Quiz 6: The Voice of the Market

Describe the concept of benchmarking. Provide an example of how a restaurant you are familiar with could use benchmarking to improve its performance.

A company has gathered the following financial information for itself and a competing firm. They wish to compare productivity for the two firms (all numbers in 000s). a. Compute partial and total factor productivity measures for Firms A and B. b. What is the picture you get of the two firms? c. What would you suggest to the management of Firm B?

What is a benchmark firm? Why is it good practice for a benchmark firm to open its doors and allow others to view its operations and tour its facilities?

For the firms in Problem, you have been asked to make a report to the management of Firm A. What are some of the caveats relating to accounting practices that you would include in the report? Which numbers should be interpreted cautiously? Problem A company has gathered the following financial information for itself and a competing firm. They wish to compare productivity for the two firms (all numbers in 000s). a. Compute partial and total factor productivity measures for Firms A and B. b. What is the picture you get of the two firms? c. What would you suggest to the management of Firm B?

What are the pros and cons of becoming a benchmark firm? If you were the manager of a highly successful company, would you want other companies benchmarking against your firm? Why or why not?

For the data in Problem, suppose Firm B is a foreign firm. What additional caveats would you place on interpretation of the data? Problem A company has gathered the following financial information for itself and a competing firm. They wish to compare productivity for the two firms (all numbers in 000s). a. Compute partial and total factor productivity measures for Firms A and B. b. What is the picture you get of the two firms? c. What would you suggest to the management of Firm B?

In the context of benchmarking, describe the distinction between an initiator firm and a target firm.

A domestic company operating a subsidiary in an LDC (less-developed country) has shown the following financial results a. Calculate partial labor and capital productivity numbers for the parent and subsidiary. Interpret the results b. Compute total factor productivity figures. Does your interpretation change? c. If $1 = 10 FC units, calculate materials productivity figures. Explain your finding.

Describe how benchmarking can be used by a firm to validate externally the value of its present business practices.

Above are industry comparisons of the percentage of sales spent on salaries for marketing employees, manufacturing engineering employees, and supply chain employees for several different industries. Rank these industries by the amount spent in each of the areas and report your findings to management. What can you infer from your findings about each of the industries?

Describe the concept of process benchmarking. How does process benchmarking improve a company's overall business performance?

Using the data from Problem, suppose you are a computer company that spends 9% on marketing staff, 6% on manufacturing engineering, and 8% on supply chain staff. Comparing your expenditures with the above averages, what would you recommend to management? What more information would you want? Problem Above are industry comparisons of the percentage of sales spent on salaries for marketing employees, manufacturing engineering employees, and supply chain employees for several different industries. Rank these industries by the amount spent in each of the areas and report your findings to management. What can you infer from your findings about each of the industries?

Is the growing popularity of the Internet a positive development or a negative development for the future of benchmarking? Explain your answer

Following is an announcement from a study from The Benchmarking Network, Inc. 5th Annual Shared Services Measures The Benchmarking Network and the Shared Services Benchmarking Association announced they will be kicking off the fifth Annual Shared Services Measures benchmarking study. Now is the time to join and become involved in setting the focus and direction of the study by attending the kickoff meeting. The study will review Shared Services Measures including research into: •Accounting; • Finance and Treasury;Ê • Human Resources; • Information Technology; • Procurement and Supply Chain; • Legal; • Regulatory; • Auditing; • Corporate Communications/External Affairs; • Facilities, Real Estate, Security; • Environmental; • Fleet; and • Other Shared Services Measures. Put yourself in the place of the Benchmarking Network researchers. How would you design this study? What would you have to consider in undertaking such a study?

Compare and contrast process benchmarking, product benchmarking, and strategic benchmarking.

The following table shows enrollment data from several British universities. Compare the data from these schools and present them in a way that is useful for the administrators in these schools.

When benchmarking, what is the primary hazard in comparing measures across companies to gauge performance differences?

