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Transcript of Six Sigma - Benchmarking
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
IXCUSTOMER & COMPETITIVE INTELLIGENCE
FOR SYSTEMS INNOVATION & DESIGN
S IGMAS DEPARTMENT OF
STATISTICSDR. RICK EDGEMAN, PROFESSOR & CHAIR – SIX SIGMA BLACK BELT
[email protected] OFFICE: +1-208-885-4410
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
IXS IGMAS DEPARTMENT OF
STATISTICS
Benchmarking
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
IXS IGMAS
DEPARTMENT OF
STATISTICS
a highly structured strategy for acquiring, assessing, and applying customer, competitor, and enterprise intelligence for the purposes of product, system or enterprise innovation and
design.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Six Sigma Strategy and Methods
Managing Six Sigma Projects: Benchmarking from a Six Sigma Perspective
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma The Analyze Phase of DMAIC: Define Performance Objectives
Defects
p(x) Benchmark
Z short-termBaseline
Benchmark: World-class performance
Z short-term: The level of performance a business should be able to achieve given the investments already made
Baseline:The current level of performance
Benchmarking sets the ultimate goal, while baselining takes current measurements to monitor a process
Benchmarking sets the ultimate goal, while baselining takes current measurements to monitor a process
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaDefine Improvement
Objective For Y• Z Short-term: Short-term performance of the process
• Benchmarking: Get to best-in-class
• Learning Curve-Based: Get to 6 Sigma across all processes in 5 years
• Defect Reduction: e.g., eliminate 90% of defects
Sigma Scale of Measure
1
10
100
1000
10000
100000
1000000
Your ProcessYour Process
Improvement Objective
Improvement Objective
1 2 3 4 5 6
The Basic ObjectiveThe Basic Objective
Six Sigma Teams Set Aggressive, but Achievable
Objectives.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Actual (LT) Potential (ST)
0.7700.7690.7680.7670.766
Process Performance
USLLSL
Actual (LT) Potential (ST)
1,000,000
100,000
10,000
1000
100
10
1
3002001000
Potential (ST)Actual (LT)
Sigma
PPM
(Z.Bench)
Process Benchmarks
0
3.42
309
6.00
Process Demographics
Opportunity:
Nominal:
Lower Spec:
Upper Spec:
Units:
Characteristic:
Process:
Department:
Project:
Reported by:
Date:
Report 1: Executive Summary
Process Capability
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
BenchmarkingBenchmarking is the process of continually searching for the best methods, practices and processes, and either adopting or adapting their good features and implementing them to become the “best of the best.”
How is benchmarking used?• Compare performance of an existing process against other companies’ best-in-class practices• Determine how those companies achieve their performance levels• Improve internal performance levels
Use benchmarking both for comparison of performance as well as to understand the potential
for improvement
Use benchmarking both for comparison of performance as well as to understand the potential
for improvement
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Types of BenchmarkingCompetitive BenchmarkingFunctional Benchmarking
Internal BenchmarkingProduct BenchmarkingProcess Benchmarking
Best Practices BenchmarkingStrategic Benchmarking
Parameter Benchmarking
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Competitive
• Industry leaders• Top performers with
similar operatingcharacteristics
Functional
• Top performersregardless of industry
• Aggressive innovatorsutilizing newtechnology
Internal
• Top performers within company
• Top facilities within company
Best PracticeOverlap
Benchmarking Methodology
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Is… A continuous process A process of investigation that provides valuable
information A process of learning from others; a pragmatic
search for ideas A time-consuming, labor-intensive process
requiring discipline A viable tool that provides useful information for
improving virtually any business process
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking MethodologyChecklist
1. Identify Process to Benchmark
Select process and define defect and opportunities
Measure current process capability and establish goal
Understand detailed process that needs improvement
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Methodology2. Select Organization to
Benchmark Outline industries/functions which perform
your process Formulate list of world class performers Contact the organization and network
through to key contact
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Methodology3. Prepare for the Visit
Research the organization and ground yourself in their processes
Develop a detailed questionnaire to obtain desired information
Set up logistics and send preliminary documents to organization
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Methodology4. Visit the Organization
Feel comfortable with and confident about your homework
Foster the right atmosphere to maximize results Conclude in thanking organization and ensure
follow-up if necessary
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Methodology5. Debrief and Develop an Action
Plan Review team observations and compile report
of visit Compile list of best practices and match to
improvement needs Structure action items, identify owners and
move into Improve phase
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Methodology6. Retain and
Communicate Report out to business management and 6σ leaders
Post findings and/or visit report on local server/6σ bulletin board
