Lecture 8 - The Voice of the Market (Chapter 6)

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Lecture 8 - The Voice of the Market (Chapter 6)

• Benchmarking, Performance Monitoring

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Voice of the Market
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

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Beat in Class Benchmarking

Best in Class benchmarking Best of the Best Benchmarking Business Process Benchmarking Leading and managing the benchmarking effort Problems with benchmarking
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Benchmarking
One of our best sources of information can be other companies. By understanding our competitors we begin to understand the marketplace better
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Benchmark
A Benchmark is an organization recognized for its exemplary operational performance. Benchmarking is the sharing of information between companies so that both can improve.
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Purposes of Benchmarking
Learning from success Borrowing ideas Best-in-firm Beating industry standards Best-in-class National Leadership Best-in-world
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Difficulties in Monitoring and Measuring
Performance
Limitations of accounting systems Computing productivity Comparisons between US firms with foreign companies
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Commonly Benchmarked Performance Measures
Financial ratios Productivity ratios Customer-related results Operating results Human resource measures Quality measures Market share data Structural measures
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Productivity

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Productivity Macro vs. Micro

• Macro productivity
• Country as a whole or a region of the country
• Sectors of the economy
• Individual industries
• Micro productivity
• A small work group or team
• An individual worker

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Productivity - Micro

• Productivity Output / Input
• Single factor productivity
• Usually labor productivity input
• Multi-factor productivity
• Usually labor, material and overhead productivity
  inputs, where overhead may include fixed and
  variable

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Productivity - Micro

• Single factor productivity
• Example Carpet laid in 8 hours 720 sq yds
  crew size 4 installers hourly productivity per
  worker ?
• ______________________________________
• Multi-factor productivity
• Example 7,040, valued at 1, units produced in a
  day 5 workers paid 25 per hour fixed OH 520
  per day variable overhead 200 of direct labor
  cost
• ______________________________________

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Productivity TFP MFP

• Total Factor Productivity (TFP)
• Effects in total output not caused by inputs
• Incorporates technological progress, management
  techniques, smart work
• Developed by Robert Solow (MIT)
• Won Nobel Prize for Economics in 1987
• Multifactor Productivity (MFP)
• Considers labor, material, and capital inputs
• More reasonable than labor productivity in most
  cases

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Benchmarking and Company Objectives
Data and analysis support a variety of company purposes, such as planning, reviewing company performance with competitors or with best practices benchmarks.

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Best-In-Class Benchmarking
Whom do we benchmark? Best-in-class refers to firms or organizations that have been recognized as the best in an industry

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Best-Of-The-Best Benchmarking
After Best-in-class? Outstanding global benchmark firms. Can lead to breakthrough improvement by causing individuals to look at other industries

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Business Process Benchmarking

• Business Process Questions

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5W2H Approach

• What? Subject
• Why? Purpose
• Where? Location
• When? Timing/sequence
• Who? People involved
• How? Method
• How much? Cost/impact

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Eliminate Unnecessary Tasks
What? Why?

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Change the Sequence or Combination
Where? When? Who?

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Simplify the Task
How?

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Select an Improvement Method
How much?

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Robert Camps 10 Steps

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Robert Camps 10 Steps
Decide what to benchmark Identify whom to benchmark Plan and conduct the investigation Determine the current performance gap

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Robert Camps 10 Steps
Project future performance levels Communicate benchmarking findings and gain acceptance Revise performance goals

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Robert Camps 10 Steps
Develop action plans Implement specific actions and monitor progress Recalibrate the benchmarks

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Leading and Managing the Benchmarking Effort
Benchmarking is a managed process

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Leading and Managing the Benchmarking Effort
Managing the process involves establishing, supporting and sustaining the benchmarking process

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Leading and Managing the Benchmarking Effort
Management sets expectations for performance relating to the benchmarking process

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Leading and Managing the Benchmarking Effort
Training is the key to success this is especially true for benchmarking

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Problems with Benchmarking
Difficulty obtaining cooperation Functional benchmarking with firms in non-competing industries makes it difficult to benchmark these firms Must understand your own process before you benchmark someone else Time consuming and costly

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Summary
The goal of benchmarking is to become the best-in-class and then the best-of-the-best. Benchmarking is more effective for firms that have been pursuing quality and process improvement over time Baselines and the use of data and measures can result in undesired outcomes