BenchMarking Overview

7/27/2019 BenchMarking Overview

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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 canprovide to our clients




Agenda

• The Value of Benchmarking

• Overview of Gemini Benchmarking Activities

• Benchmarking for Best Practices

• Benefits of Benchmarking—Case Examples


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Benchmarking Deals with Uncover ing and Implement ing Best Demonstrated Practices

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one l ine, i t is centered w ith in the kic ker; i f mo re than one l ine, i t is f lush lef t .

Use 14 Point Bold Ita l ic type with pun ctuat ion.

―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 referencepoint . . . 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 recognizedas industry leaders‖—David T. Kearns, Xerox

Benchm arking establ ishes how m uch a company needs to impr ove to be at

world -class levels and is a cr i t ica l compon ent of the process for get t ing

there.

BENCHMARKING



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

Benchmarking’s popularity is partially driven by the fact that U.S. companiesmus t benchmark to win a Malcolm B aldr ige Nat ional Qual i ty A

U.S. com panies must benchmark to be co nsidered for a Malcolm Baldr ige

National Qual i ty Aw ard.

• 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 Japanesemanufacturers

• Domino’s Pizza

• L.L. Bean

• American Express• Du Pont• General Electric

• Milliken

• Improving supply chain

• Shortening cycle time fromorder receipt to delivery

• Boosting productivity inlogistics and distribution

• Improving billing procedures• Improving safety• Managing organizational

processes• Cross-functional processes

Benchm ark Target Focus Benchmark ing Company

BENCHMARKING



Example: Xerox Used Benchmarking to Face New MarketEntrants from Japan

Issues faced dur ing 1980s

• Xerox lost market share toJapanese competitors

• ―We did not understand the

severity of the competition . . .we were arrogant to think thatno one could do anythingbetter than we could‖

— David Kearns , Xerox Chairman

BENCHMARKING

Benchmark ing process

• Addressed most functions invalue chain:

- R&D

- Manufacturing and QA- Marketing and productmanagement

- Salesforce

- Logistics and purchasing

• Selected best-in-class

regardless of industry, e.g.:- Drug wholesalers

- Appliance manufacturer

- Catalogue retailers

Benef i ts Achieved

• Suppliers reduced by

70%• Manufacturing costs

cut by 50%

• Quality problems cutby 60%

• Accelerated cycle time

• Increased market

share



Benchmarking Affords Companies the Opportunity to MakeStep Changes in Their Work Processes

Degree of

Improvement

Time

Benchmark ing

Improvements

Internal

Improvements

BENCHMARKING




Benchmarking Also Improves Your Process Performanceand Competitive Advantage

Industry Average

Company Performance

Company Goal

World Class

Key Indicator

(e.g., Ac cou nts Receivable Outstan ding )

Industry Average

Company Performance

Company Goal

World Class

1989 1990 1991 19921988 Goal1995

BENCHMARKING




As a Result, Companies Experience Strong Financial andCultural 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 Motor s

- ―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 benchm arking into a long-term strategic

weapon by integrat ing it into their planning process es.

BENCHMARKING




Gemini Benchmarking Activities Vary According to theIssues 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 agiven function? Overall costs?

• How do their functions or processesperform against those of best-in-classcompanies?

Best Results

• Strategic benchmarking

• Key indices benchmarking

• Cost benchmarking

Best Pract ices

• Functional or process benchmarking

Examples of Issues Our Clients Addressed Examples of Gemini Act iv i t ies




Strategic Benchmarking Addresses the ExternalStakeholder’s Assessments of a Company’s Performance


Average

of Peers

Client Company A Company B Company C

Gap withAverage of

Peers

Gap withBest of Peers

P/E Ratio o r Market/Bo ok Value




Key Indices Benchmarking Focuses on Key Indices andCost Drivers across Competitors


Client Company A Company B Company C Company D

Net Sales $54 $80 $90 $300 $300

Direct Sales Headcount 18 20 22 70 80

Examp le: Sales per Salesperson ($ Million/Person)

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14 Point Bo ld I tal ic type with p unctuat ion.

Cost benchm arking translates cost d r ivers into cos t est imates to assess

econom ic advantages or d isadvantages.

$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

Examp le: Telecom Client Value Chain

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




Most Current Benchmarking Efforts Center on BestPractices

GEMINI ACTIVITIES

• Provides a scorecard across currentcompetitors

• 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 Pract ices




Agenda




• Benefits of Benchmarking—Case Examples




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 Approachto Benchmarking

Common Errors




Benchmarking for Best Practices Revolves aroundContinuous Improvement

BEST PRACTICES

Plan

Benchm arking is an ongoing cyc le, not a one-shot proc ess.

