1. ©2004 Prentice-Hall S. Thomas Foster, Jr. Boise State University PowerPoint prepared by prepared by Dave Magee University of Kentucky Lexington Community College Chapter 6 The Voice of the Market

2. Slide 1-2 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Chapter Overview Slide 1 of 2 Chapter Overview Slide 1 of 2 What Do We Mean by the Voice of the Market? Gaining Insight through Benchmarking Purposes of Benchmarking Difficulties in Monitoring and Measuring Performance Commonly Benchmarked Performance Measures

3. Slide 1-3 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Chapter Overview Slide 2 of 2 Chapter Overview Slide 2 of 2 Best-in-Class Benchmarking Best-of-the-Best Benchmarking Business Process Benchmarking Leading and Managing the Benchmarking Effort Baselining and Reengineering Problems with Benchmarking

4. Slide 1-4 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition What Do We Mean By The Voice of the Market? The Voice of the Market –Customers are not the only source of information about the market. –One of the best sources of information can be other companies. –By understanding our competitors, we begin to understand the marketplace better and what it takes to compete successfully in the marketplace.

5. Slide 1-5 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition What Do We Mean By The Voice of the Market? Strategic Quality Planning Model Company Mission Strategic Plan Strategic Quality Plan Competitive Forces Customer Needs Figure 6.1

6. Slide 1-6 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Gaining Insight Through Benchmarking Slide 1 of 5 Benchmark –A benchmark is an organization recognized for its exemplary operational performance. –There are many benchmarks in the world including Toyota for processes, Intel for design, Motorola for training, Scandinavian Airlines for service, and Honda for rapid product development. Benchmarking –The sharing of information between companies, so that both can improve.

7. Slide 1-7 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition

8. Slide 1-8 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Gaining Insight Through Benchmarking Slide 2 of 5 Parties to Benchmarking Relationships –The initiator firm is the firm that initiates contact and studies other firms. –The target firm is the firm that is being studied (also called the benchmarking partner). Types of Benchmarking –Process benchmarking –Financial benchmarking –Performance benchmarking –Product benchmarking –Strategic benchmarking –Functional benchmarking

9. Slide 1-9 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Gaining Insight Through Benchmarking Slide 3 of 5 Types of Benchmarking The goal of financial benchmarking is to perform financial analysis and compare the results in an effort to assess your overall competitiveness. Financial Benchmarking In process benchmarking, the initiator firm focuses their observations and investigation on business processes. The goal is to identify and observe best practices. Process Benchmarking

10. Slide 1-10 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Gaining Insight Through Benchmarking Slide 4 of 5 Types of Benchmarking Many firms perform product benchmarking when designing new products or upgrades to current products. Often includes reverse engineering. Product Benchmarking Allows initiator firms to assess their competitive position by comparing products and services with target firms. Performance Benchmarking

11. Slide 1-11 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Gaining Insight Through Benchmarking Slide 5 of 5 Types of Benchmarking Involves a company focusing its benchmarking efforts on a single function to improve the operation of that function. Functional Benchmarking Involves observing how others compete. The focus is to identify the mix of strategies that make firms successful competitors. Strategic Benchmarking

12. Slide 1-12 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Purposes of Benchmarking Slide 1 of 2 ILearning from successes IIBorrowing ideas IIIBest-in-firm IVBeating industry standards VBest-in-class VINational leadership VIIBest-in-World

13. Slide 1-13 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Purposes of Benchmarking Slide 2 of 2 Benchmark Purpose and Quality Maturity I Learning from success VII Best-in- world VI National leadership II Borrowing ideas III Best-in- firm IV Beating industry standards V Best-in- class Quality Maturity World-class Leadership Life Cycle Figure 6.2 Benchmarking Purpose

14. Slide 1-14 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Difficulties in Monitoring and Measuring Performance Financial Measures –Many times firms desire to compare financial measures between companies when benchmarking. –This can be a useful activity; however, companies often have variations in the way they compute their measures that affect the result. Productivity –Total factor productivity is the least sensitive to differences in costing conventions and accounting practices.