Suppose that the chancellor of Bedford College asks you to infer meaning from the data in Problem 8. Put together a report for the chancellor that explains how Bedford is performing relative to the other schools.

How do a firm's key business factors help direct its benchmarking program?

Choose a company in your local area. Develop a list of five companies among the best in class in their industry and the best of the best. Explain how you chose the benchmarking targets you chose. Identify a list of 20 benchmarking questions. What kind of data would you select? How would you contact the target firms?

Provide several examples of the types of measures that are often gathered in benchmarking studies. How does a firm determine which measures should be included in its benchmarking program?

Following are financial statements from American Ecology. Studying these figures, what are some possible financial benchmarks this firm might want to develop?

Imagine yourself in the role of the CEO of a medium-sized auto parts company. Briefly describe how you would set up a benchmarking program. Include in your description an analysis of how you would determine "what" to benchmark and how you would determine "whom" to benchmark against

Baseline the data from Problem 11. Is the company's performance improving or worsening? Reference Problem 11: Following are financial statements from American Ecology. Studying these figures, what are some possible financial benchmarks this firm might want to develop?

Consider the following: "Despite its many advantages, benchmarking is not an appropriate technique for all firms. Some firms are so unique that it is impossible for them to find benchmark firms that experience the same challenges they do. As a result, it is impractical for these firms to participate in benchmarking." Do you agree or disagree? Explain your answer.

Many scholars believe business process benchmarking is the most important type of benchmarking. Do you agree with this particular belief? Why or why not?

Describe the concept of 5w2h

What management activities can be undertaken to support a firm's benchmarking activities? Make your answer as substantive as possible

What are some of the pluses and minuses of the benchmarking code of conduct? Would you add any other points to the code? If so, what?

Although benchmarking is a popular management technique, many firms are not engaged in the benchmarking process. Why do you think some firms avoid benchmarking? Are any of the reasons valid? Why or why not?

Amgen Corporation: Using Benchmarking as a Means of Coping with Rapid Growth Amgen: www.amgen.com American Productivity and Quality Center: www.apqc.org Amgen Corporation is the largest biotechnology company in the world. Founded in Thousand Oaks, California, the company produces lifesaving pharmaceutical products based on advances in cellular and molecular biology. One of the company's products, EPOGEN, is a product used for the treatment of anemia associated with chronic renal failure and is one of the top-selling pharmaceutical products in the world. Although Amgen is very good at developing cutting-edge pharmaceutical products, the company has struggled at times with the demands of managing a rapidly growing workforce. In the past 20 years, the company has grown from a workforce of 400 employees to 7,500. In particular, Amgen has faced challenges in terms of making the transition from a single-product company to a multiproduct company and in staffing and training its growing divisions. To deal with these challenges, Amgen decided to turn to benchmarking. The first department involved with the benchmarking initiative was sales training and development because the company's employees believed that improvement was needed in that area. There also was recognition within Amgen that training and development needed to be strengthened. Commenting on the merits of the first benchmarking study, Ellen Nichols, the director of the sales training and development department, said, "We'd been clearly focused on our products and customers, but perhaps we haven't had as focused an effort on developing our people." 1 To conduct its first benchmarking study, Amgen solicited help from the American Productivity and Quality Center (APQC) in Houston, Texas. APQC is a nonprofit organization that provides benchmarking training, maintains a best-practice database, and helps firms locate businesses to benchmark against. APQC helped Amgen develop a list of 40 potential benchmark targets, based on Amgen's criteria for selection. Amgen wanted to benchmark against companies that were high-growth, hightech, successful, and had a geographically dispersed sales force. Eventually, Amgen narrowed the list to seven companies and benchmarked its sales training and development department against similar departments at Dow Chemical, Lexus, Lucent Technologies, Motorola, Anheuser-Busch, Eastman Chemical, and IBM. Four of the companies invited Amgen personnel to visit their facilities, and the other three participants were interviewed over the phone. The study was successful, and Amgen redesigned its sales training and development department as a result of the benchmarking initiative. Amgen has found other opportunities to use benchmarking to help cope with the challenges of rapid growth in a high-technology industry. For example, the company used benchmarking to study the way it moves its products from production to the end user, and it conducted a benchmarking study that examined its marketing practices. Through its experiences, Amgen has learned some of the barriers to effective benchmarking and some of the global benefits. In terms of barriers, Amgen learned that a benchmarking study is only as good as its implementation. If the implementation stage is lengthy or is not taken seriously by the people involved, the study will not be useful. Another potential barrier is finding companies that are similar enough to your company to benchmark against and that are willing to participate. Having a partner like the American Productivity and Quality Center that maintains a best-practice database to draw from helps address this concern. Amgen has learned there are also global benefits to benchmarking, beyond the specific ideas and techniques that are gleaned from a particular benchmarking study. Benchmarking helps a firm gain visibility and sends a clear message to its stakeholders that the firm is interested in continuous improvement. In addition, benchmarking helps a firm determine whether its best-in-class activities are truly best in class. Often, it is difficult for a firm to know just how good (or poor) it is at some activity until it measures its activity against a similar firm. Amgen has been successful in its early experiences with benchmarking and serves as a model for how to initiate a benchmarking program. Although Amgen excels in the development of high-potential pharmaceutical products, it recognizes that it has a lot to learn about other management issues. Benchmarking has been a useful tool for the company in its learning efforts. Why was benchmarking so important for Amgen at the point in the company's history when benchmarking was initiated? Do you believe that benchmarking will contribute to Amgen's longterm success? 1 Powers, V. J., "Amgen Succeeds with Benchmarking through Outside Facilitation, Hard-Working Teams," American Productivity and Quality Center 8 (October 1997): 1.

