Analysis Definition of Benchmarking - Case Study Example

 Analysis Definition of Benchmarking Benchmarking continues to be fast appreciated in organisations that adopt total quality management, TQM. Regarded as the father of benchmarking, Xerox’s logistics engineer Robert Camp defines benchmarking as “the search for industry best practices that lead to superior performance” (Dragolea & Cotirlea 2009, p.813). It refers to a performance improvement process through constant identification, understanding and adaptation of best processes and practices followed in and out of a company so as to implement the results. The essence of benchmarking would be to compare one company’s strategies, processes and products with those of the leaders and the best players in the industry. The aim would be to learn how the leaders achieved their excellent performance and setting out to outdo them (Sower, Duffy & Kohers 2008). Case study 1: Benchmarking at Xerox In Xerox, benchmarking came about due to a competitive crisis. The history of Xerox dates back to 1938 when the first xerographic image was made by Chester Carlson, a patent attorney in the US. Many companies did not believe in this invention which Carlson marketed for five years before Battelle Memorial Institute from Columbus entered into a contract with Carlson for the latter to refine the process. The Haloid Company then bought the rights for developing and marketing a copier machine based on the technology by Carlson. In 1961, this became Xerox Corporation and continued to grow immensely. By the early 1980s, the company faced competition from its competitors from the US and Japan. Due to lack of strategic leadership, the company’s operating costs soared with a decrease in the quality of its products. Between 1980 and 1984, Dragolea and Cotirlea (2009) note that the company’s profits dropped from $1.15 billion to $290 million. Through the program dubbed as Leadership through Quality according to Stapenhurst (2009), the company found out that compared to their Japanese rivals, it took twice as long to deliver its products to the market, had five times more engineers, spent three times in design costs and had four times more in design changes. Compared to Xerox, the company’s Japanese competitors had their manufacturing costs at 40 to 50 percent that of Xerox, making them easily undercut their prices. It was found out that the cost incurred by the Japanese to produce, ship and sell its products would be almost equivalent to what Xerox incurred only in manufacturing. Furthermore, it was 30 times worse in defects that its Japanese rivals at 30,000 defects per million. This initiated the manufacturing cost reduction and quality control management efforts, implemented through benchmarking program (Camp 2006). Benchmarking revealed that the company would require an annual productivity growth rate of 18% for five successive years so as to be at par with the Japanese. In its analysis, Xerox noted ten factors that would steer the benchmarking process: information technology, human resource management, business management, asset management, financial management, billing and collection, product maintenance, order fulfilment, customer engagement and customer marketing. These were subdivided into 67 processes that were the focus for improvement. In the second stage of benchmarking, pointed out as data collection by Watson (2007), Dragolea and Cotirlea (2009) observed that data was collected from trade journals, magazines and from consulting firms and professional associations. Having selected the model to adopt, the company sought to implement competitive benchmarking. However, the challenge was that the strategy was inadequate and was not being implemented by any of leading copier companies. The company then initiated functional benchmarking by studying the inventory management and warehousing systems in L. L. Bean, a company dealing with mail-order supplies of outdoor clothing and sporting goods. According to Watson (2007), whereas competitive benchmarking targets specific process capabilities, administrative methods or product designs by the competitor, functional benchmarking seeks information on a particular functional area in an industry or application. Bean had implemented a computer program that set up orders sequentially such that those picking stocks travelled the shortest distance when making collections in the warehouse. The accuracy and high speed in order filling attracted Xerox which sought to achieve similar benefits. This could also be referred to as generic benchmarking going by the definition by Stapenhurst (2009) citing it as an approach seeking information from outside a company’s industry of operation. Consequently, in its implementation phase where changes are adopted (Watson 2007), Xerox reduced its vendors from 5,000 to 400, vendors who underwent the certification process or pointed out areas to improve so as to continue trading with Xerox. These vendors participated in choosing better