Chapter 7: Putting Benchmarking To Work In The Executive Office And Boardroom
Excerpted from Benchmarking for Best Practices: Winning Through Innovative Adaptation by Christopher E. Bogan and Michael J. English. Published by McGraw-Hill
Benchmarking and Leadership
In performance improvement no communications tool is more powerful than the actions of leadership. Accordingly, many corporations are challenging their senior executives to model the behaviors, attitudes, values, skills and actions that they advocate for the organization. In other words, American leadership is being asked to walk the talk. Consequently, the time has come for benchmarking to be put to work in the executive office and boardroom. Already a powerful tool of front-line operating managers, professional staff and front-line teams, benchmarking has far-reaching potential for senior executives, CEOs and corporate directors.
Borrowing best practices from market leaders and world-class performers is an effective way to manage change and to supercharge continuous improvement. A clear and steady focus on best practices can provide the impetus for change, can help identify what must change and can provide a vivid picture of the end point after change. Benchmarking should, therefore, be common practice among every organization's leadership team. Best practices benchmarking has at least five critical, high-level applications from which senior executives and board members can benefit:
- Benchmarking enables executive officers and directors to know where their corporations stand versus the best.
- Benchmarking is a practical tool for creating a fast-learning organizational culture that's dedicated to continuous improvement.
- Benchmarking is a sine qua non for strategic planning to attain market leadership.
- Benchmarking is a breakthrough technique to accomplish organizational restructuring, reengineering or redesign.
- Benchmarking is a valuable tool to assist board members in performing their duties of corporate governance and oversight.
Understanding Where Your Corporation Stands Versus The Best
Benchmarking emerges as a leadership responsibility of first-order importance. To be effective leaders, managers must be aware of other corporations' strategies, tactics and operating successes. Senior executives, directors and their corporations need to "know where they stand" relative to competitors and best-practice performing organizations. Enlightened leaders recognize that they can learn valuable lessons from outside their corporations and outside their industries.
It often helps to look to others for different perspectives. That's why the search for best practices -- inside and outside one's own organization and industry -- is a fundamental part of total quality management. After internal improvement efforts get underway, fast-learning organizations inevitably search outside themselves to other units, companies and industries; they seek to accelerate their own performance improvements by studying others best practices. The goal of all quality and benchmarking initiatives is the same: to target and achieve total performance excellence. Translated, that means benchmarking serves to continuously improve products, services, sales, profits, cost management, customer satisfaction, employee satisfaction and all other measures of financial and non-financial success. As a performance improvement tool, therefore, benchmarking is a vital instrument of leadership.
The evolution of the Malcolm Baldrige National Quality Award criteria highlight this fact. In 1988, when the Baldrige performance- assessment criteria were first published, no direct references to "benchmarking" appeared in the leadership category. In 1989, however, the Baldrige administrators updated the criteria and then first probed senior management's role in "learning about quality of domestic and international competitors." In 1992, the Baldrige criteria specifically inquired about senior executive leadership activities that "might also include. . . benchmarking." That same year the National Quality Award guidelines suggested that senior executives "describe indicators, benchmarks, or other bases for evaluating and improving organizational structure." By 1993, the Baldrige leadership guidelines stated that "activities of senior executives might also include leading and/or receiving . . . benchmarking."
Some companies have carried the benchmarking banner even further into their managerial ranks. At one regional trucking company, every member of the executive committee -- right up to the president and CEO -- have agreed personally to perform benchmarking visits to other leading companies in their core responsibility areas. Such actions ensure that senior management is well informed of its competitive position,enabling the leadership team to make better decisions and to more effectively chart the company's course through the fast waters of rapidly changing markets.
An Essential Leadership Skill
Bellwether reports from the corporate work place demonstrate the growing importance of benchmarking within the executive office. Du Pont, for instance, has written benchmarking into the job descriptions of all vice president-level officers. Du Pont and other organizations regard benchmarking as an essential skill for all competent managers. Other corporations, such as Ameritech, AT&T, Hewlett-Packard, Pacific Bell, Digital Equipment Corporation, Eastman Kodak, Xerox and IBM, have created executive-level benchmarking jobs to oversee and spearhead corporate benchmarking efforts. Texas Instruments Defense Systems and Electronics Group, a 1992 Baldrige Award winner, understands the broad-reaching relevance of benchmarking as a managerial tool. At TI benchmarking is one of six "leadership thrusts" employed to help the organization achieve its fundamental objective of "customer satisfaction through total quality." The manager in charge of broadly spearheading benchmarking at TI has the sterling title of "Benchmarking Champion for World Operations."
