A Perspective on Benchmarking

Gregory H. Watson in conversation with the Editor

Acknowledgements This interview between Dr. Mohamed A. Youssef of the School of Business at Ithaca College and Gregory H. Watson, Vice-President of Xerox Quality Solutions provides a basic overview of benchmarking. It is intended to provide an overview of the topic as developed at Xerox and practised in business. Mr. Watson has been practising benchmarking since 1984 and was instrumental in establishing the International Benchmarking Clearinghouse at the American Productivity & Quality Center in Houston, Texas. A prolific author on the topic, he has written both The Benchmarking Workbook (Productivity Press, Cambridge, MA, 1992) and Strategic Benchmarking (John Wiley & Sons, New York, 1993) and he has edited The Benchmarking Management Guide (Productivity Press, Cambridge, MA, 1993). Abstract An interview with the Editor in which Gregory Watson was asked to give his perspective on some of the issues on benchmarking. Addresses the basics of benchmarking. Article Type: Research paper Keyword(s): Benchmarking; Information exchange; Learning; Organizational restructuring; Partnering; Performance measurement; Process management; Strategic planning.
Benchmarking for Quality Management & Technology Volume 1 Number 1 1994 pp. 5-10 ISSN 1351-3036

Editor What is benchmarking? G.H. Watson Benchmarking is a business practice which stimulates process improvement by determining best practices across organizations through performance measurement and understanding those factors which enabled the higher performance of the leading organizations. Editor What are the advantages of benchmarking? G.H. Watson There are three significant advantages for conducting benchmarking studies as opposed to not benchmarking. First, it provides an independent assessment of how well a process is operating by evaluating performance of similar processes across different organizations. By measuring the performance of other organizations, an objective baseline for realistic, quantitative performance goals is established for your own organization. Second, benchmarking provides a stimulus for making breakthrough change initiatives a reality by enhancing the creativity and innovation of teams who are working on process improvement. Their source of innovative ideas is expanded to include all of the benchmarking partner organizations. Third, related to the last advantage, benchmarking broadens an organizations experience base. By looking at the experience of other organizations it gives examples of behaviours, systems and methods which enable better performance as well as insights into those things that do not work so well. In this sense it supports a learning organization. Editor What role does benchmarking play in a learning organization? G.H. Watson Benchmarking facilitates cross-organizational learning. It is an efficient vehicle for transferring learning across organizational boundaries. Benchmarking is really a learning process for taking lessons from one organization and translating them into the unique culture and mission orientation of a different organization. Editor What do you mean by process benchmarking? G.H. Watson Process benchmarking is benchmarking that uses the discovery of process performance information to identify ways to improve an organization. It may be compared with the basic level of understanding that comes from comparing cost or performance measurements between different organizations one knows which is better without knowing why. For instance, just the other day a story in the newspaper talked about the need to establish trade benchmarks between the United States and Japan. These are examples of measurement benchmarks.

