There was no doubt: their rivals built good machines. Xerox would have to go deeper to find out how such high-quality machines could be made for so much less. Was it just cheap Asian labor? Was the Japanese government pouring subsidies into the industry? Luckily, one of the Japanese companies was a Xerox affiliate: Fuji-Xerox. A team flew from Xerox to Fuji-Xerox to go over their operation in detail. Eventually they looked at the operations of competing organizations, much the way the Japanese have long studied operations around the world. What they found amazed them: the Japanese could afford to sell their machines at a price equal to Xerox's cost. The answer wasn't cheap labor, and it wasn't subsidy. The answer lay in the details of manufacturing processes - their Japanese rivals were defeating Xerox on the factory floor.
It was the first formal "benchmarking," and it worked. The knowledge that the Xerox managers carried back to Rochester brought the company's costs down rapidly, without compromising quality. By 1981, the success of the manufacturing operation was so obvious that the top brass declared benchmarking to be standard operating procedure throughout the company. From Xerox, the practice spread through the 1980s, first to other manufacturing giants such as Motorola and du Pont, and later to the service sector. By the end of the decade, it had begun to hit healthcare.
Healthcare, because of its complexity, its distributed power bases and sources of funding, the unmatched commingling of its extraordinary technical apparatus with human drama of the greatest intimacy and terror, all in an atmosphere that demands both perfection and high efficiency, clearly needs to mold benchmarking to its own special needs.
So where better to begin than at the beginning, at the place where benchmarking began?
Robert Camp, Ph.D., introduced benchmarking to Xerox's logistics operation in 1981. From that moment, the annual productivity increases of Xerox's logistics rose from two or three percent to more than 10 percent - and stayed there throughout the mid-1980s. An adjunct professor at the Rochester Insitutute of Technology, and author of Benchmarking: The Search For Industry Best Practices That Lead To Superior Performance (ASQC Quality Press, 1989), Camp speaks and writes widely about benchmarking.
We call benchmarking "the continuous process of measuring our products, services, and practices against our competition or leading-edge companies." We have incorporated a number of lessons in that definition - and we have never changed it. It has become something of a benchmark itself.
However, it is kind of a mouthful, so within Xerox we use "benchmark" to mean "finding and implementing the best practices."
People find lots of reasons to do benchmarking. We started doing it because of a crisis. We found ourselves at a significant competitive disadvantage back about twelve years ago in a particular marketplace. And it shocked us to go out and find others who were doing things in ways that were significantly different from what we were doing, both more efficient and more advanced technically. We saw benchmarking as a way to regain our competitiveness.
Today, companies who have set out on a "Total Quality" journey usually have come to recognize that they have to continuously improve. And the question is, how? We believe that we all need to learn from others, and that means benchmarking. We use benchmarking as one source of better ideas to lead our continuous improvement.
Xerox has institutionalized benchmarking. It is being done almost all of the time by all of our organizations, in some way. But particular circumstances will let you know that you should do it. If you find yourself with some negative customer feedback, or with a cost-based problem, or perhaps with a some other financial indicator with which you are not satisfied, like high general administrative expenses - those should all tell you of the need for benchmarking, for finding better practices elsewhere.
Benchmarking probably works best in a TQM program. But it can be done by itself. In fact, that's what happened to us. We started our benchmarking in '79 and '80, and we didn't incorporate it into our quality initiative until 1982. If you do benchmarking without the context of a TQM program, it is possible that you could waste all this effort by implanting some sterling individual practices in an organization that is really headed in the wrong direction. But I would like to think that the fact that you are surveying the best will deter that.
Our benchmarking process has 10 steps. Alcoa counts 9 steps, AT&T has 12. IBM has five phases and a number of steps. But when you put them all side by side they have a lot in common.
The first three steps carry the most weight, and the next two nearly as much. I call the first three steps
In steps four and five you:
You must search for the right organization against which to benchmark. We put together a candidate list. First of all, a team of people will probably do the benchmarking, including people that either work the process that is under study, or own it. So you've got a base of knowledge right there to begin with. Between that knowledge base and doing some brainstorming and talking to customers, you can start to put together a pretty good candidate list, from 40 to 60 companies in a range of different industries. Then we do secondary research on those individual companies to confirm that they should stay on the list. We want to boil that list of 60 down to perhaps 6 companies with which to do the benchmarking.
