST PRACTICES: WHAT

There is no set answer to determining appropriate functions to benchmark.


For Each Selected Process or Function, We Identify Activities, Practices, and Metrics

BEST PRACTICES: WHAT

How best-in-class firmstranslate customer

requirements into orders

Number of changes perorder

Order entry

How best-in-class firmsmanage priorities and

scheduling

Number of customercontracts per producer

Key Activities Best Practices Metrics

Functional Example:Special Orders

Process Example:Sales Agents

The value-added steps in each

function or process

The way best-in- class firms perform

those steps

The performance

measurements best-

in-class firms use

Definition

type with punctuation.

A key question: how “deep” do we need to benchmark the selected process function to extract actionable learnings?

Converting sales calls


Identifying Whom to Benchmark Against Is Key

Examples: How to determine best-in-class analogs for a manufacturer:

BEST PRACTICES: WHO

Process orFunction

• Sales support • Order entry• Order tracking• Handling customer

inquiries

• Transaction-based• Multiple orders from

multiple customers• Combination of

technical products and services

• Orders often customized per customer requirements

• Direct order PC maker

• Dell Computer

Analogous IndustryCriteria

Key ActivitiesAnalogousIndustries

Best-in-classFirms


Target Companies Offer Trade-offs between Benchmarking Cost and Returns

Internal(e.g., otherbusinesses

ofcorporation)

DirectCompetitors

Best-in-Class(functionalor process leaders

from other

industries)

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The selected examples must be accepted as truly comparable by the organization.

BEST PRACTICES: WHO

Value/Returns ofBenchmarking

Difficulty/Cost of Benchmarking

Low High

High

Low

Value and Difficulty of Benchmarkingfor Different Types of Companies


Collecting Data

BEST PRACTICES

Internal(based on readily

available data)•Reviews•Libraries•Surveys•Internal site visits •Interviews

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

Easier More Difficult


Many Gemini Benchmarking Efforts Have IncludedBroad Client Participation

• Provides oversight and leadership• Updates other executives• Participates in site visits

• Coordinate benchmarking effort• Develop plans• Conduct secondary and primary research• Analyze gaps• Help develop implementation recommendations

• Provide expert insight into functions and processes

• Participate in collecting external data• Participate in gap analysis• Validate benchmarking plan

• Participate in site visits• Validate benchmarking plans• Collect internal data• Implement

BEST PRACTICES

Champion

Core Team (full-time)

Content Experts (part-time)

Other Participants (ad hoc)

• Client person

• 2 Gemini consultants• 2 client staff people

• Several client staff people

• Gemini consultants and academics

• Other team [Gemini and client] members

Example:Telecom Team Member Role

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Broad client participation usually increases buy-in and facilitates the future change process.


Analyzing Gaps between Internal and External Performance Suggests Change Programs

BEST PRACTICES

TryHarder

EmulateLeapFrog

Changethe Process

Four Types of Change Programs to Meet Best-in-Class Standards

• Vague• Unactionable• Demoralizing

• Long-run mediocrity

• Band-Aid

• Dynamic• Creative• Out-of-industry

(often)

• Strategic or operational paradigm shift

• “Position” builder


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

BEST PRACTICES


Agenda




• Benefits of Benchmarking—Case Examples:

- Human Resources Function for a Service Company

- Corporate Planning Process for an Industrial Company


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

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”



The Benchmarking Team Identified Improvement Opportunities in Eight Key Activities

• Benefits Administration

• Outplacement

• HR Data

• Exempt Staff Employment


• Management Employment/Staffing

• Management Development/ Succession Planning

• Salary and Wage Administration

• Communications

Improvement Opportunities


We will use staff employment to illustrate the data collection, analysis, and recommendation phases.