Earlier in the year a comparison was made in another newspaper article between Chryslers product development process and their results with the LH series of cars compared to the Ford process and experience with the Taurus/Sable cars. That was a process benchmarking assessment the level of excellence was determined by the measurement, but that pointed to a more profound knowledge level which described how the improvement was obtained. A benchmarking study can be done at either a strategic business level or at an operational business level. Editor How do you distinguish between strategic and operational benchmarking? G.H. Watson Strategic benchmarking studies influence broadbased change and have the ability to shift the entire focus of an organization restructure it, realign its goals, re-engineer its core business processes, redesign its product line, or renew its competitive commitment. Such studies can fundamentally change the business. Operational benchmarking studies are smaller in scope. They are targeted at improving work processes or business processes which are not core processes. Examples of operational benchmarking would include studies of specific manufacturing practices (printed circuit board loading, computer-aided machining, or bar-code applications) or business support processes (contract approval process, accounts receivable process, or recruiting process for new employees). Editor You have mentioned two types of process benchmarking strategic and operational are there any other types of benchmarking? G.H. Watson Strategic and operational benchmarking are two types of benchmarking that are categorized by the application of the study results. A different way of looking at process benchmarking is to distinguish among studies by the types of partner organizations that are sought. From this viewpoint there are four categories of benchmarking studies: competitive studies which focus only on competitive organizations; internal studies which focus on the same process within other divisions or branches of the organization; functional studies which look at the same business function industry-wide; and generic studies which seek analogous processes in any type of organization. Editor What are the outcomes of a benchmarking study? G.H. Watson The primary outcomes are the measurement comparisons among the participating organizations and the set of best practices which are enablers of the leading organizations performance. Editor Can you describe what you mean by a process enabler and give an example? G.H. Watson Certainly, a process enabler is the activity that directly enabled the leading organization to achieve the level of performance observed during the study. For example, consider the infamous L.L. Bean benchmarking example first cited by Dr Robert C. Camp in his book on benchmarking. L.L. Beans warehouse operation by far surpassed the inventory picking process performance of the other companies studied. Camp discovered specific practices which made that difference in the level of productivity for instance, the way in which the warehouse operators stored the most frequently shipped items. Editor How do companies go about using these enablers? G.H. Watson Often many of the practices are directly transferable from one company to another without too much modification. This is particularly true in operational benchmarking studies. In strategic benchmarking studies the results need to be adapted to the culture environment of the organization to insure that it does not reject the change like a persons body may reject a transplanted organ. Frequently in strategic studies a team develops a list of enablers which serve as the input to a creative brainstorming session where they seek to creatively imitate the best practices within the context of the many lessons they have learned and their own organizations improvement history. Editor Describe what you mean by creative imitation. G.H. Watson Creative imitation means that the final solution is suggested by the results of the entire study supplemented by the research teams own contributed insights with the initiative for change being the input to a re-engineering effort that may be a clean sheet redesign using various elements from a full spectrum of inputs. Contributions to such an improvement effort are eclectic and do not represent a direct transfer from any one organization. Editor So, benchmarking is helpful for reengineering what other business practices does it support? G.H. Watson Benchmarking can support a variety of operational practices. It can be used to develop or clarify options in problem solving, create ideas for design of new processes or products, identify the product and process advantage competitors, or it can provide a baseline input to assure a realistic strategic planning process. Editor Tell me more about how benchmarking supports the strategic planning process. What are some specific examples of its application? G.H. Watson Benchmarking supports strategic planning in several ways. It helps to understand how to set stretch goals for the organization. It can also be helpful in targeting specific processes for allocation of discretionary resources to stimulate process improvement. Benchmarking can also be used to identify specific changes that should be made in the organization at a strategic level. As far as an example of a specific application, consider the reorganization of Xerox two years ago. The Xerox document-processing business was organized in a functional structure from top to bottom. The senior management knew that they could improve performance and provide opportunities for greater