I m p l e m

e n C

o l l e

c t

Analyze

ContinuousImprovement




Deciding What and Whom to Benchmark

Three quest ions m us t be answered . . .

• What should be benchmarked?

• What are the key performance metrics?

• Whom should we benchmark?

. . . By taking th e fol low ing s teps:

• Identify the alternatives

• Develop selection criteria

• Make the selection

BEST PRACTICES




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?

BEST PRACTICES: WHAT

There is no s et answ er to determinin g appropr iate funct ion s to benchm ark.




For Each Selected Process or Function, We IdentifyActivities, Practices, and Metrics

BEST PRACTICES: WHAT

How best-in-class firmstranslate customer

requirements into orders

Number of changes per order

Order entry

How best-in-class firmsmanage priorities and

scheduling

Number of customer contracts per producer

Key Activities Best Practices Metrics

Funct ional Example:

Special Orders

Process Example:

Sales Agents

The value-added

steps in each

funct ion or process

The way b est-in-

class f irms perform

those steps

The perform ance

measurements b est-in-

c lass f irms us e

Def in i t ion

type with punctuat ion.

A key question: how “deep” do we need to benchmark the selected processfunct ion to extract act ionable learnings?

Converting sales calls




Identifying Whom to Benchmark Against IsKey

Examp les: How to determ ine best- in-class analog s for a manufacturer:

BEST PRACTICES: WHO

Process or Function

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

inquiries

• Transaction-based

• Multiple orders from

multiple customers

• Combination of

technical products and

services

• Orders oftencustomized per

customer requirements

• Direct order PC

maker

• Dell Computer

AnalogousIndustryCriteria

Key ActivitiesAnalogousIndustries

Best-in-classFirms

BEST PRACTICES WHO




Target Companies Offer Trade-offs betweenBenchmarking Cost and Returns

Internal(e.g., other businesses

of corporation)

Direct

Competitors

Best-in-Class(functional

or processleadersfromother

industries)

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The selected examples m ust be accepted as tru ly comp arable by the

organizat ion.

BEST PRACTICES: WHO

Value/Returns of

Benchmark ing

Dif f icu l ty/Cost of Benchm arking

Low High

High

Low

Value and Dif f icul ty o f Benchmarking for Dif ferent Types of Com panies

BEST PRACTICES




Collecting Data

BEST PRACTICES

Internal

(based on readilyavailable 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 Diff icu lt

BEST PRACTICES




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 consultantsand academics

• Other team [Geminiand client] members

Example:

Telecom Team Member Role

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Broad c l ient part ic ipat ion usu al ly increases buy- in and faci l i tates the future

change process .

BEST PRACTICES




Analyzing Gaps between Internal and ExternalPerformance Suggests Change Programs

BEST PRACTICES

TryHarder

Emulate LeapFrog

Changethe Process

Four Types of Change Prog rams to Meet Best- in-Class Standards

• Vague

• Unactionable

• Demoralizing

• Long-runmediocrity

• Band-Aid

• Dynamic

• Creative

• Out-of-industry(often)

• Strategic or operationalparadigm shift

• ―Position‖builder




Agenda




• Benefits of Benchmarking—Case Examples:

- Human Resources Function for a Service Company

- Corporate Planning Process for an Industrial Company

A CASE EXAMPLE: HUMAN RESOURCES FUNCTION




A Recent Gemini Assignment Illustrates the Process andBenefits 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

C S U SOU C S U C O





Historically, Benchmarking and Competitor AwarenessHad 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 consideredbest-in-class‖





The Benchmarking Team Identified ImprovementOpportunities in Eight Key Activities

• Benefits Administration

• Outplacement

• HR Data

• Exempt Staff Employment

• Management Employment/Staffing

• Management Development/Succession Planning

• Salary and Wage Administration

• Communications

Imp rovement Oppor tuni t ies


We wil l u se staf f employm ent to i l lus trate the data col lect ion, analysis, and

recomm endat ion 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 ManyAdditional Companies

Motorola

American Airlines

MCI

Marriott

The TravelersHewlett-Packard

United Airlines

IBM

Pepsico

Exxon

PEPCO

Federal ExpressDEC

Baldrige winner

Employment

Workforce

Workforce

WorkforceHR status

Employment

Baldrige winner

Management development

Recruiting

Local utility

Baldrige winner Outplacement


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

Benchm arked Reason for Inclusion





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

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 $920 <$400 $300 $625 $666 N/A

jobs filled

Measure Client

Company

A

Company

B

Company

C

Company

D

Company

E





We Identified a Variety of Successful HRModels

Employ

by Major

Site

Appl ica-

t ions

Screen

Testing

Screen Interviews

Advert ise-

ments Referrals Company

Dis-

tr ibuted

Services

Cen-

tralized

Decen-

tralized

Common

Policies

A ¦ ¦ ¦ ¦ ¦ ¦ ¦

B ¦ ¦ ¦ ¦ ¦ ¦ ¦

C ¦ ¦ ¦ ¦ ¦

D ¦ ¦ ¦ ¦ ¦ ¦

E ¦ ¦ ¦ ¦ ¦ ¦

F ¦ ¦ ¦ ¦ ¦ ¦

G ¦ ¦ ¦ ¦ ¦

H ¦ ¦ ¦ ¦





We Recommended Major Changes within the Scopeof 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 unneededHR support