Enter information on GE Intranet benchmarking project database
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Library Database Internal Reviews
Internal Publications Professional Associations
Industry Publications Special Industry Reports
Functional Trade Publications Seminars
Industry Data Firms Industry Experts
University Sources Company Watches
Newspapers Advertisements
Newsletters Original Research
Customer Feedback Supplier Feedback
Telephone Surveys Inquiry Service
Networks World Wide Web
Sources of Information
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaBenchmarking Compliance
Policy regarding benchmarking protocol should be communicated to all employees involved, prior to contacting external organizations. Guidelines should address the following areas:
Misrepresentation – do not misrepresent your identity in order to gather information Information requests – a request should be made only for information your organization would be willing to share with another company Sensitive / proprietary information – avoid direct benchmarking of sensitive or proprietary information Confidentiality – treat all information as confidential
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaBenchmarking
Compliance Avoiding inappropriate communication and contacts with competitors
Never propose, enter, or engage in a discussion related to any agreements with a competitor to fix prices, in terms or conditions of sale, costs, profit margins, or other aspects of the competition
Keep communications with competitors to a minimum – make sure there is a legitimate business reason for all such communications
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaBenchmarking
Compliance Consult with business legal counsel before initiating any contact with competitors regarding Six Sigma (or any other topic):
Benchmarking
Training of suppliers and customers – they may also be competitors
Comply with GECS guidelines for:
Documenting competitor contacts – check with legal counsel first.
Participating in trade associations and standards - setting groups.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking
Best Practices, Processes & Products
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Customers are Increasingly Demanding
Customer expectationsare simple. They want more goodsand services at a lower cost, in a
shorter time frame, withmore information!
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Customer Expectation Dilemma
Time
Perf
orm
an
ce
Expecta
tions
Continuous Improvement
Performance Gap
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking(A) The process of identifying and learning from best practices anywhere in the world is a powerful tool in the quest for continuous improvement.
(B) The systematic process of searching for best practices, innovative ideas, and highly effective operating procedures that lead to superior performance.
Learning by borrowing from the best and adapting their approaches to fit your own needs is the essence of benchmarking. It has broad applications in problem solving, planning, goal setting, process improvement, innovation, reengineering, and strategy setting. It is a fundamental business skill that supports quality excellence.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaBenchmarks & Benchmarking:Ideas & Definitions Benchmarking: is the on-going search for best practices that
produce superior performance when adapted and implemented in one’s own organization.
Emphasis: On-going outreach activity Goal: Identification of best operating practices When Implemented: Produces superior performance. Benchmarking: is the actual process of investigation and
discovery that emphasizes the operating procedures as the things of greatest interest and value.
Benchmarks: are measurements to gauge the performance of a function, operation, or business relative to others.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Best Practices - the Ends
Enablers - the Means to the Ends
SOFT MEDIUM HARD
Training
Communication
Empowerment
Attitude
ManagementInvolvement
Goals & Objectives
Sequence
Controls
Measures
Policies &Procedures
Plant
Suppliers
Money
Technology
Equipment
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarks & Benchmarking:Managing Change
• Best Practices Benchmarking can be described as the process of seeking out and studying the best internal and external practices that produce superior performance.– Don’t reinvent what others have learned to do better!– Borrow shamelessly!– Adopt, adapt, advance!– Imitate creatively!– Adapt innovatively!
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking for Best Practices
Metrics
Benchmarks
OperatingStatistics
Processes
Best Practices
Benchmarking
Practices
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Process
Benchmarking• Process benchmarking focuses on discrete work
processes and operating systems, such as the customer complaint process, the order-and-fulfillment process, or the strategic planning process.
• Process benchmarking seeks to identify the most effective operating practices from many companies that perform similar work functions.
• Its power lies in its ability to produce bottom-line results. If an organization improves a core process, for instance, it can then quickly deliver process improvement
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaPerformance
Benchmarking• Performance benchmarking enables managers to
assess their competitive positions through product and service comparisons.
• Performance benchmarking usually focuses on elements of price, technical quality, ancillary product or service features, speed, reliability, and other performance characteristics.