empowerment of work teams by decentralizing. Before making this shift, however, they sought out companies who had decentralized in the 1980s to learn what went well and what could be done better. Xerox looked at AT&T, Hewlett-Packard, and Proctor & Gamble, among others. The net result was a greatly improved reorganization transition. Editor It cannot be easy to conduct a rigorous benchmarking study what are some of the most difficult things about benchmarking? G.H. Watson The two most difficult things about benchmarking are deciding what project to focus the benchmarking resources on and then what organizations to solicit as partners. Editor How should you decide what to benchmark? G.H. Watson Controlling what subjects an organization benchmarks is particularly difficult for operational benchmarking studies. It is best to empower the work team level process owners to manage the approval of topics at that level. They would need some general guidance to assure that the organizations trade secrets or proprietary processes are not disclosed; however, they are in a much better position to evaluate the value of such a study than a senior management team. Nevertheless, strategic benchmarking studies need to be approved by a member of the senior staff who has a cross-business perspective and understands the types of alliances with benchmarking partners that would be in the organizations best long-term interest. Since the resources required to conduct a strategic benchmarking study tend to be much greater than for an operational study, a higher level of review is also fiscally prudent. Editor How do you identify potential benchmarking partners? G.H. Watson In the criteria for the Malcolm Baldrige National Quality Award there is an examination item which asks the applicant to describe the criteria for selecting benchmarking partners. This is an interesting point; it assumes that organizations recognize that they should be seeking to learn from analogous organizations and that the organization initiating the study understands the criteria that form the basis of the analogy. The criteria used to form the analogy may include such factors as organization size and type (centralized or decentralized), industry, decisionmaking culture, use of teams, sophistication of quality system, reputation or recognition for business excellence, and degree of admiration by the management team of the benchmarking team. Editor This idea of an analogous organization seems to be very important for identifying the right organizations to benchmark. Give me an example of analogous organization and explain how this analogy is used in the benchmarking study. G.H. Watson Perhaps the best known example is the analogy that Bob Camp drew between Xerox and L.L. Bean for his study of warehouse operations. Although, on first examination there does not appear to be a great degree of similarity between outdoor clothing and copiers, when the process characteristics are considered the need for rapid turnaround and high reliability of accuracy in the shipment integrity as well as the empowered culture of the organizations at the team level then it becomes clear that one work process may be potentially transferable to the other organization. It is not necessary to identify all processes to be studied from a single organization. Bob Camp also studied Sears and The Limited in his logistics study. The final lessons learned used creative imitation to blend together the lessons and adapt them to the Xerox business model and quality culture using the known differences between the organizations as the basis for adaptation. Editor Earlier you mentioned the principle of exchange. What do you mean by that? G.H. Watson The principle of exchange is a basic convention of benchmarking and is described in the Benchmarking Code of Conduct. Fundamentally, it means that when an organization benchmarks another organization, they should be prepared to share their own business processes or work processes in exchange for the information that they receive. It is this quid pro quo (Latin meaning this for that) of benchmarking studies that makes the exchange of information equally valuable to all parties. Editor What is the benchmarking code of conduct? G.H. Watson The benchmarking code of conduct was developed jointly by the Strategic Planning Institutes Council on Benchmarking and the International Benchmarking Clearinghouse of the American Productivity and Quality Center. It has been adopted by the Benchmarking Committee of the American Society for Quality Control as its standard for inter-organizational benchmarking practices. Copies of the code are available from any of these organizations. Editor What are some of the pitfalls to avoid when you begin benchmarking? G.H. Watson At the initial stage of benchmarking it is very possible to let excitement about the ability to visit other organizations create a high level of enthusiasm and involvement in benchmarking. It is important to make sure that initial studies not only bring back information that is significant to the business, but also that the initial studies teach the teams how to do benchmarking so that the organization develops its own competency in this field. Another caution that is equally important is that a company must be prepared to benchmark when they contact external organizations this means they have documented and measured their own process, they have developed a set of questions which focus their study, they have developed a set of criteria which describe the target benchmarking partners, and they have conducted secondary research of business literature to understand what is already in the public domain. Benchmarking is a

rigorous process and it is absolutely necessary to do your homework before contacting external parties. Editor In addition to the consultants in this field and the books available on the topic, where can people get more information about benchmarking? G.H. Watson There are four excellent sources of information about benchmarking. All of these organizations provide information to their members and often charge a fee for their services: The American Productivity & Quality Center, International Benchmarking Clearinghouse, Director: Carla ODell. Tel: (713) 685 4666. The Benchmarking Exchange, Director: Tom Dolan, Tel: (408) 662 9800 The American Society for Quality Control, Quality Management Division, Benchmarking Committee, Chairman: Brian Lowenthal. The Strategic Planning Institute, Council on Benchmarking, Director: Jim Staker, Tel: (617) 491 9200.