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Weekly Updates* Form the benchmarking team - Select team members from various areas of the organization. All members should cooperate and communicate with one another for the best results. Three main teams are in the overall group: The lead team is responsible for maintaining a commitment to the process throughout the organization; the preparation team carries out a detailed analysis; and the visit team handles the benchmarking visit.
* Collect the data - This step involves gathering information on the best practice companies and their performances. Before a company identifies the best practice companies, it should identify its own processes, products, and services. This step allows a company to realize the extent of improvements available. Site visits are important to collect data, because they give an in-depth understanding of the processes.
* Analyze data for gap - This step involves determining how your company relates to the benchmarked company. It helps identify performance gaps and possible causes.
* Take action - This step determines what needs to be done to match the best practice for the process, so changes can be determined and implemented.
Different companies have their own benchmarking methods. But whatever method is used, the major steps include measuring the performance of the best-in-class relative to critical performance variables such as cost, productivity, and quality; determining how the levels of performance are achieved; and using the information to develop and implement a plan for improvement.
The ethical aspects of benchmarking
Samuel Certo's general definition of ethics is, "Our concern for good behavior; our obligation to consider not only our own personal well-being but also that of other human beings." In benchmarking, ethics is defined as principles, guidelines, or standards that determine a protocol of interaction between individuals and organizations.
Kent Johnson, corporate counsel at Texas Instruments Inc., states, "To guard against the erosion of trust, one must focus on avoiding the appearance - not just the reality - of hidden agendas." Johnson stresses the importance of openness in the benchmarking process. Many ethical questions may arise in the course of a benchmarking procedure. Two of the main questions which Johnson deals with are:
* Can the recipient take credit for developing the idea, approach, and so forth?
* If the benchmarking partner received information of tremendous value, can they take credit for it in their advertising?
These questions cannot be answered quickly or easily. Partners in the benchmarking process need to communicate their expectations and feelings on these issues, and to follow some basic guidelines. They should establish specific and detailed ground rules. This includes the notion that ideas are not shared to gain competitive advantage, but are shared so both partners can improve or benefit. Questions should not be asked about a company's sensitive data; partners shouldn't be pressured to divulge this information to continue the benchmarking process. Data should be treated as confidential; it shouldn't be used to limit competition or to gain business.
The legal aspects of benchmarking
Due to the general nature of benchmarking, participants should be aware of several legal aspects of this relationship. According to Texas Instruments' Johnson, "The degree of legal exposure is different depending on the industry involved, the type of benchmarking transaction you are engaged in, and the business you are in." Six critical areas - expectation, proprietary information, intellectual property, antitrust and unfair trade practices, evidence, and disparagement and trade libel - are discussed in the following paragraphs.
Expectation deals with what each benchmarking partner thinks should be disclosed and how it should be used. Many times the legal focus is a conflict of interest: One company sees the use of information differently from the other partner (for example, if the recipient passes along information to a brother or sister corporation). This may violate what the benchmarked company originally intended. This concept also refers to the idea of public domain. Companies should ask themselves if sharing the information will go against the benchmarked company's expectations. Both companies should be aware of and sensitive to each others' expectations.
Proprietary information is defined as, "any information created, acquired, or controlled by the company that has not been published or released without restriction of a type the company wishes to remain confidential." The Securities and Exchange Commission has developed requirements to deal with this information. These guidelines include requesting and accepting only information to be shared, along with understanding each others' controls, restrictions, and definitions of proprietary information.
Intellectual property, like it sounds, refers to scientific works, industrial designs, and computer programs. This is the type of property that can be patented, trademarked, and copyrighted. Some guidelines to remember include understanding the nature of intellectual property owned by both partners, and consulting legal counsel on restrictions regarding this property.
Antitrust and unfair trade practices are probably the government's main areas of concern. Historically, the law does not believe in purely cooperative engagements. Instead, the law carefully looks at these transactions, scrutinizing them to find ulterior motives. Due to this attitude, all parties involved in the benchmarking process should be aware of antitrust laws and unfair trade practices.
Benchmarking itself is not anti-competitive. However, when dealing with competitors, the lines can blur. Johnson applies three standards. First, the partners should clearly set the tone in advance. This refers to an explicit discussion of maintaining rights to compete with each other and not restraining trade. Second, the competitors should avoid discussing pricing and manufacturing capacity. Finally, obtain information by less risky means - such as a library, the internet, and consultants.
Although critical, evidence is a relatively simple topic to cover. It deals with information given to one partner company by the other. This information contains areas of success and failure. Johnson says the purpose is to provide useful data to the recipient without shooting yourself in the foot.
Johnson is short and to the point with disparagement and trade libel: The focus should be on the good things learned from your benchmarking partner; all information should be straightforward and honest. This is common sense for most firms and generally does not pose any problems.
Perceived limitations and costs
Although benchmarking is very effective overall, it does have limitations. The main problem with benchmarking is the focus on data - and not the processes used to make that data. Benchmarking should be used as a guide, not for statistical precision.
* Focusing on the numbers - Greg Hackett's Ohio-based firm is a leader in benchmarking services. He claims the value of benchmarking is understanding the process that produces the given data, and formulating ways for the organization to adopt these practices. Hackett says many finance executives are "sucked into the numbers."
* Lacking clarity on data origination - Another benchmarking limitation is not understanding the data's source, which can cause comparison errors. For example, an organization may want to compare their head count in the treasury management process to the benchmarked organization's. The benchmarked organization may consider cash management, foreign exchange, and real estate part of the treasury; the other organization may not. Therefore, organizations define the treasury management process in different ways.
According to Pat Jones, corporate controller at Intel Corp., in Portland, Oregon, his company's benchmarking efforts were not a success. It, too, had a problem with clarity on where the data originated. "To ensure we were doing apples-to-apples comparisons, we had to spend a lot of time reconciling the data," Jones says. "It was incredibly unproductive."
* Losing focus on customers and employees - Benchmarking can cause some organizations to lose focus on customers and employees. Companies that try to quickly produce better numbers can cause employee burnout, errors, and rework time. A company may also try to hasten receivables and delay payables to meet a certain numeric goal: This could adversely affect customers and suppliers.
* Resisting change by some employees - Ford manager Hans Kuschnerus says awareness of potential obstacles in implementing benchmarking can help deal with them. One obstacle for Ford was staff resistance. Some employees are always reluctant to cooperate with new policies. He also found it's easy to cut corners to avoid the trouble and cost of benchmarking. Instead of investing time and effort, organizations simply visit a company to see what can be learned.
Benchmarking also requires establishing and using metrics, which measure performance. Performance can be measured in dollars, customer satisfaction, response time, and so forth. Knowing how performance will be measured is important in the procedure.
Arun Maua, vice president at Arthur D. Little, mentions, "You can't just impose a best practice. It has to be adapted to your own company's style." This refutes the assumption that all processes work for all companies.
* Lacking proper implementation - Another problem with benchmarking occurs if an organization fails to properly implement the process. One example of this is not involving employees during the process. Ultimately, these employees will need the information to improve the process.
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