designs and improving customer service. Xerox adopted management practices from its European operations where actual usage as opposed to withdrawals from stocking areas was used. Customer satisfaction was measured through 55,000 monthly questionnaires filled in by their customers to determine their satisfaction and performance of competitors. Towards mid 1990s, 240 critical areas of business, product and service performance at Xerox and its units across the world had implemented various benchmarking strategies. According to Dragolea and Cotirlea (2009), this benchmarking strategy saw Xerox post a 38% and 39% increase in the number of its satisfied copier and printing system customers respectively with 1991 recording 90% customer satisfaction. Its sales shot up by 40% with defects reducing by 78%. Xerox’s time for service response reduced by 27% and billing errors cut to 3.5% from 8.3%. The company became the only company globally to win all prestigious quality awards: the European Quality Award, the Malcolm Baldridge National Quality Award and the Deming Award. Many other companies thus followed suit and adopted benchmarking strategies. Arguing on the importance of evaluation and constant benchmarking, these are examples of what Keegan and O’Kelly (2004) define as the key performance indicators in benchmarking. Case study 2: Benchmarking at Ford Having been in operation for over 100 years, Ford Motor Company has been recognised as one of the largest American motor vehicle manufacturers, employing over 280,000 people globally and trading with more than 11,000 suppliers according to the US Environmental Protection Agency (2012). By the early 1980s, Ford was experiencing immense competition from Japanese automakers. As its strategy implementation, the company bought 25% stake in Mazda and studied how the company did business differently. Ford found out that the accounts payable staffs for Mazda were only five as opposed to 500 people doing the same task at their company. According to Zairi (2001), the purchase order that Ford sent to suppliers, the receipt generated by Ford on receiving parts and the invoice sent by suppliers to Ford had to all match before the clerk paid any suppliers. Due to the manual process adopted for this, cases of mismatch constantly arose, slowing down processes as these cases were resolved. It was found out that Mazda had shifted focus from a functional approach seeking to optimise accounts payable to adoption of a process perspective that optimised the whole procurement process (Taguchi & Clausing 2000). More so, no invoices were used in Mazda. Najjar, Huq, Aghazadeh and Hafeznezami (2012) appreciate the important role that Information Technology plays in benchmarking and improving business processes. The study of Mazda made Ford realise that its problems emanated from its defined common-cause management system. This meant that it had to approach its change from the management so as to achieve improved productivity among its workers. According to the definition by Watson (2007), Ford buying a stake in Mazda fits within the definition of internal benchmarking where companies learn from sister companies or operating units that are part of the operating group. Benchmarking helps in understanding the improvements to be made in an organisation so as to attain superior performance. The objective would be to topple over the top performers and turning deficit in performance into leadership. Indeed, Ford aimed at understanding the operations of Mazda and how it would align its operations to outdo the competitor. Successful benchmarking leads to improved quality and productivity and positive financial outcomes. Measuring the outcome of a benchmarking strategy would thus be a critical step in ensuring that the adopted strategy gears the organisation towards the attainment of its objectives. Business process re-engineering Business Process Re-engineering, BPR deals with cardinal rethinking and redesigning business processes so as to obtain and sustain improvements in service, quality, cost, innovation, flexibility and lead time so as to meet corporate goals identified by Gunasekaran and Nath (2007) as return on investment, customer satisfaction and market share. This calls for interdependence of systems through integration of the various business processes. The objective would be to devise logistics strategies and integrated inventory management through systems and procedures that would be based on business processes. BPR aims at increasing effectiveness and efficiency of processes across and within organisations. Case study 1: International Bank International Bank is among the leading retail banks in the UK and a key player in international trade financial market. It provides trade finance and international payments to varied retail and corporate customers (Meadows & Merali 2000). The bank strategically reviewed its various businesses, inclusive of International Trade and Banking Services, ITBS that saw it revive its commitment