Amgen Corporation: Using Benchmarking as a Means of Coping with Rapid Growth Amgen: www.amgen.com American Productivity and Quality Center: www.apqc.org Amgen Corporation is the largest biotechnology company in the world. Founded in Thousand Oaks, California, the company produces lifesaving pharmaceutical products based on advances in cellular and molecular biology. One of the company's products, EPOGEN, is a product used for the treatment of anemia associated with chronic renal failure and is one of the top-selling pharmaceutical products in the world. Although Amgen is very good at developing cutting-edge pharmaceutical products, the company has struggled at times with the demands of managing a rapidly growing workforce. In the past 20 years, the company has grown from a workforce of 400 employees to 7,500. In particular, Amgen has faced challenges in terms of making the transition from a single-product company to a multiproduct company and in staffing and training its growing divisions. To deal with these challenges, Amgen decided to turn to benchmarking. The first department involved with the benchmarking initiative was sales training and development because the company's employees believed that improvement was needed in that area. There also was recognition within Amgen that training and development needed to be strengthened. Commenting on the merits of the first benchmarking study, Ellen Nichols, the director of the sales training and development department, said, "We'd been clearly focused on our products and customers, but perhaps we haven't had as focused an effort on developing our people." 1 To conduct its first benchmarking study, Amgen solicited help from the American Productivity and Quality Center (APQC) in Houston, Texas. APQC is a nonprofit organization that provides benchmarking training, maintains a best-practice database, and helps firms locate businesses to benchmark against. APQC helped Amgen develop a list of 40 potential benchmark targets, based on Amgen's criteria for selection. Amgen wanted to benchmark against companies that were high-growth, hightech, successful, and had a geographically dispersed sales force. Eventually, Amgen narrowed the list to seven companies and benchmarked its sales training and development department against similar departments at Dow Chemical, Lexus, Lucent Technologies, Motorola, Anheuser-Busch, Eastman Chemical, and IBM. Four of the companies invited Amgen personnel to visit their facilities, and the other three participants were interviewed over the phone. The study was successful, and Amgen redesigned its sales training and development department as a result of the benchmarking initiative. Amgen has found other opportunities to use benchmarking to help cope with the challenges of rapid growth in a high-technology industry. For example, the company used benchmarking to study the way it moves its products from production to the end user, and it conducted a benchmarking study that examined its marketing practices. Through its experiences, Amgen has learned some of the barriers to effective benchmarking and some of the global benefits. In terms of barriers, Amgen learned that a benchmarking study is only as good as its implementation. If the implementation stage is lengthy or is not taken seriously by the people involved, the study will not be useful. Another potential barrier is finding companies that are similar enough to your company to benchmark against and that are willing to participate. Having a partner like the American Productivity and Quality Center that maintains a best-practice database to draw from helps address this concern. Amgen has learned there are also global benefits to benchmarking, beyond the specific ideas and techniques that are gleaned from a particular benchmarking study. Benchmarking helps a firm gain visibility and sends a clear message to its stakeholders that the firm is interested in continuous improvement. In addition, benchmarking helps a firm determine whether its best-in-class activities are truly best in class. Often, it is difficult for a firm to know just how good (or poor) it is at some activity until it measures its activity against a similar firm. Amgen has been successful in its early experiences with benchmarking and serves as a model for how to initiate a benchmarking program. Although Amgen excels in the development of high-potential pharmaceutical products, it recognizes that it has a lot to learn about other management issues. Benchmarking has been a useful tool for the company in its learning efforts. Was it a good idea for Amgen to solicit the help of the American Productivity and Quality Center? Do you think that Amgen would have been successful without the APQC's involvement? 1 Powers, V. J., "Amgen Succeeds with Benchmarking through Outside Facilitation, Hard-Working Teams," American Productivity and Quality Center 8 (October 1997): 1.