• New model is consistent with the client’snotion 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 supportcosts of employment-related headcount

• Moves closer to ―best practices‖ model

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

Rationale Recommended Appro ach

A i Ti f W S fA CASE EXAMPLE




Aggressive Timeframes Were Set for Implementation

• Develop implementation team

• Select and put in place set-up team

• Begin distribution of applications andmodel recruiting sessions

• Three months

• Four months

• Six months

• Eight months

• Ten months

• Phase out employment offices

• Complete implementation

Act ion

Timeframe

(from Benchm arking Date)




Agenda




• Benefits of Benchmarking—Case Examples:

- Human Resources Function for a Service Company

- Corporate Planning Process for an Industrial Company

A th G i i A i t Sh d Additi l Li htA CASE EXAMPLE: PLANNING PROCESS




Another Gemini Assignment Sheds Additional Light onthe Process and Benefits of Benchmarking

• A joint client –Gemini team worked on the planning process for a largeindustrial 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 planninggroups

• Recommendations have been and are still being implemented across thecorporation

The benchmarking f indings energized the group and accelerated change —the NWTs real ized that major im provement could be introd uced.

W Vi it d S l W ld Cl C i tA CASE EXAMPLE: PLANNING PROCESS




We Visited Several World-Class Companies toDiscuss 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 ManyA CASE EXAMPLE: PLANNING PROCESS




Findings: Corporate Planning Has ManyResponsibilities

Core respon sibi l i t ies • Review and oversee planning methodologies and processes

• Coordinate and oversee the planning process

• Test and challenge divisional plans

• Consolidate divisional plans

• Run corporate models

Add i t ional responsib i l i t ies

• 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 in creasingly perceived as an internal consultant , or

“think tank,” organization.

Visits Highlighted That Companies May Have up toA CASE EXAMPLE: PLANNING PROCESS




Visits Highlighted That Companies May Have up toThree Corporate Planning Cycles

A typica l planning process

Board approves Operating Plan

Top executives approve Operating Plan

Businesses prepare Operating Plan

Corporate economists revise economic andindustry-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. Operatin g Planning

2. Long -

Range

Planning

1. Strategy

Formulat ion

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

J F M A M

1992

1993

Findings: Several Corporations Are Modifying TheirA CASE EXAMPLE: PLANNING PROCESS




Findings: Several Corporations Are Modifying Their Planning Processes

• Rely on time-consuming, numbers-

intensive activities

•

Extrapolate historic performance insteadof ―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 achievehigher efficiency and effectiveness

• Streamline the corporate planning andbusiness planning organizations

• Deemphasize numbers-driven nature of plans

• Introduce a strategy formulation cycleseparate from the long-range planningprocess

• Appoint high-level planning committees tofocus on major strategic issues

• Introduce scenario-planning workshops

• Eliminate mechanistic approaches toplanning

• Decouple long-range plans from operatingplans

• Encourage top management to overcome itsnatural tendency to crunch numbers

• Modify the planning schedule (e.g., conductstrategic planning every two years asopposed to every year)

Comm only Perceived Weaknesses How Companies Address Them

Findings: Companies Increasingly Rely on OutsideA CASE EXAMPLE: PLANNING PROCESS




Findings: Companies Increasingly Rely on OutsideParties for Their Macro-Level Assumptions

Interviewees m ent ion several reason s fo r 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-addedactivities such as promoting our company’s image with variousshareholders. We purchase [vendor] economic forecasts, review them, andmodify them as needed.‖—Chemical Co.

• ―It is becoming very expensive for us to maintain our models. . . . We areconstantly looking for more efficient ways of getting the work done.Outsourcing seems to offer economies of scale for a number of economicforecasting activities.‖—Computer Co.

We Recommended Major Changes Which the ClientA CASE EXAMPLE: PLANNING PROCESS




We Recommended Major Changes, Which the ClientIs Already Implementing

These changes have already been imp lemented and the cl ient has

experienced that the increased f lexib i l i ty in its long-range plans al lows

better, “more strategic” decision making and communications.

Samp le of recommendat ions from b enchmarking

• 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 environmentalchanges

• Outsourcing:

- Increased use of third-party providers (e.g., economic, industry-specific think tanks)

BenchMarking Overview

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