to be a key player in the international trade finance market. The bank sought to invest in technology to excel in its operations and to enhance profitability, cited as some of the benefits of information technology by Gunasekaran and Nath (2007). In addition, the bank sought how to improve its customer service thus initiating a BPR project. Of importance in undertaking this strategy was communication which was done through meetings, conferences, workshops and newsletters among others. The company noted that in order to achieve its new ITBS vision, that is enhanced performance, there was need for effective customer service, highly motivated and trained people and cost effective processes and products. This was approached from first undertaking a fact finding mission to determine customer expectations in trade services by International Bank, which supports the observation by Santyanarayana and Kavitha (2011) that analysis in reengineering business processes in commercial banks should be centred on the customer. According to Gunasekaran and Kobu (2002), successful reengineering begins with understanding the systems before identification of the suitable pathways. The diagnostic or analysis phase identified the problems that were facing ITBS operations, just as noted by Harvey (2009) who argued that this face involved finding out the problem in the company. This was accomplished through market research and benchmarking against key competitors. The diagnostic phase gave a blueprint for redesigning which encompassed front-line staff who had detailed knowledge on the business. This showed that some business units were overwhelmed with business volumes which resulted into unsatisfactory turnaround times. Decision was made on streamlining the customer-bank interface for international trade and promoting electronic access for large scale customers. These were to be implemented concurrently with the normal operations and the adapted initiatives linked to on-going activities. New targets on critical factors such as speed of service were set informed by benchmarking of competitors. The change project was managed by cross functional teams. But it was appreciated that while some of the benefits were to be realised almost instantaneously, some were to take long thus the need for continued drive to realise full benefits (Stapenhurst 2009). Staffs were empowered on delivery of excellent customer service. According to Harvey (2009), adopting the balanced scorecard model, a balanced business scorecard was developed measuring the financial, customer, internal business and learning and innovation aspects. This was to aid in monitoring and evaluation of the adopted BRP. This strategy sought to replace most of the paper-based activities in the firm with appropriate information technology approaches (Meadows & Merali 2000). This was the source of challenge in International Bank’s BPR strategy as most of the business users were lacking in IT skills. This caused difficulties in users sitting down with IT staff to design the specifications for their requirements for the new systems. Additionally, the bank experienced a shortage of staff to train the rest on the new system. Case study 2: Daimler-Benz Daimler-Benz had over 300,000 employees globally and was made up of four groups. Mercedes Benz was by far the largest and the most successful employing about 200,000 employees and well known for commercial and passenger vehicles. The second group, AEG Daimler-Benz industries dealt with microelectronics, rail systems, energy systems technology, diesel engines and automation. Aerospace Group majored in aircraft business, propulsion systems, civil systems and space systems. Finally, the Inter Services Group was concerned with financial services, trading, insurance brokerage, marketing services, real estate management and mobile communication services (Daimler 2012). Daimler-Benz underwent various development stages between 1985 and 1990, diversifying into electrical engineering and aerospace. This was adopted as an approach to become integrated and high-tech. This diversification was even further consolidated between 1990 and 1995 in the subsequent phase. The company underwent a portfolio review that pointed out the need to focus on its best performing business. In 1996, the top management of Daimler-Benz re-evaluated the company’s strategies guided by strategic fit of its various operations and economic criteria. This showed the strength of the company being in car manufacturing, railroad sector and truck business. For example, Mercedes Benz was highly competitive with its trucks and cars in Latin America, Europe and North America. Its vans were competitive in Europe and its buses in Latin America. Therefore, this analysis guided on growth strategies through developing new product segments and globalisation. The 1996 assessment also showed that the poor performance extending to 1995 was a result of exposure to currency fluctuation that had adverse impact on profitability. Venturing