Universal Card Services, AT&T's credit card company, regards benchmarking as a critical success factor for senior managers. Another 1992 Baldrige Award winner, UCS classifies benchmarking as one of 12 "leadership" activities. Senior executives -- including the CEO -- are expected to participate in benchmarking visits to other companies. In one such study, the UCS senior executive team visited Walt Disney. Their goal: to understand how Disney effectively deployed strong customer-focused operating values throughout a large and diverse work force. UCS executives were impressed by the way Disney began talking about the company's "values" in the pre-employment interview process. This practice and others were imported into AT&T Universal Card Service and they have helped UCS establish a strong corporate culture dedicated to "customer delight."
In addition to conducting benchmarking visits to other world- class companies, AT&T UCS requires its senior executives to stay tuned to its market by meeting with customers, listening to customers' calls, reviewing daily process measures, meeting quarterly with suppliers, reviewing and using customer feedback, reviewing the program management process monthly, co-chairing monthly customer listening post meetings, hosting team sharing rallies, conducting "meeting of the minds" sessions, holding quarterly employee meetings, and "owning" Baldrige self-assessment categories. Many of these activities give rise to informal or unstructured benchmarking opportunities.
Leaders Set The Culture
"Good is the enemy of best and best is the enemy of better," says Roger Milliken, CEO of Milliken & Company. With this attitude, Milliken has created a "we-can-learn-from- everyone" corporate culture at the South Carolina textile company. Innovative adaptation or creative imitation is the operative concept encouraging Milliken & Company's employees to look outside their work groups, business units and corporation for ideas that can help them continuously improve performance.
Roger Milliken supports this active learning culture with personal actions that reinforce the stated values of a fast learning organization. Milliken's CEO is known to stay late at the office and on occasion he works late with associates on detailed projects. He has no doors on his office, eschews corporate parking spaces, executive dining rooms and other perks that might separate him from the team that he leads. These largely symbolic gestures encourage idea exchange, information sharing and accessibility among employees -- including the CEO.
Every senior manager would do well to consider what effect his or her own actions have in developing an operating environment conducive to benchmarking, innovative adaptation and fast learning. In its broad-reaching inquiries into all aspects of an organization's performance improvement systems, the Baldrige criteria systematically probe leadership's role in supporting benchmarking as an enabler of continuous improvement. Try answering the following questions; all probe issues that Baldrige examiners must assess when evaluating a company's total quality systems: Do you visibly support benchmarking as an activity that fosters quality excellence?
- Do you make an effort to learn about the quality of domestic and international competitors?
- Do you study what other companies are doing so that your unit can import their most effective operating practices and strategies?
- Does your leadership employ benchmarking information to enable it to evaluate your organization's strategy?
- Does your senior executive team carefully study what your competitors are doing before making major business decisions?
The first reaction among many executives is to say, "Yes, we support benchmarking." However, a gap often exists between managerial intentions and management's supporting actions. In a Best Practices Benchmarking and Consulting, Inc. survey of the 80 most senior executives of a multi-national corporation, all operating executives indicated that they frequently attempt to learn about competitors, and most executives said that they "visibly support benchmarking as an activity that fosters quality excellence."
Despite executives' personal commitment to benchmarking, other survey questions revealed that "the walk does not always match the talk." In many instances, managerial systems and actions did not support or encourage benchmarking and active learning through comparisons and outreach.
For instance, benchmarking primarily concerned price and product feature comparisons. It did not examine a wider range of operating issues, such as process capability, quality, new product development success or speed to market. Moreover, managerial systems, such as reward and recognition, performance appraisals, information sharing networks and the strategic planning process, did not support benchmarking. In this corporation and others like it, senior executives are struggling to understand what their roles should be in championing benchmarking efforts within their organizations. They are challenged to develop managerial systems that support an organizational culture dedicated to innovative adaptation.
Responding to this new role, senior executives have significantly increased their numbers at benchmarking events such as the Malcolm Baldrige Quest For Excellence conferences, where newly announced Baldrige winners share their successful strategies. The Quest For Excellence conferences are the epitome of conference-style informal benchmarking; those attending can compare their companies' performance management approaches with those of a select few companies chosen to receive America's most prestigious award for quality excellence. In 1993, approximately 20 percent of attendees at Quest For Excellence V were CEOs, presidents, vice presidents or other senior executive officers in their organizations.
Benchmarking Project Champions
Benchmarking presents many organizations with a management paradox: benchmarking studies are typically most effective when conducted by front-line managers and employees who actually operate the systems and processes under examination; yet benchmarking projects produce sub-optimal results if the senior leadership doesn't champion these projects. Establishing the right mix of front-line involvement and senior executive involvement can be tricky. Clearly, senior executives play a leading role in determining the success of benchmarking projects. Senior executive influence is often disproportionately larger than the actual time and direct involvement they may dedicate to any given project. This is especially true of complex process benchmarking projects.