AT T Teleholdings: Making Benchmarking a Part of the Process Improvement Tool Kit AT T: www.att.com AT T Teleholdings offers local telecommunications services to people in Illinois, Indiana, Ohio, Michigan, and Wisconsin. The company has a rich history of innovation and customer service. For example, they were the first U.S. company to offer commercial cellular service. Today, the company offers a broad array of services to its customers and is an industry leader in productivity and financial performance. AT T Teleholdings is firmly committed to benchmarking. To maximize the potential of its benchmarking efforts, the company employs internal benchmarking experts and conducts benchmarking forums for its employees. Stories about successful benchmarking efforts in the company are always included in the forums. According to Orval Brown, the company's manager of business process architecture and benchmarking, "Other people's success stories (about benchmarking) get people interested and excited about the possibility of improvement." The company has found three approaches helpful in the attainment of quality improvements: Internal (best-of-breed) benchmarking involves a comparison of processes between different business units within the firm. External (best-in-class) benchmarking involves finding companies to benchmark against, even if the company is in an unrelated industry. Competitive (industry best) benchmarking against a leader in the same industry. Each of these types of benchmarking has unique challenges and rewards. Internal benchmarking is the simplest because there is typically no problem getting access to information. External benchmarking is more challenging because of access and confidentiality issues, but the rewards can be quite good. Competitive benchmarking is the toughest because a direct competitor typically will go only so far in terms of sharing information. The rewards, however, can be substantial. Because the company is multifaceted in its benchmarking efforts and because a lot of employees are involved, the firm uses a benchmarking code of conduct to maintain strict control of its benchmarking efforts. The benchmarking code of conduct (reflecting the guidelines from the Strategic Planning Institute Council of Benchmarking) is as follows: • Keep it legal. • Be willing to provide the same information you request. • Respect confidentiality. • Keep information internal for your use only. • Initiate contact through benchmarking contacts. • Don't refer possible benchmarking candidates without their permission. • Be prepared at initial contact. • Have a basic knowledge of benchmarking, and follow the process. This code of conduct provides a measure of continuity across the company's benchmarking efforts that is very helpful in developing a consistent set of benchmarking behaviors. It also helps ensure that benchmarking will in no way impinge on the ethical standards of the firm. One component of the benchmarking process that the company has become very good at over the years is finding suitable firms to benchmark against. They typically look for the following types of companies to include in benchmarking studies: companies that have received quality or business awards, companies with excellent financial results, companies with success stories published in major periodicals, and companies that are top-rated in their industries. These criteria help to select firms that have the highest potential to provide successful benchmarking results. Management is also keenly aware of the fact that the litmus test of any management initiative is effective implementation. The company typically takes the following steps in implementing what it learns from a benchmarking initiative: Select implementation alternatives. Assign resources and create a schedule. Establish goals. Develop a monitoring plan. Gain appropriate approval to alter current practices. Implement the plan. Communicate the benchmarking findings. This formalized process of implementation helps ensure that a benchmarking effort translates into actual change. As the telecommunications industry continues to become more competitive, the company's reliance on benchmarking as part of its process improvement tool kit will probably become even more pronounced. Is AT T Teleholdings' benchmarking code of conduct a good idea? What types of ethical abuses potentially could occur in benchmarking if a firm did not follow a strict code of conduct?

