Six Sigma and Beyond: Design for Six Sigma, Volume VI

So far we have talked about benchmarking but we really have not defined it. A formal definition, then, is that benchmarking is a systematic, continual (ongoing) management process used to improve products, services, or management processes by focusing on and analyzing the best of the best practices, by direct competitors or any other companies, to determine standards of performance and how to achieve those standards, to provide least cost, quality or differentiation, in the eye of the customer.

Key words in this definition are systematic and ongoing, which imply that in order to have a successful benchmarking one must be familiar with the Kano model, Shewhart-Deming cycle, and principle of Kaizen improvement. This systematic and ongoing pursuit of excellence is applicable to all aspects of business and in all methodologies including the six sigma. It is an integral part of the strategic, operational, and quality planning process. It is not an end in itself.

Benchmarking identifies the best of class and determines standards of excellence based on the market ” considering both customers and competitors. It is a challenge with a solution. It provides the what and how. (A narrow focus on what you want to get done ” a results orientation that controls performance with a carrot and a stick ” is not effective without a broader focus on how best to do it ” a process orientation that identifies the process changes that need to be made in order for the results to be achieved consistently.)

Benchmarking is a creative imitation because part of its goal setting process that encourages the development of proactive plans is the action to bring about change. To do that, of course, analysis is required to determine all of the factors necessary for a solution to work, as appropriate and applicable to a given organization. In addition, it is necessary to project the future performance of the competition to set improvement goals. Otherwise, a company is always playing catch-up. Some of the key factors in this analysis are:

WHAT BENCHMARKING IS AND IS NOT

Benchmarking is not:

Rather, it is a methodology that is an integral part of the management process and provides the organization with many benefits including but not limited to:

THE BENCHMARKING PROCESS

The benchmarking process can differ from company to company. However, the ten-step process below is generally followed.

  1. Benchmark planning and prioritization

    1. Identification of benchmarking alternatives

    2. Prioritization of the benchmarking alternatives

  2. Benchmark data collection

    1. Identification of the benchmarking sources

    2. Benchmarking performance and process analysis ” company operations

      • What do we do?

      • What is the process?

      • What are the resource inputs?

      • What are the outputs?

      • What is the resource cost per unit of output?

      • What are the limitations?

      • What are possible changes?

    3. Benchmarking performance and process analysis ” partner's operations

  3. Benchmark implementation

    1. Gap analysis

    2. Goal setting

    3. Action plan identification and implementation

  4. Benchmark monitoring and control

    1. Monitor company performance and action plan milestones

    2. Identify the new "best in class"

TYPES OF BENCHMARKING

Benchmarking can be performed for any product, service, or process. Different classification schemes have been suggested. For example, Xerox classifies benchmarking in the following categories:

ATT, on the other hand, uses the classification indicated below. Specific examples of benchmarking studies for each are shown. These are not limited to ATT examples:

Task

Functional

Management process

Operations process

Another classification of benchmarking projects is by:

Still another classification is in terms of:

ORGANIZATION FOR BENCHMARKING

Ad hoc benchmarking studies can be helpful and productive. However, many companies are attempting to institutionalize benchmarking as part of the business planning and six sigma process.

The business planning process consists of strategic planning followed by operational planning. Both phases require the development of functional area plans. However, the time periods considered , the alternatives of interest, and the level of detail are very different. The general flow of the planning process is:

What should we do?

How should we to do it?

What are the expected results?

How did we do?

Who should get rewarded?

Benchmarking is often an integral part of the situation analysis. It can also have a major impact on the mission statement, the goals, the strategy, the tactics, and the identification and determination of action plans. Benchmarking can provide major guidance when determining what to do, how to do it, and what can be expected.

Benchmarking for strategic planning might concentrate on the determination of the critical success factors for an industry (based on customer and competitive inputs) and identifying what has to be done to be the success factors. This then leads to the development of detailed action plan with effort and result goals. Benchmarking for operational planning might concentrate on the cost and cost structure for each functional area relative to the outputs produced.