The Team Visited Four Best-in-Class HumanResources 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



. . . And Conducted In-Depth Interviews with Many Additional Companies

MotorolaAmerican AirlinesMCIMarriottThe TravelersHewlett-PackardUnited AirlinesIBMPepsicoExxonPEPCOFederal ExpressDEC


Baldrige winnerEmploymentWorkforceWorkforceWorkforceHR statusEmploymentBaldrige winnerManagement developmentRecruitingLocal utilityBaldrige winnerOutplacement


Intensive telephone interviewing provided depth and a basis for “apples-to-apples” comparisons.

Benchmarked Reason for Inclusion


The Team Found That World-Class Companies Were Significantly Outperforming Our Client’s HR Practices

HR headcount/jobs filled 1:64 1:107 1:189 1:180 1:150N/A

Applicant yield 7% <5% <5% 10%–12% 6%<5%

Employment budget per $920 <$400 $300 $625 $666N/A

jobs filled


Measure ClientCompany

ACompany

BCompany

CCompany

DCompany

E


We Identified a Variety of Successful HR Models


Employby Major

Site

Applica-tions

Screen

TestingScreen

Interviews Advertise-

mentsReferralsCompany

Dis-tributedServices

Cen-tralized

Decen-tralized

CommonPolicies

A ¦ ¦ ¦ ¦ ¦ ¦ ¦

B ¦ ¦ ¦ ¦ ¦ ¦ ¦

C ¦ ¦ ¦ ¦ ¦

D ¦ ¦ ¦ ¦ ¦ ¦

E ¦ ¦ ¦ ¦ ¦ ¦

F ¦ ¦ ¦ ¦ ¦ ¦

G ¦ ¦ ¦ ¦ ¦

H ¦ ¦ ¦ ¦


We Recommended Major Changes within the Scope of a Gemini Transformation Project

• 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)

• Redesign applicant screening process:- Aggressively screen applicants- Utilize on-site and remote testing

• Close several employment offices:- Hiring and testing to occur on site or

at job fair locations


• Current system is passive, creating unneeded HR support

• New model is consistent with the client’s notion of empowering managers

• Cuts employment office costs• Avoids “perishable inventory” problems• Uses methodologies successfully employed

both inside and outside the client

• Eliminates “bricks and mortar” and support costs of employment-related headcount

• Moves closer to “best practices” model

• Reduces employment overhead:- Cuts headcount- Reduces corporate facilities costs

RationaleRecommended Approach


Aggressive Timeframes Were Set for Implementation

• Develop implementation team

• Select and put in place set-up team

• Begin distribution of applications and model recruiting sessions

A CASE EXAMPLE

• Three months

• Four months

• Six months

• Eight months

• Ten months

• Phase out employment offices

• Complete implementation

ActionTimeframe

(from Benchmarking Date)


Agenda




• Benefits of Benchmarking—Case Examples:

- Human Resources Function for a Service Company

- Corporate Planning Process for an Industrial Company


Another Gemini Assignment Sheds Additional Light on the Process and Benefits of Benchmarking

• 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

A CASE EXAMPLE: PLANNING PROCESS

The benchmarking findings energized the group and accelerated change—the NWTs realized that major improvement could be introduced.


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



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 studiesCorporate planning is increasingly perceived as an internal consultant, or “think tank,” organization.



Visits Highlighted That Companies May Have up to Three Corporate Planning Cycles

A typical planning process

Board approves Operating Plan

Top executives approve Operating Plan

Businesses prepare Operating Plan

Corporate economists revise economic and industry-specific outlooks

Top executives approve Long-Range Plan

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

Businesses formulate their strategies (at any time during the first half of the year)

PlanningCycles

3. OperatingPlanning

2. Long-Range

Planning

1. StrategyFormulation


J F M A M J J A S O N D

J F M A M

1992

1993


Findings: Several Corporations Are Modifying Their Planning Processes

• Rely on time-consuming, numbers-intensive activities

• 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


• 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)

Commonly Perceived Weaknesses How Companies Address Them


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 in-house.”—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.



We Recommended Major Changes, Which the Client Is Already Implementing

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.

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)


Benchmarking for Best Practices Gemini Consulting.

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