15. Slide 1-15 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Difficulties in Monitoring and Measuring Performance Comparative measures –Concentrating too much on comparative measures can focus managers on results and not causes. –Could result in the development of numerical goals that ignore the necessity of improving the system of production. Comparisons with foreign companies –Problems become even more pronounced, because cost accounting conventions and accepted accounting principles can vary greatly between countries.

16. Slide 1-16 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Commonly Benchmarked Performance Measures Slide 1 of 4 Financial ratios Productivity ratios Customer-related results Operating results Human resource measures Quality measures Market share data Structural measures Benchmarking Data

17. Slide 1-17 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Commonly Benchmarked Performance Measures Slide 2 of 4 Financial Ratios –Such as ROA or ROI are probably the easiest to obtain and compare. Productivity Ratios –Are useful in measuring the extent to which a firm effectively uses the scarce resources that are available to it. Customer-Related Results –Include customer satisfaction and comparisons of customer satisfaction relative to competitors.

18. Slide 1-18 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Commonly Benchmarked Performance Measures Slide 3 of 4 Operating Results –Might include cycle times, waste reduction measures, value-added measures, and lead time. Human Resource Measures –May include employee satisfaction measures, training expenditures, turnover, and absenteeism. Quality Measures –These can include conformance-based quality information such as reject rates, capability information, performance information, or other measures.

19. Slide 1-19 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Commonly Benchmarked Performance Measures Slide 4 of 4 Market Share Data –Includes shares in the different markets served by the firm. Structural Measures –Include objectives, policies, and procedures followed by a firm.

20. Slide 1-20 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Best-In-Class Benchmarking Best-In-Class –Best-in-breed –Refers to those firms or organizations that have been recognized as the best in an industry based on some criterion. –Generally, initiator firms will choose to benchmark the best-in-class. Objective –The objective of best-in-class is to provide a basis for continual improvement.

21. Slide 1-21 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Best-Of-The-Best Benchmarking Best-of-the-Best –Best-in-the-world –The next level of improvement after becoming a best-in- class firm, because it may be difficult to gain new insight and information from direct competitors. –Can lead to breakthrough improvement by causing individuals within firms to look at other industries and to visualized the business in new and different ways.

22. Slide 1-22 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Business Process Benchmarking Slide 1 of 4 Business Process Benchmarking –Based on the concept of 5w2h developed by Alan Robinson. 5w2h concept –A business process benchmarking project should result in answers to seven questions What? Why? Where? When? Who? How? How much?

23. Slide 1-23 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Business Process Benchmarking Slide 2 of 4 Subject matterWhat?What is being done? Can this task be eliminated? PurposeWhy?Why is this task necessary? Clarify the purpose. LocationWhere?Where is it being done? Does it have to be done there? SequenceWhen?When is the best time to do it? Does it have to be done then? PeopleWho?Who is doing it? Should someone else do it? Type 5W2H Description Countermeasure Eliminate unnecessary tasks Change the sequence or combination

24. Slide 1-24 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Business Process Benchmarking Slide 3 of 4 MethodHow? How is it being done? Is this the best method? Is there some other way? CostHow much? How much does it cost now? What will the cost be after improvement? Type 5W2H Description Countermeasure Simplify the task Select an improvement method

25. Slide 1-25 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Business Process Benchmarking Slide 4 of 4 Process Model Inputs Conversion Process Conversion Process Output After- sales Processes After- sales Processes Other Firms Other Firms Control Process Loop Customer Feedback Loop Benchmarking Feedback Figure 6.3

26. Slide 1-26 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Robert Camp’s Business Process Benchmarking Process Slide 1 of 2 Step 1:Decide what to benchmark. Step 2: Identify whom to benchmark. Step 3: Plan and conduct the investigation. Step 4:Determine the current performance gap. Step 5: Project future performance levels.

27. Slide 1-27 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Robert Camp’s Business Process Benchmarking Process Slide 2 of 2 Step 6: Communicate benchmark findings and gain acceptance. Step 7: Revise performance goals. Step 8: Develop action plans. Step 9: Implement specific actions and monitor progress. Step 10: Recalibrate the benchmarks.

28. Slide 1-28 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Camp’s Five Phases Slide 1 of 6 Phase 1: Planning: Identify what to benchmark; identify who to benchmark; and gather data. Phase 2: Analysis: Examine the performance gap and project future performance. Phase 3: Integration: Communicate the findings and develop new goals. Phase 4: Action: Take actions, monitor progress, and recalibrate measures as needed. Phase 5: Maturity: Achieve the desired state.