AT T Teleholdings: Making Benchmarking a Part of the Process Improvement Tool Kit AT T: www.att.com AT T Teleholdings offers local telecommunications services to people in Illinois, Indiana, Ohio, Michigan, and Wisconsin. The company has a rich history of innovation and customer service. For example, they were the first U.S. company to offer commercial cellular service. Today, the company offers a broad array of services to its customers and is an industry leader in productivity and financial performance. AT T Teleholdings is firmly committed to benchmarking. To maximize the potential of its benchmarking efforts, the company employs internal benchmarking experts and conducts benchmarking forums for its employees. Stories about successful benchmarking efforts in the company are always included in the forums. According to Orval Brown, the company's manager of business process architecture and benchmarking, "Other people's success stories (about benchmarking) get people interested and excited about the possibility of improvement." The company has found three approaches helpful in the attainment of quality improvements: Internal (best-of-breed) benchmarking involves a comparison of processes between different business units within the firm. External (best-in-class) benchmarking involves finding companies to benchmark against, even if the company is in an unrelated industry. Competitive (industry best) benchmarking against a leader in the same industry. Each of these types of benchmarking has unique challenges and rewards. Internal benchmarking is the simplest because there is typically no problem getting access to information. External benchmarking is more challenging because of access and confidentiality issues, but the rewards can be quite good. Competitive benchmarking is the toughest because a direct competitor typically will go only so far in terms of sharing information. The rewards, however, can be substantial. Because the company is multifaceted in its benchmarking efforts and because a lot of employees are involved, the firm uses a benchmarking code of conduct to maintain strict control of its benchmarking efforts. The benchmarking code of conduct (reflecting the guidelines from the Strategic Planning Institute Council of Benchmarking) is as follows: • Keep it legal. • Be willing to provide the same information you request. • Respect confidentiality. • Keep information internal for your use only. • Initiate contact through benchmarking contacts. • Don't refer possible benchmarking candidates without their permission. • Be prepared at initial contact. • Have a basic knowledge of benchmarking, and follow the process. This code of conduct provides a measure of continuity across the company's benchmarking efforts that is very helpful in developing a consistent set of benchmarking behaviors. It also helps ensure that benchmarking will in no way impinge on the ethical standards of the firm. One component of the benchmarking process that the company has become very good at over the years is finding suitable firms to benchmark against. They typically look for the following types of companies to include in benchmarking studies: companies that have received quality or business awards, companies with excellent financial results, companies with success stories published in major periodicals, and companies that are top-rated in their industries. These criteria help to select firms that have the highest potential to provide successful benchmarking results. Management is also keenly aware of the fact that the litmus test of any management initiative is effective implementation. The company typically takes the following steps in implementing what it learns from a benchmarking initiative: Select implementation alternatives. Assign resources and create a schedule. Establish goals. Develop a monitoring plan. Gain appropriate approval to alter current practices. Implement the plan. Communicate the benchmarking findings. This formalized process of implementation helps ensure that a benchmarking effort translates into actual change. As the telecommunications industry continues to become more competitive, the company's reliance on benchmarking as part of its process improvement tool kit will probably become even more pronounced. This case describes benchmarking as an important part of the company's "tools" of quality. What other tools of quality does benchmarking complement?

