Learning from the enemy: Roger Trapp on how more companies are benefiting from benchmarking
Thursday 15 September 1994
At a time when business is supposedly more competitive than ever before, such consorting with the enemy seems odd. But these executives are participating in a growing management phenomenon known as benchmarking.
At its simplest this is a concept that involves a company looking at the best of its rivals and trying to emulate them. A sign of how it is entering the mainstream will be the presence at the meeting of representatives of such companies as Shell, Unilever, Mars and Cable & Wireless, the conference hosts.
The organising body, the Benchmarking Council, was set up by the business strategy consultants Profit Impact of Market Strategy Associates (PIMS).
In the US, where the concept has been around for a decade, 95 per cent of companies say they adopt it. The latest survey by management consultants from Coopers & Lybrand and the Confederation of British Industry shows that the proportion of British companies that claim to be using it has grown from 67 per cent last year to 78 per cent this year.
Meanwhile, the approach appears to be catching on in Europe, where more than two-thirds of Dutch and Swiss companies and a third of Spanish ones say they are users.
Most of the leading consulting firms in this country claim expertise in the area. For instance, Price Waterhouse and Coopers & Lybrand, as well as PIMS, have seen significant take-up among British clients.
Tony Hales, the Allied-Lyons chief executive who chairs the Confederation of British Industry's national manufacturing council, sees it as a way of helping companies to 'define our objectives more clearly, manage our resources with greater focus and monitor our performance more objectively'.
The only problem is that the term benchmarking appears to mean all things to all people.
To the photocopier maker Xerox - which is generally credited with inventing it when it realised in 1983 how Canon of Japan was threatening its very existence - it is 'a continuous, systematic process of evaluating companies recognised as industry leaders, to determine business and work processes that represent 'best practices' and establish rational performance goals'.
But other companies have different definitions, ranging from 'efficiency ratio or yardstick' to 'looking for best practices available'.
It was partly to counter such confusion that the PIMS Benchmarking Council was recently established at the suggestion of the European arm of the food company Mars. Many companies admit to not knowing whether they should be comparing specific activities or overall performance. As Keith Roberts, PIMS's managing director, said: 'There is no right way to benchmark the wrong thing.'
In addition, some claim to be benchmarking when they are merely indulging in what has come to be called 'industrial tourism', where managers visit other companies' facilities without the experience producing any improvements in their own.
PIMS is keen to make the concept more scientific. Its efforts so far have won the backing of Mars's representative, Keith Ray. He believes the council has made participants feel confident that they are going about things in the right way and ensured they are comparing like with like.
Just how easy it is to be misled here is demonstrated by Mr Roberts in the differences between Mars and another food company, Nestle. They should not compare themselves with each other because they are organised differently. Mars - which has a pan-European confectionery business and pan-European petfood business - should look at other pan-European companies, while Nestle, which is divided by country rather than by business lines, should look at other multinationals.
The benchmarking concept is not without its problems. Although it is complementary to other ideas, such as the in-vogue business process re-engineering and the somewhat fading total quality management, it can be rejected by executives who have seen too many initiatives come and go.
Moreover, the confusion about what it actually is can lead to millions of pounds being spent on it without the expected spectacular results following. Similar waste can occur if the aims are too limited.
Larry Gilson, head of Andersen's specialist utility adviser, Venture Associates, pointed out that broadening the scope should go further than just encouraging electricity companies to look at gas or telecommunications companies. 'Ninety per cent of the things to compare you can find outside your industry,' he said. Utilities with vehicle fleets should look at Hertz or Federal Express for insights, while those concerned with repairing gas meters, say, could look at companies that service slot machines and the like.
Finally, as with most strategic changes, companies seem to need to face a fundamental threat before adopting it. Xerox, for example, reacted to the Canon threat, while in Britain the financial services industry became interested in pooling its experiences after the success of the innovatory Direct Line and Firstdirect insurance and banking operations.
And while some less-sophisticated companies are still reluctant to share information, multinationals such as BP and Unilever are growing in confidence and increasingly willing to talk to each other.
They realise they have more to lose by not taking part, suggests Graham Whitney, of Coopers' Benchmarking Centre of Excellence. 'If you don't look outside, you'll think you're the best and the number two will leapfrog you.'
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