In the American Productivity & Quality Center's 1992 survey of 87 companies active in benchmarking, 61 percent of respondents stated that "no top management support" was a "great or very great" factor influencing unsuccessful benchmarking efforts. Senior management support ranked second, behind poor planning, as the most frequent reason a benchmarking study fails. In the same survey, 98 percent of benchmark respondents also observed that process owner involvement was of "great or very great importance" in a successful benchmarking study. This involvement may extend to senior executive team members who are responsible for championing individual processes that are critical to the organization's success. Moreover, 83 percent of benchmark survey respondents indicated that top management commitment was of "great or very great importance" in encouraging benchmarking within the respondents' organizations. In fact, top management commitment was the most frequently cited factor encouraging benchmarking in the surveyed organizations.
Boil down all these survey findings to their essence, and it's self- evident that senior executives play a critical role -- both direct and indirect -- in enabling benchmarking investigations and best practice improvement strategies to succeed.
Monitoring the Competition
Benchmarking prompts senior managers to focus systematically on the competition. Moreover, it expands the typical competitive scrutiny beyond price and product feature comparisons. "Power benchmarking," which embraces process comparisons, performance comparisons and strategic comparisons, embraces the widest range of operating areas. It includes -- but is not limited to -- examinations of process capability, organizational structure, quality, reliability, warranty costs, cycle times, human resource management, technology management and many other important competitive factors.
Some industries and organizations have long understood the importance of effective competitive intelligence. Authors Noel M. Tichy and Stratford Sherman describe the intense scrutiny on competitors at General Electric: "To promote clear thinking and fast decision-making, the CEO often makes operating executives prepare a few simple slides that describe the essence of their business situations. The slides show the answers to basic questions such as these:
- What does your global competitive environment look like?
- In the last three years, what have your competitors done?
- In the same period, what have you done to them?
- How might they attack you in the future?
- What are your plans to leapfrog them?"
Benchmarking provides senior executives a structured approach and by which to develop competitor information. The information may be process-oriented, performance-oriented or strategic in nature. More importantly, best practices benchmarking provides a systematic process for evaluating the adequacy of one's own position and course relative to competitors.
Whether you manage a multi-national corporation or a professional sports team, awareness of one's competitors is critical for successful leadership. Pat Riley, coach of the New York Knicks, carried Sun Tzu's "The Art of War" with him throughout the 1993 basketball season. When asked why he kept this military strategy book, written nearly 2500 years ago, at his bedside during the playoffs, Riley simply quoted Sun Tzu on the importance of competitive intelligence: "If you know your enemy and know yourself, you need not fear the result of a hundred battles." Senior executives that engage in benchmarking root their leadership in fact-based performance information. No wonder their success rates surpass those of other managers who operate without so systematically considering competitor capabilities and marketplace realities.
Corporate Governance and Oversight
Now that benchmarking is being profitably applied to organizational structure, strategy, performance, processes, products and services, it's time to put it consistently to work in the boardroom. The potential benefits are many for corporate directors. In performing their duties of corporate oversight and governance, board members must routinely evaluate the adequacy of senior management's goals, plans and overall strategy; benchmarking information provides essential reference points that make these evaluations much more objective and reflective of the current marketplace.
"There is no other factor in a company that is as important as knowing where you stand against your competitors. I'd lay that out against any company in any industry," observes James L. "Rocky" Johnson, the Chairman Emeritus of GTE Corporation. Johnson, who sits on many boards, says he always requests competitive benchmarking information from management, for it helps him assess the organization's current performance and future prospects. "If I had to pick one thing that I thought was most responsible for GTE's success it would be benchmarking ourselves against our competitors and then going about trying to be the best to compete in all those markets," adds Johnson.
The cautionary tales emerging from boardrooms across the nation, highlighted by forced leadership changes at corporations such as General Motors, American Express, Compaq Computer and Digital Equipment, speak of a new activism among boards. Increasingly, board members are no longer content to serve as passive corporate advisors; many are actively reviewing performance and operations, unwilling to accept the prognostications of management without independently testing them against competitive realities. In this regard, benchmarking information represents a valuable source of objective information by which corporate directors can better oversee the affairs of the companies which they serve. Committee work involving executive compensation, organizational structure, succession planning, pension trust, public policy and strategic planning is made excellent by the use of benchmarking.
