|Benchmarking exercises offer a lot of value for organizations. However, Professor Mike Bourne of Cranfield University School of Management equates benchmarking of performance only to being blind. Functional benchmarking, on the other hand, reveals not only the competitor’s performance, but their practices as well.|
Nowadays, performance is thoroughly measured: performance reports compare our performance with target, last year and the latest forecast. But do we know what our performance is against our competitors? And if we do, do we know how to improve our performance so that we’re at least in the same league as the industry winners? If not, we’re blind — blind to the competition and available opportunities.
There are two important sides to benchmarking: understanding performance and understanding the process delivering performance. Starting with our comparative performance, how well are we doing against our competitors? This tells us the size of the gap between everyone else and what we’re delivering.
I did some work with a company making industrial instruments. We had set a target of US$200,000 turnover per employee as a good performance guide based on the directors’ feel for the industry. For several years, the company had fallen short of this target but the gap was being closed.
So we had the chance to benchmark performance against our competitors and we found that the target should have been US$220,000! We’d improved, but not taken into account that everyone else was improving too.
This stirred us into action, but didn’t tell us how to close the gap. Benchmarking initiatives often generate information which describes the size of the gap but offers little direction on what the competitor did to achieve the advantage, the time span and what their current strategies are.
Understanding the process that delivers performance or advantage is much harder to do. So, you’ll probably visit factories on the other side of the world. Here, process benchmarking can be useful to understand and map the processes in that factory and compare them with your own. I’ve done this and come out of a factory visit with a flood of ideas for performance improvement. However, that was because my factory was starting from a relatively low base and the differences were obvious.
But if the competition is just 1% better than you are, how do you pinpoint what’s delivering that difference? Given a reasonable profit margin of 8%, a 1% performance enhancement could give you a 12.5% profitability improvement.
So, you need a set of tools enabling you to compare practices as well as performance; not just at aggregate level, but also at the level where it really matters. This is functional benchmarking, where your eyes need to be wide open. How did your competitor manage uptime availability on their dryer plant of 100% over the last 90 days? How have they managed to get their machine to perform consistently beyond its design capacity?
You need a set of tools enabling you to compare practices as well as performance; not just at aggregate level, but also at the level where it really matters.
These performance levels are achieved only by developing practices persistently, which deliver exceptional performance when combined. The quality process tools of cause and effect diagramming, force field analysis and weighted prioritization will help in indicating focus practices.
Avoid benchmarking only traditional performance measures such as labor utilization, unit costs, etc. These figures reveal little in isolation.
Functional benchmarking gives you the tools to see both the competitor’s performance and the practice differences.
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