• Reverse engineering, direct product or service comparisons, and analysis of operating statistics are the primary techniques applied during performance benchmarking.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Strategic
Benchmarking• Strategic benchmarking examines how companies compete and is seldom industry-focused. It roves across industries seeking to identify the winning strategies that have enable high-performing companies to be successful in their marketplaces.
• Strategic benchmarking influences the longer-term competitive patterns of a company. Consequently, the benefits may accrue slowly.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Applications &
Benefits Setting & Refining Strategy; Reengineering Work Processes & Business Systems; Continuous Improvement of Work Processes &
Business Systems; Strategic Planning & Goal Setting; Problem Solving; Education and Idea Enrichment; Market Performance Comparisons & Evaluations; Catalyst for Change.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Widely AcknowledgedBenchmarking Benefits
• Improves organizational quality;• Leads to lower cost positions;• Creates buy-in for change;• Exposes people to new ideas;• Broadens the organization’s operating perspective;• Creates a culture open to new ideas;• Serves as a catalyst for learning;• Tests the rigor of internal operating targets;• Creates an external business view;• Raises the organization’s level of maximum potential
performance.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking
Code of Conduct
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaThe Benchmarking Code of
Conduct:Adopted by The Council on Benchmarking
of The Strategic Planning InstituteSuccessful Benchmarking Includes Personal Interaction,
Openness, Sharing and the Transfer of Information.
Trust Between Benchmarking Parties is Fundamental.
To Respect the Rights and Prerogatives of Others and Reflect Legal Considerations and Limitations, the Following
Guidelines are Suggested for any Benchmarking Interaction.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking:
Legal & Ethical Guidelines• Ethics
– Principles, guidelines, or standards that determine a protocol of interaction between individuals and organizations.
– Deal in a forthright & above board manner.– Provide for a clear understanding of the intended use of
information. Consult your partner(s) should your intent change.
– Conduct benchmarking activities with integrity and in a professional manner. Establish specific ground rules in advance, particularly when benchmarking with a competitor.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking:
Legal & Ethical Guidelines• Legality
– Never misrepresent yourself or your organization’s interest in a benchmarking exchange.
– Treat information obtained from a benchmarking partner as privileged. Identify all parties who will have access and the extent of that access.
– Comply with antitrust laws; be aware of potentially sensitive issues and consult with legal counsel if gathering procedure is in doubt, particularly if dealing with current or potential competitors.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma• Legality: Proprietary Information• Any information (in tangible or intangible form) created, acquired
or controlled by the company that has not been published or released without restriction of a type the company wishes to maintain confidential. Proprietary information includes various kinds of technical, information per Securities & Exchange Commission requirements.– Request and accept only the types and levels of information
that you and your organization are willing to share.– Understand your and your partner organizations definitions,
restrictions, and controls on proprietary information.– Respect the sensitivity of partner organizations in areas that
you might not consider proprietary.– Seek prior understanding about what can be shared and / or
how it might be used.– Consult legal counsel on restrictions or rights regarding
proprietary information.Benchmarking: Legal & Ethical Guidelines
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma• Legality: Intellectual Property• Refers to the kind of property created from intellectual activities
in the industrial, scientific, literary, or artistic fields. It includes business and technical information (e.g. scientific works, inventions, industrial designs, computer programs) and the material that might lead to patents, copyrights, trademarks, service marks, and commercial names or designations.– Know the internal organization source for any information that
your organization plans to provide in a benchmarking exchange.
– Understand the nature and value of your organization’s intellectual property. Respect the values of your benchmarking partner.
– Seek prior understanding about what can be shared and how it might be used.
– Consult legal counsel on restrictions or rights regarding intellectual property.
Benchmarking:
Legal & Ethical Guidelines
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking:
Legal & Ethical GuidelinesConclusion
Knowing the nature of the benchmarking topic, dealing ethically and legally, understanding information exchange latitudes, and
following the Benchmarking Code of Conduct
will contribute to a successful and mutually beneficial benchmarking interchange.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
PRINCIPLES• To contribute to efficient, effective and ethical benchmarking,
individuals agree for themselves and their organization to abide by the following principles for benchmarking with other organizations:
• LEGALITY: Avoid discussions or actions that might lead to or imply an interest in restraint of trade: market or customer allocation schemes, price fixing, dealing arrangements, bid rigging, bribery, or misappropriation. Do not discuss costs with competitors if costs are an element of pricing.
• EXCHANGE: Be willing to provide the same level of information that you request, in any benchmarking exchange.