AT T Teleholdings: Making Benchmarking a Part of the Process Improvement Tool Kit AT T: www.att.com AT T Teleholdings offers local telecommunications services to people in Illinois, Indiana, Ohio, Michigan, and Wisconsin. The company has a rich history of innovation and customer service. For example, they were the first U.S. company to offer commercial cellular service. Today, the company offers a broad array of services to its customers and is an industry leader in productivity and financial performance. AT T Teleholdings is firmly committed to benchmarking. To maximize the potential of its benchmarking efforts, the company employs internal benchmarking experts and conducts benchmarking forums for its employees. Stories about successful benchmarking efforts in the company are always included in the forums. According to Orval Brown, the company's manager of business process architecture and benchmarking, "Other people's success stories (about benchmarking) get people interested and excited about the possibility of improvement." The company has found three approaches helpful in the attainment of quality improvements: Internal (best-of-breed) benchmarking involves a comparison of processes between different business units within the firm. External (best-in-class) benchmarking involves finding companies to benchmark against, even if the company is in an unrelated industry. Competitive (industry best) benchmarking against a leader in the same industry. Each of these types of benchmarking has unique challenges and rewards. Internal benchmarking is the simplest because there is typically no problem getting access to information. External benchmarking is more challenging because of access and confidentiality issues, but the rewards can be quite good. Competitive benchmarking is the toughest because a direct competitor typically will go only so far in terms of sharing information. The rewards, however, can be substantial. Because the company is multifaceted in its benchmarking efforts and because a lot of employees are involved, the firm uses a benchmarking code of conduct to maintain strict control of its benchmarking efforts. The benchmarking code of conduct (reflecting the guidelines from the Strategic Planning Institute Council of Benchmarking) is as follows: • Keep it legal. • Be willing to provide the same information you request. • Respect confidentiality. • Keep information internal for your use only. • Initiate contact through benchmarking contacts. • Don't refer possible benchmarking candidates without their permission. • Be prepared at initial contact. • Have a basic knowledge of benchmarking, and follow the process. This code of conduct provides a measure of continuity across the company's benchmarking efforts that is very helpful in developing a consistent set of benchmarking behaviors. It also helps ensure that benchmarking will in no way impinge on the ethical standards of the firm. One component of the benchmarking process that the company has become very good at over the years is finding suitable firms to benchmark against. They typically look for the following types of companies to include in benchmarking studies: companies that have received quality or business awards, companies with excellent financial results, companies with success stories published in major periodicals, and companies that are top-rated in their industries. These criteria help to select firms that have the highest potential to provide successful benchmarking results. Management is also keenly aware of the fact that the litmus test of any management initiative is effective implementation. The company typically takes the following steps in implementing what it learns from a benchmarking initiative: Select implementation alternatives. Assign resources and create a schedule. Establish goals. Develop a monitoring plan. Gain appropriate approval to alter current practices. Implement the plan. Communicate the benchmarking findings. This formalized process of implementation helps ensure that a benchmarking effort translates into actual change. As the telecommunications industry continues to become more competitive, the company's reliance on benchmarking as part of its process improvement tool kit will probably become even more pronounced. Telecommunications is a fast-paced, rapidly changing industry. Do you believe that benchmarking is particularly important in a fast-paced industry? Why or why not?