Imagine how much more quickly a long list of directors might have acted if they had personally perused competitive comparisons and benchmark studies that provided a market-based perspective to the organization's goals, strategies and performance. How long would a corporate board sit quietly if it observed management setting seven to eight percent productivity improvement targets when competitors were setting and achieving 50%-60% improvement goals? Not long! Benchmarking information provides an important diagnostic test of the organization's current and future health.
"Whatever can help board members assess where the company is and what's the likelihood of its success, that would be invaluable. That is the value of benchmarking," observes Vincent Cannella, senior partner in charge of Quality at KPMG Peat Marwick. ". . . Especially if I'm a part-time board member, it would be nice to have benchmark information to help evaluate how this management is doing . . . how does it match up with its peers? What's the likelihood of this idea or enterprise working? I need to be equipped as a board member to make sure my name isn't soiled; I don't want to be part of a company that ran amok."
Ironically, the deep-rooted cultural barriers that often discourage front-line employees from borrowing from the best are equally obstructive among directors. When preparing for her first assignment on one of several boards, a young director said she began by benchmarking the role of effective board members so that she could undertake and meet her responsibilities. An older director and CEO, who also sits on several boards, confided how envious he was of her having the opportunity to review and learn from the experience of what other highly effective boards were doing. He noted that people simply expected him to know how to conduct affairs as a board member and therefore he never dared openly inquire what his role should be. What a shame it will be if directors become encumbered by the same cultural obstacles that can handicap unempowered front-line employees.
A powerful and flexible new business tool, benchmarking is not conceptually difficult to understand or apply. Operating managers are increasingly putting it to good use -- and so are growing numbers of senior managers. There is no reason why boards should not benefit as well. In both the conduct of general operations and of corporate governance and oversight, benchmarking for best practices is a sound business strategy.
When General Electric CEO Jack Welch returns from a visit to Wal-Mart raving about the practices of the world's largest retailer, his actions strongly communicate the acceptability of adopting and adapting others excellent practices to advance the organization. Then, when Welch writes about his experiences in his annual letter to shareholders in GE's annual report, employees begin to believe he means what he's saying: "In 1991, we shared best practices with a number of great companies. We learned something everywhere, but nowhere did we learn as much as at Wal-Mart. Sam Walton and his strong team are something very special. Many of our management teams spent time there observing the speed, the bias for action, the utter customer fixation that drives Wal-Mart; and despite our progress, we came back feeling a bit plodding and ponderous, a little envious, but, ultimately, fiercely determined that we're going to do whatever it takes to get that fast."
What can senior executives and board members do to put benchmarking to work in the executive office and boardroom? How can an organization's leadership foster creative adaptation throughout the corporation? Here are some action strategies that we have observed in different companies stretching across diverse industries. Consider how you might deploy these action strategies in your organization:
None of these action strategies alone is momentous. However, when taken together, they present a strong and consistent message that is articulated through the leadership's words and actions. No single action or pronouncement by an organization's leadership will ensure benchmarking's success throughout the company. Yet consistent words and actions lay a strong foundation for success. Some well-worn management wisdom observes that "the speed of the leader determines the rate of the pack." Certainly the speed with which senior executives and directors embrace benchmarking in their words, actions and management systems will determine the rate at which the line organization employs best practice strategies to drive innovation and improvement.
- Employ competitive benchmarks to provide an external context for operating reviews.
- Require benchmarks as part of the strategic planning process.
- Use benchmarking information to establish aggressive goals and standards.
- Study the strategies and core processes of other excellent companies.
- Use benchmarking information to evaluate and improve organizational structure.
- Review the products, services and practices of other companies and visit their facilities whenever possible.
- Invest in employee education that brings outside ideas into your organization.
- Create lending libraries that focus on competitors' and other high performers' winning strategies and systems.
- Reward and recognize creative adaptation or the borrowing of good ideas and systems.
- Invite customers, suppliers and other outside speakers to share their ideas and strategies with your employees.
- Make best practice information sharing and innovative adaptation a skill evaluated in the performance review and promotion process.
- Actively promote and publicize the benefits of borrowing from the best.
- Sponsor regular meetings and discussions where employees and managers exchange ideas and explore best practices. Place on the agenda of executive meetings a regular period of time to explore external ideas, systems and managerial approaches that might be profitably imported into the company.
- Make benchmarking a responsibility delineated in senior-level job descriptions.
- Employ best practice information in the problem solving and continuous improvement process.
- Link compensation to improvement against benchmarks in core operating functions.
- Focus organizational resources on identifying and deploying best practices, as well as on other quality-improvement strategies, such as defect reduction and error removal.
- Study what competitors and other leading companies are doing before making major business decisions and capital investments.
- Layout work areas to encourage idea sharing and information exchange.