The Benchmarking Code of Conduct:Adopted by The Council on Benchmarking of
The Strategic Planning Institute
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
PRINCIPLES• CONFIDENTIALITY: Treat benchmarking interchange as something
confidential to the individuals and organizations involved. Information obtained must not be communicated outside the partnering organizations without prior consent of participating benchmarking partners. An organization’s participation in a study should not be communicated externally without their permission.
• USE: Use information obtained via benchmarking partnering only for the purpose of improvement of operations within the partnering companies themselves. External use or communication of a benchmarking partner’s name with their data or observed practices requires permission of that partner. Do not, as a consultant or client, extend one company’s benchmarking study findings to another without the first company’s permission.The Benchmarking Code of Conduct:
Adopted by The Council on Benchmarking of The Strategic Planning Institute
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
PRINCIPLES• FIRST PARTY CONTACT: Initiate contacts, whenever possible,
through a benchmarking contact designated by the partner company. Obtain mutual agreement with the contact on any hand off of communication or responsibility to other parties.
• THIRD PARTY CONTACT: Obtain an individual’s permission before providing their name in response to a contact request.
• PREPARATION: Demonstrate commitment to the efficiency and effectiveness of the benchmarking process with adequate preparation at each process step; particularly at initial partnering contact.
The Benchmarking Code of Conduct:Adopted by The Council on Benchmarking of the
Strategic Planning Institute
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
The Benchmarking Code of Conduct:Adopted by The Council on Benchmarking of
The Strategic Planning Institute
Remember• 1. Keep it legal;• 2. Be willing to give what you get;• 3. Respect confidentiality;• 4. Keep information internal;• 5. Use benchmarking contacts;• 6. Don’t refer without permission;• 7. Be prepared at initial contact.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma Etiquette & Ethics• In actions between benchmarking partners, the emphasis is on
openness and trust. The following guidelines apply to both partners in a benchmarking encounter.– In benchmarking with competitors, establish specific ground
rules up front, e.g. “We don’t want to talk about those things that will give either of us a competitive advantage, rather, we want to see where we both can mutually improve or gain benefit.”
– Do not ask competitors for sensitive data or cause the benchmarking partner to feel that sensitive data must be provided to keep the process going.
– Use an ethical third party to assemble and blind competitive data, with inputs from legal counsel, for direct competitor comparisons.The Benchmarking Code of Conduct:
Adopted by The Council on Benchmarking of The Strategic Planning Institute
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Etiquette & Ethics– Consult with legal counsel if any information gathering
procedure is in doubt, e.g., before contacting any direct competitor.
– Any information obtained from a benchmarking partner should be treated as internal, privileged information.
– DO NOT:• Disparage a competitor’s business or operations to a
third party.• Attempt to limit competition or gain business through
the benchmarking relationship.• Misrepresent oneself as working for another employer.
The Benchmarking Code of Conduct:Adopted by The Council on Benchmarking of
The Strategic Planning Institute
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Exchange Protocol• As the benchmarking process proceeds to the exchange of
information, benchmarkers are expected to:– Know and abide by “The Benchmarking Code of Conduct”.– Have basic knowledge of benchmarking and follow a
benchmarking process.– Have determined what to benchmark, identified key performance
variables, recognized superior performing companies, and completed a rigorous self-assessment.
– Have developed a questionnaire and interview guide, and will share these in advance if requested.
– Have the authority to share information.– Work through a specified host and mutually agree on scheduling
and meeting arrangements.The Benchmarking Code of Conduct:Adopted by The Council on Benchmarking of
The Strategic Planning Institute
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Exchange Protocol: Guidelines for Face-to-Face Site Visits• Provide meeting agenda in advance.• Be professional, honest, courteous, and prompt.• Introduce all attendees and explain why they are present.• Adhere to the agenda: maintain focus on benchmarking issues.• Use language that is universal, not one’s own jargon.• Do not share proprietary information without prior approval, from the
proper authority, of both parties.• Share information about your process, if asked, and consider sharing
study results.• Offer to set up a reciprocal visit.• Conclude meetings and visits on schedule.• Thank the benchmarking partner for the time and for the sharing.The Benchmarking Code of Conduct:
Adopted by The Council on Benchmarking of The Strategic Planning Institute
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarks & Performance Measurement
Revolutions begin long before they are officially declared.
For several years, senior executives in a broad range of industries have been rethinking how to measure the
performance of their businesses.
At the heart of this revolution lies a radical decision: to shift from treating financial figures as the foundation
for performance measurement to treating them as one among a broader set of measures.