All quality initiatives ” including six sigma ” have a significant influence on the mission statement and the objectives and goals of an organization. As such, they can provide an added impetus to do benchmarking to satisfy the quality goals. Benchmarking can be centralized (ATT) or decentralized (Xerox). Xerox has several functional area benchmarking specialists, including specialists for finance, administration, marketing, and manufacturing. The big advantage of a decentralized approach is a greater likelihood of organizational buying of the final results of the benchmarking study. The effort required to perform a benchmarking study can vary significantly. For example, the L.L. Beam study performed by Xerox took one person year of effort. Generally, three to six companies are included in the benchmark. However, some companies use only one or two. Also, some studies are performed in depth, while others are fairly casual. The "One Idea Club" was a simple approach with a substantial reward.

REQUIREMENTS FOR SUCCESS

All initiatives have requirements for success. Benchmarking is no different. Some of these requirements are:

It sounds good. But does benchmarking work? Let us see what the SAS Airlines did, as an example.

When Jan Carlzon took over as president of Scandinavian Airlines (SAS) in 1980, the company was losing money. For several previous years , management had dealt with this problem by cutting costs. After all, this was a commodity business. Carlzon saw this as the wrong solution. In his view, the company needed to find new ways to compete and build its revenue. SAS had been pursuing all travelers with no focus on superior advantage to offer to anyone . In fact, it was seen as one of the least punctual carriers in Europe. Competition had increased so much that Carlzon had to figure out:

Carlzon decided that the answer was to focus SAS's services on frequently flying business people and their needs. He recognized that other airlines were thinking the same way. They were offering business class and free drinks and other amenities. SAS had to find a way to do this better if it was to be the preferred airline of the frequent business traveler .

The starting point was market research to find out what frequent business travelers wanted and expected in the way of airline service. Carlzon's goal was to be one percent better in 100 details rather than 100 percent better in only one detail.

The market research showed that the number one priority was on-time arrival. Business travelers also wanted to check in fast and be able to retrieve their luggage fast. Carlzon appointed dozens of task forces to come up with ideas for improving these and other services. They came back with ideas for hundreds of projects, of which 150 were selected with an implementation cost of $40 million.

One of the key projects was to train a total customer orientation into all of SAS's personnel. Carlzon figured that the average passenger came into contact with five SAS employees on an average trip. Each interaction created a "moment of truth" about SAS. At that point of contact, the person was SAS. Given the 5 million passengers per year flying SAS, this amounted to 25 million moments of truth where the company either satisfied or dissatisfied its customer.

To create the right attitudes toward customers within the company, SAS sent 10,000 front line staff to service seminars for two days and 25,000 managers to three-week courses. Carlzon taught many of these courses himself. A major emphasis was getting people to value their own self-worth so that they could, in turn , treat the customer with respect and dignity . Every person was there to serve the customer or to serve someone who was serving the customer.

The results: Within four months, SAS achieved the record as the most punctual airline system in Europe, and it has maintained this record. Check-in systems are much faster, and they include a service where travelers who are staying at SAS hotels can have their luggage sent directly to the airport for loading on the plane. SAS does a much faster job of unloading luggage after landings as well. Another innovation is that SAS sells all tickets as business class unless the traveler wants economy class.

The company's improved reputation among business flyers led to an increase in its full fare traffic in Europe of 8 percent and its full fare intercontinental travel of 16 percent, quite an accomplishment considering the price cutting that was taking place and zero growth in the air travel market. Within a two-year period, the company became a profitable operation.

Carlzon's impact on SAS illustrates the customer satisfaction and profits that a corporate leader can achieve by creating a vision and target for the company that excites and gets all the personnel to swim in the same direction ” namely, toward satisfying the target customers. As a leader, Carlzon created the conditions necessary to ensure the success of the strategy by implementing the projects required for the front line people to do their jobs well.

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