29. Slide 1-29 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Camp’s Five Phases Slide 2 of 6 Phase 1:Planning: Identify what to benchmark; identify who to benchmark; and gather data. A plan for benchmarking is prepared Decide what to benchmark Identify who to benchmark Plan the investigation and conduct it - Gather necessary information and data - Observe the best practices

30. Slide 1-30 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Camp’s Five Phases Slide 3 of 6 Phase 2:Analysis: Examine the performance gap and project future performance. The gap is examined and the performance is assessed against best practices. Determine the current performance gap Project future performance levels

31. Slide 1-31 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Camp’s Five Phases Slide 4 of 6 Phase 3:Integration: Communicate the findings and develop new goals. The goals are redefined and incorporated into the planning process. Communicate benchmarking findings and gain acceptance Revise performance goals

32. Slide 1-32 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Camp’s Five Phases Slide 5 of 6 Phase 4:Action: Take actions, monitor progress, and recalibrate measures as needed. Best practices are implemented and periodically recalibrated as needed. Develop action plans Implement actions and monitor progress Recalibrate the benchmarks

33. Slide 1-33 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Camp’s Five Phases Slide 6 of 6 Phase 5:Maturity: Achieve the desired state. Leadership may be achieved. Determine when leadership position is attained Assess benchmarking as an ongoing process

34. Slide 1-34 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Leading and Managing the Benchmarking Effort Slide 1 of 3 Managing the Benchmarking Process –Involves establishing, supporting, and sustaining the benchmarking program. –Develop a strategy statement outlining the goals and strategies to be used. –Set expectations for performance relating to the benchmarking project. –Other management activities Providing management awareness training Establishing a benchmarking center Developing guidelines for information sharing Overseeing development of a visit protocol

35. Slide 1-35 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Leading and Managing the Benchmarking Effort Slide 2 of 3 Process Benchmarking Management Process 1.Strategy statement10. Document process 2.Set expectations11. Qualify partners 3.Management and training12. Follow 10-step process 4.Benchmarking competency center13. External assistance 5.Guidelines and protocol14. Benchmarking handbook 6.Network15. Share successes 7.Champions identification16. Inspect for benchmarking use 8.Establish benchmarking teams17. Rewards 9.Team skills training

36. Slide 1-36 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Leading and Managing the Benchmarking Effort Slide 3 of 3 Training –Training is the key to success in all quality management approaches. –This is especially true for benchmarking. –Participants must have project management skills and be familiar with benchmarking approaches and protocols.

37. Slide 1-37 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Baselining Process Identify Measures Establish Time Frames Gather Data Analyze Data to Identify Trends Figure 6.6

38. Slide 1-38 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Problems With Benchmarking Slide 1 of 2 There is enormous difficulty obtaining cooperation from other firms in your own industry. –The thing to remember is reciprocity. The predominance of functional benchmarking with firms in noncompeting industries makes it difficult to benchmark these firms. –Business and industry literature can be very helpful in trying to identify benchmarking firms in noncompetitive industries.

39. Slide 1-39 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Problems With Benchmarking Slide 2 of 2 Your efforts will be wasted unless you fully understand your own processes before you benchmark against someone else. –Using tools such as business process maps, it is possible to identify the exact performance measures and metrics needed from the target firm. Benchmarking is time consuming and costly. –Costs include things like time for planning, travel, documentation, and implementation. –Largest costs are associated with implementation. –The investment is lost if benchmarking data are not used to drive improvement.

40. Slide 1-40 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Summary Slide 1 of 2 Summary Slide 1 of 2 What Do We Mean by the Voice of the Market? Gaining Insight through Benchmarking Purposes of Benchmarking Difficulties in Monitoring and Measuring Performance Commonly Benchmarked Performance Measures

41. Slide 1-41 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Summary Slide 2 of 2 Summary Slide 2 of 2 Best-in-Class Benchmarking Best-of-the-Best Benchmarking Business Process Benchmarking Leading and Managing the Benchmarking Effort Baselining and Reengineering Problems with Benchmarking