Professor Robert Eccles, Harvard Business School
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Whys &
Hows• Benchmarking represents a versatile process management tool that helps organizations identify and understand what constitutes best operating practices.
• Benchmarks are the operating statistics or measures that define the achievement level of any given practice or system.
• These are not in and of themselves enough since they provide no insight into the root causes of performance differences.
• A flexible set of benchmarks reflects full process or system capabilities. Performance indicators may include dimensions such as cost, productivity, cycle time, yields, error rates, waste and turnover.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Range of
Benchmarks FOCUS Benchmark Levels Type Improvement
Benefit
STRATEGIC Best-in-World 7 Generic Processes 30%* Product / Services* Business Processes* Business Function
Best-in-Country 6 Functional Areas 30%-40%
PERFORMANCE Industry Leader 5 Direct Competitor 15%-20%* Customer Satisfaction Norm 4 * Output : Standard 3 --Products & Services
PROCESS Best-in-Company 2 Internal15%* Practices & Capability* Inputs: -- Material/Supplier Baseline 1
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaLessons from Active
Benchmarkers• 1. Do not strive to benchmark everything at best-in-country or best-in- world levels:
No company can be best in every function -- focus on processes and practices of strategic importance.
• 2. Seek best-in-class benchmarks for core processes and functions of the highest strategic importance: the Pareto Principle wins again. Other benchmarks can come from levels 2 through 5. World and country leadership benchmarks require greater time, resources and effort to develop.
• 3. Seek internal, regional, or industry benchmarks for secondary and support processes: for some processes and business activities that are not critical to the organization’s strategic advantage, internal, regional or competitive benchmarks may be most appropriate. Such benchmarks produce incremental improvements that are substantial -- even if not radical or ‘breakthrough’ in terms of the size of the expected improvement benefits.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Architecture
Performance Measures
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Dashboard of New Performance Measures
CapitalExpenditures
Costs
Profitability
Cashflow
SalesLiabilities
Assets
Debt
QualityCustomerRetention
Training
CustomerSatisfaction
DefectRates
CycleTime
ReferralRates
EmployeeRetention
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Designing Successful Benchmarks:Effective Performance Benchmarks Reflect the Most Important
Operating Dimensions of a Business Process, System, or Function.
• MEASUREMENT FOCUS – Determine where in a work area or process that value for the customer is created;– Determine where value is detracted through high costs, errors, rework, or accidents; and– Target benchmarks in areas where performance diverges from designated standards, or where variation
above and below standards is greatest.
• MEASUREMENT PERSPECTIVE– Leading indicators foreshadow or anticipate future system outcomes. Leading indicators are thus
“proactive” or “preventative”.– Lagging indicators such as traditional financial measures are “reactive” or “descriptive” of the actual
results of a system or process in a given time period.– Traditional companies employ lagging indicators while high-performance companies embrace
both types since leading indicators intervene upstream.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
• MEASUREMENT CONTROL– People are always the principal factor affecting the degree of measurement control. Managers
fail at performance improvement when they evaluate individual or system performance using benchmark measures that are uncontrollable by the people overseeing the process.
– Therefore benchmarks that are designed for performance improvement must be crafted to reflect the individual level of authority, responsibility, and skills of those people expected to work with the benchmarks.
• DATA COLLECTION– After defining performance measures, managers must be able to readily collect the data from
which performance benchmarks are constructed.– Many organizations develop interesting performance measures only to discover that they
currently do not collect the required information and do not have the resources to do so. – The best performance benchmarks can be collected without excessive investment of time,
systems, staff, or capital.
Designing Successful Benchmarks
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaA Benchmark Design
ArchitectureThe first step in designing a performance
benchmark system is to create measures that will enable management to achieve the organization’s strategic objectives.
The second step in designing a benchmark architecture requires managers to create an agreed upon vocabulary describing performance measurement in your organization.