into various businesses also blurred the image of Daimler-Benz. The management sought to move forward with strategies that would emphasize on profitability. The core business of the organisation was redefined and its strategy refocused. After all, Gunasekaran and Kobu (2002) acknowledge that reengineering should eliminate activities considered not to add value in business. To achieve this, there was tightening of the organisation structure with divestment strategies also adopted. The firm experienced challenges in having to reverse some of its previous policies to pave way for the new strategies. Because of their unprofitability, Fokker, the Dutch manufacturer of aircraft and the AEG Group did not receive any financial allocations, causing Fokker to file for bankruptcy. But the company faced the challenge of its strategies only working in the short run, against the argument by Gunasekaran and Kobu (2002) on the need to continuously improve fundamental activities. This saw the company adopting other managerial decisions aimed at improving profitability and reducing costs. The firm empowered its employees in operations to enable them make decisions that they deemed were appropriate. May (2003) cites the importance of incorporating all staff levels so as to encourage ownership and accountability in performance. The structure of the organisation was made simple and decentralised which would see the various units in the organisation respond rapidly to changes in the environment. As a control mechanism, Daimler-Benz devised a goal driven and performance based system of reward. In 1997, Daimler-Benz’s board of management integrated Mercedes-Benz into Daimler-Benz. Conclusion If properly implemented, BPR would result into better returns. It has been noted that organisations such as General Motors Corporation and Procter and Gamble have greatly benefited from this strategy, coming from environment marred by high competition and financial crisis. Indeed, it has been demonstrated in this paper that Daimler-Benz and International Bank have seen their performance improve due to shelving previous processes, redesigning new ones and implementing them towards the attainment of improved performance. Similarly, benchmarking has aided companies like Ford and Xerox to adopt strategies adopted by their rivals in the industry, making them successful. In fact, strategies of other organisations operating in a different industry have also been noted to yield positive results as was the case with Xerox, referred to as generic benchmarking. Therefore, benchmarking seeks to adopt strategies of industry leaders in search for greater competitive advantage. References Camp, RC 2006, Benchmarking: The Search for Industry Best Practices that Lead to Superior Performance, Taylor & Francis Group, London, UK. Daimler 2012, ‘Daimler AG’, viewed 14 October 2012 < http://www.daimler.com/> Dragolea, L. & Cotirlea, D. 2009, ‘Benchmarking – a valid strategy for the long term?’ Annales Universitatis Apulensis Series Oeconomica, vol. 11, no. 2. Gunasekaran, A & Kobu, B 2002, ‘Modelling and analysis of business process reengineering’, International Journal of Production Research, vol. 40, no. 11, pp.2521 – 2546. Gunasekaran, A & Nath, B 2007, ‘The role of information technology in business process reengineering’, International Journal of Production Economics, vol. 50, pp.91 – 104. Harvey, DL 2009, Business process re-engineering: housekeeping case study, Harvey Consulting Inc. Keegan, R & O’Kelly, E 2004, Applied benchmarking for competitiveness: a guide for SME owners/managers, Oak Tree Press, Cork, Ireland. May, M 2003, Business process management: integration in a web-enabled environment, Pearson Education Ltd, London. Meadows, M & Merali, Y 2000, Process improvement with vision: a financial services case study, Warwick Business School. Najjar, L, Huq, Z, Aghazadeh, S and Hafeznezami, S 2012, ‘Impact of IT on process improvement’, Journal of emerging trends in computing and information sciences, vol. 3, no. 1, pp.67 – 80. Santanarayana, SV & Kavitha, NV 2011, ‘Impact of business process re-engineering in commercial banks on customers: a case study of State Bank of Hyderabad’, Opinion, vol. 1, no. 1. Sower, VE, Duffy, JA & Kohers, G 2008, Benchmarking for hospitals: achieving best-in-class performance without having to reinvent the wheel, ASQ Quality Press, Milwaukee, WI. Stapenhurst, T 2009, The benchmarking book, Butterworth-Heinemann, Oxford, UK. Taguchi, G & Clausing, D 2000, Robust quality. Harvard Business Review, vol. 2, no. 12. US Environmental Protection Agency 2012, ‘Ford Motor Company, World headquarters division: In practice’, viewed 14 October 2012 Watson, GH 2007, Strategic benchmarking reloaded with six sigma: Improve your company’s performance using global best practice, John Wiley & Sons Inc., Hoboken, New Jersey. Zairi, M 2001, Benchmarking for best practice: continuous learning through sustainable innovation, Butterworth-Heinemann, Oxford, UK. Read More