The third step is to develop plans to collect, process, and analyze the performance measures.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaDesigning a Benchmark
Architecture:Ten Generic Benchmark Categories
• Customer-service performance;
• Product / service performance;
• Core business process performance;
• Support processes and services performance;
• Employee performance;
• Supplier performance;
• Technology performance;
• New product / service development and innovation performance;
• Cost performance;
• Financial performance.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaCustomer-Service Performance Measures:
The Best Customer-Related Measures Come from Objective and Valid Data Collected Directly from
Customers Customer-service performance measures typically probe organizational performance in the following areas:
Overall Customer Satisfaction with Products & Services; Customer Evaluations of Sales & Service Representatives; Customer Assessments of Your Organization’s Understanding of
Customer Needs; Customer Ratings of How Clearly Your Organization Communicates Cost
Information & How Well the Organization Suggests Customer Solutions Customer Appraisals of Delivery Timeliness; Customer Impressions About the Usefulness of Your Organization’s
Product & Service Documentation; Customer Feelings Concerning How Easy it is to Conduct Business with
Your Organization; The Value Customers Place on Your Organization’s Products & Services.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Product / ServicePerformance Measures
Product & Service Performance BenchmarksInclude Measures of:
Accuracy, Reliability, Timeliness, Order Ease, Delivery, Packaging, Ease of Assembly & Use, Documentation, Billing, After-Sales Service, and Effective Complaint Management.
These May Also Include:Warranty Exchanges and Returns,
Unit Productivity & Cost, Cycle Time for Key Intervals,and Market Share.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Business ProcessPerformance Measures
A simple process analysis model can help identify your organization’s most
important workflows. This model reveals that all work can be viewed in
four sequential stages:
1. Inputs (including those from both employees & suppliers);2. Processes (including internal operations & support services);
3. Outputs (your organization’s products, services, and documentation); and
4. Customer Satisfaction.
In the following graphic (the input-output process model) we begin with inputs that can
be tangible (such as supplies, raw materials, and component products) or intangible (such as information) which are delivered to the work process,
which transforms them into some final output which might be a product or service. The goal of the output is to create satisfied and loyal customers.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Input-Output Process Model
Products
Services
Documentation
Results
Design of Products/Services
Production of Products
Performance of Services
Delivery ofProducts/Services
People
Raw Materials
Components
CustomerRequirements
Capital
CustomerNeeds
Satisfied
CustomerProblems
Solved
CustomerRequirements
Met
Inputs Processing Outputs Customers
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaCommon Performance Measures of
theInput-Out Process Analysis Model
* Enhanced customer value - often observed through added product features or reduced costs;
* Production costs, frequently described as cost per 100, 1000 or million;* Responsiveness and / or process cycle time;
* Defect, error, waste, problem, or failure rates, often formatted asdefects per 1000 or million output units;
* Productivity & resource utilization, often reflected in transactions perperson, inventory turn rates, or projects operating within budget;
* Public safety and / or legal responsibilities, sometimes observed in accident rates, employee absentee rates, regulatory citations, or litigation rates.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Examples of Key Business Processes
IBM Xerox British Telecom
Marketing Information Capture;
Marketing Selection;
Requirements;
Hardware/Software Development;
Service Development;
Production;
Customer Fulfillment/ Relationship;
Service Customer Feedback;
Marketing;
Solution Integration;
Financial Analysis;
Plan Integration;
Accounting;
Human Resources
IT Infrastructure
Customer Engagement;
Inventory Mgt. & Logistics;
Product Design / Engineering;
Product Maintenance;
Technology Maintenance;
Production & Operations Mgt.
Marketing Management;
Supplier Management;
Information Management;
Business Management;
Human Resources Management;
Leased & Capital Asset Mgt.
Legal;
Financial Management.
Direct Business;
Plan Business;
Develop Processes;
Manage Process Operations;
Provide Personnel Support;
Market Products & Services;
Provide Customer Service;
Manage Products & Services;
Provide Consultancy Services;
Plan the Network;
Operate the Network;
Provide Support Services;
Manage Information Resource;
Manage Finance;
Provide Technical R&D
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Support Processes / Services
Performance Measures
Support services are activities and operations that enable your organization’s core production
and delivery processes.
They include functions such as finance, software services, marketing, public relations, information
services,purchasing, legal services, and facilities
management.
Examples for various areas follow.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Performance Measure
ExamplesAccountingPercentage of Late Payments
Time to Respond toCustomer Requests
Number of Billing Errors
Number of Payroll Errors
PurchasingPurchase Order Errors
Downtime Due to Shortages
Excess Inventory
Cycle Time (from start ofpurchase to receipt in-house)
Information ServicesNumber of Errors / Code Line
Percent of Reports Receivedon Schedule
Number of Rewrites
Number of Errors Found AfterSystem Accepted by Customer
Product EngineeringProject Completion Cycle Times
Engineering Changes/ Document
Number of Errors Found DuringDesign Review
Number of Errors Found inDesign Evaluation
Quality ControlPercentage of Lots Rejectedin Error
Number of Engineering ChangesDetected After Design Review
Errors in Reports
Cycle Time for Corrective Action
MarketingAccuracy of ForecastAssumptions
Number of IncorrectOrder Entries
Overstocked Field Supplies
Contact Errors
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Employee Performance
Measures Employee Performance Benchmarks Cover a Wide Range of Employee Activities that May Include:
Employee Development; Employee Education;Employee Empowerment; Employee Recognition;Employee Recruitment; Employee Absenteeism;Employee Turnover; Employee Grievances;Employee Safety/Accidents; Employee Involvement;Employee Morale; Employee Performance Appraisal;Employee Promotion;Employee Succession Planning.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaTechnology & Innovation
RelatedPerformance MeasuresTechnology-related measures reflect the productivity,
deployment, and effective use of computers and other technology in an organization.
Measure range broadly from processing speeds, deployment percentages, network down time and error rates.
In turn, innovation-related performance indicators reflect issues such as product development times, employees’ suggestion rates, new product sales as a percent of total sales, and process improvement rates.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Supplier Performance
MeasuresSupplier performance measures help an organization qualify or certify the vendors with which it will work.
These benchmarks then help the organization monitor and manage on-going supplier performance.
Supplier performance metrics often include measures of cost, quality, reliability, speed or responsiveness, agreed-upon service levels, and product specifications.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaCost Performance
MeasuresCost performance measures are broad and flexible. They include balance sheet liability requirements and information drawn from cost centers throughout the organization.
Companies can develop useful benchmarks by producing cost ratios for specific products, services, organizational units, processing steps, inputs, and labor.
A mortgage company, for instance, might use such measures as cost per loan application, cost per loan processing,human resources cost per loan, data processing costs per 100 bills, and service cost per loan.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Financial Performance
MeasuresFinancial measure include performance indicators required by stock exchanges, security analysts, public accounting firms, regulatory agencies, and other organizations that may oversee reporting standards in your organization’s industry.
Many of these measures make up the items on income statements, balance sheets, and cash flow statements, including measures such as revenue, gross profit, operating income, net income, earning per share, long-term debt, book value, cash flow, debt/equity ratio, days / receivables ratio, current ratio, and so on.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Six Sigma Strategy and Methods
The Balanced Scorecard
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
The Balanced Scorecard
• The Balanced Scorecard (Kaplan & Norton) manages performance measurements through an integrated system. This combines both financial and operational measures into an integrated system of performance indicators. This assumes that no single measure is sufficient for managing all companies at all times. It combines at least four perspectives:
• Financial Perspective: “If we succeed, how will we look to our shareholders?”
• Customer View: “To achieve our vision, how must we look to our customers?”
• Internal Operating Perspective: “To delight our customers, what management processes must we excel at?”
• Innovation & Learning Perspective: “To achieve our vision, how must the organization continuously learn, improve, and create value?”
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
The Balanced Scorecard:
Financial Perspective• There are three fundamental dimensions, each
of which may include many types of financial measures:
• Profitability• Growth• Shareholder Value
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
The Balanced Scorecard:
Customer Perspective• The customer perspective includes four important dimensions:
– cycle time for meeting customer needs;– quality;– performance & service for customer value creation; and– cost of ownership.
• In total these reflect the customer’s perception of total value.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
The Balanced Scorecard:
Internal Operations Perspective• Internal perspective examines those business processes and operations that most directly influence customer satisfaction. Often included are the three dimensions of:
– Internal Cycle Time -- which may track specific process steps.
– Quality -- which may include simple defect measures or may pick up sophisticated metrics such as first-pass yield rates.
– Productivity -- reflects employee skills, effectiveness, and motivation, especially as they are evidenced in employees’ output per person, per day, or per hour.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaThe Balanced
Scorecard:Innovation & Learning
Perspective• Innovation & Learning include three primary dimensions:– Market Innovation - this records new product & service
introduction rates.– Continuous Operational Learning & Improvement -records the
rate at which individuals & organizations learn.– Intellectual Assets - These are among the most valuable and most
intangible resources available in any organization. Companies are developing measures that evaluate skills deployment, training effectiveness, employee involvement levels, employee suggestion rates, cross-functional activity levels, and experience sharing.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaBenchmarking
Critical Success Factors• Adopt, Adapt, and Advance: A well-designed
performance measurement and benchmark system is essential, but there are other critical success factors:– Senior management support;– Benchmarking training for the project team;– Useful information technology systems;– Cultural practices that encourage learning;– Resource dedication - especially in the form of
time, funding, and useful equipment.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Selected
Benchmarking Processes
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaThe Bristol-Myers & Baxter
InternationalSeven-Step Benchmarking
Process1. Determine which function(s) to benchmark;2. Identify key performance variables to
measure;3. Identify the best-in-class companies;4. Measure performance of best-in-class
companies;5. Measure your own performance;6. Specify programs and actions to meet and
surpass;7. Implement and monitor results.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaThe Motorola
Five-Step
Benchmarking
Process1.Decide what to benchmark;2.Find companies to benchmark;3.Gather data;4.Analyze data & integrate results into action
plans;5.Recalibrate & recycle the process.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaThe Xerox 12-Step
Benchmarking Process• Phase 1: Planning– 1. Identify what to benchmark;– 2. Identify comparative companies;– 3. Determine data collection method &
collect data.
• Phase 2: Analysis– 4. Determine current performance gap;– 5. Project future performance levels.
• Phase 3: Integration– 6. Communicate finding and gain
acceptance;– 7. Establish functional goals.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
The Xerox 12-Step Benchmarking Process
(continued) • Phase 4: Action– 8. Develop action plans;– 9. Implement specific actions & monitor
progress;– 10. Recalibrate benchmarks.
• Phase 5: Maturity– 11. Attain leadership position ;– 12. Fully integrate practices into processes.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaThe AT&T Nine-Step
Benchmarking Process1. Identify what to benchmark;2. Develop a benchmarking plan;3. Choose a data collections method;4. Collect data;5. Choose best-in-class companies;6. Collect data during a site visit;7. Compare processes, identify gaps,
and develop recommendations;8. Implement recommendations;9. Recalibrate benchmarks.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaA Generic Benchmarking
Process:The Simple, Consensus
Model• From the Strategic Planning Institute’s (SPI) Council on Benchmarking has developed the following model:
– 1. Launch– 2. Organize– 3. Reach Out– 4. Assimilate– 5. Act
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
The Doyle-Smith10-Step
Benchmarking Process:
1. Identify what to benchmark; 15% 7%
2. Select the benchmarking team; 4% 7%
3. Document your process; 18% 21%
4. Quantify your process; 6% 10%
5. Develop questionnaire; 5% 10%
6. Develop partnership with BIC organizations 5% 10%
7. Document BIC process & analyze; 35% 28%
8. Develop goals & implementation plans; 9% 7%
9. Monitor the plan.
StrategicPlan
IdentifyBest-in-Class
Organizations-------
4% -Concurrent
937 29 hours weeks
Contact Elapsed Time Time
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Benchmarking Resources &
Toolset
• Resources:
– Time Investment:• Team Leader: 20%-25% over seven months• Team Members: 15% over seven months
– Financial Investment:• Travel: 4 on-site visits * 5 members * $1,500 visit = $30,000• People: $60/hour• Research: $125 to $250 / hour * 8 hours = $1,000 - $2,000• Consulting: $1,500-$3,500 /day * (4-10) days = $6,000-$35,000
Toolset:Voice of the Customer Hoshin Planning Storyboards Seven Strategic Tools Seven M&P Tools Team Building Value Delivery System Process Mapping
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six SigmaAttributes of
Benchmarking Studies:Success vs. FailureSuccess Failure
Process Owner Involvement
Customer Driven Objectives
Linked to Strategic Plan
Best Practices & Enablers
Consider Cultural Attributes
Disciplined Methodology
Quantum Change
Clear Project Life Cycle
Integrated with ExistingQuality Efforts
Sponsorship Uncertain
Amorphous Objectives
No Strategic Integration
Performance Metrics Only
“Hard” Data Only
Arbitrary / Casual Approach
Incremental / No Change
Keep Going and Going and …..
A la carte Program
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
Management’s
Benchmarking Challenge• Commit required resources to key projects;
• Provide focused training / facilitation to project participants;
• Proactively manage the direction and momentum of benchmarking within the organization;
• Create visibility of the benchmarking process;
• Recognize benchmarking team efforts.
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation
Dr. Rick L. Edgeman, University of Idaho
Six Sigma
IXS IGMAS DEPARTMENT OF
STATISTICS
End of Session