We look for measurable parameters, or for mentions in the literature that they are particularly good at the process we are interested in. For example, we were looking at one type of order processing. In an annual report, this one company said, "We believe we do the best order processing in the industry." We look for such statements of pride, as well as articles that have been written about them - anything that would indicate that they must have effective approaches to what they do.
Then you have to validate the source, triangulate on it, bring in other information to confirm that, in fact, you have found the right candidate. For example, when we wanted to do some benchmarking on an order picking process in one of our warehouses, we went to the materials handling experts, outside consultants, and said, "Here is this list. From your knowledge, would any of these companies be likely benchmarking candidates?"
Finally, we just go ask the candidate. We say, "We have some indication that you are doing some things particularly well. Can you confirm that? Give us some high level indicator of performance, like number of orders picked per day. If there is a significant difference between yourselves and the others, that should be a tipoff that you are on the right track."
Finding the best practices can become a chicken-and-egg conversation. People will ask, "Should I wait and not do any benchmarking until I have found the very best?" The answer is, "No. Look for places that show significant differences between what you do and what others do. Until you take the journey you won't know whether you came up with the very best in your search."
Benchmarking breaks out into four types. With internal benchmarking, you compare your own processes to similar ones elsewhere within the organization. For instance, we have 65 marketing districts throughout the United States, all set up to do essentially the same thing. Some of them perform well, are known to perform well, and have performed well over time. Others, for some reason, can't make the mark. So Phoenix and Boston must have some differences in the ways they work.
With competitive benchmarking, we measure ourselves against other people in our own industry. In the early years of our benchmarking, when we worked with our direct competitors, we maintained confidentiality by doing it through third parties. The data would be masked.
Today, because of the interest in the national Quality Award, which specifically requires benchmarking, companies are becoming a bit more interested in sharing. We do share information with people who are in our industry, under well-defined guidelines.
When we look at those two types of benchmarking, internal and competitive, we know we've got to do them. And we do them. But one of the lessons we have learned from watching the competition is that we will learn nothing in our industry that is going to permit us to outdistance the rest of the pack. So today we focus more than 80 percent of our benchmarking activities outside of our industry - a fairly radical change from five to seven years ago. At some point you are going to find a strong case for looking outside of the industry.
The third type, non-competitor benchmarking, shows exactly that advantage. Hospitals, for instance, have to remit bills. People use a host of different billing processes, both in manufacturing and service industries, and within the public sector, such as the IRS.
We find that the unique and innovative practices that we need to remain competitive do not exist within our industry. But there is something else to consider. Suppose we take one of our managers out of a copier products warehouse and take him to the competing copier products warehouse at Kodak, right across the street. What happens to that guy? He immediately becomes defensive because they are doing things a little bit differently. He digs in his heels and says, "No, we tried that ten years ago, the engineers said that wouldn't work," so forth and so forth and so forth. But if I take that same guy to an automotive parts warehouse, he does not find the environment threatening. It doesn't "show up" his operation. The visit may result in a major change in the way he operates.
When you benchmark a non-competitive organization, the managers who discover alternative practices will feel less defensive about their own practices.
Generic process benchmarking, the fourth type, puts a further twist on it. Generally speaking, when you go outside the industry, you're still going to hold some characteristic in common across your comparisons. If you compare your admissions to the registration process in the Mariott hotel chain, you are still looking at a hospitality-type organization. In generic process benchmarking, we look at each business process by itself - such as the billing process, mail rooms, shipping, or laundry - and we simply ask who does each process absolutely the best.
When we wanted to improve our billing process, for example, we went to companies like Citibank and American Express - a bank and a credit card company - because we believed that they had what we were essentially looking for. We originally defined our objective loosely as improving the billing process. But we finally boiled it down to our true objective: reducing errors on those documents. So we simply said, "Who has the most error free documents that we can visualize? Credit card companies. Banks. Utility companies." So we went to find out how they prevent errors from showing up on their documents.
Site visits as teaching method
You don't always need the cooperation of the company you are using as a benchmark. Vast amounts of information exist in the public domain. There are in excess of 5,000 electronic databases. Probably 98 percent of all the information you want to know is already available. Benchmarking doesn't always mean that you need to go on face-to-face visits.
Still, we heartily subscribe to site visits. They confirm and validate the information you have. But we also subscribe to a lot of preparation before the visit. We try to stay away from "industrial tourism" (a colloquial term that associates benchmarking with trips to other companies). You know, "Lets go benchmark IBM." Or "Lets go benchmark Disney, they've got a nice place." Or anything that might show up in Reno or Hawaii. We force the discipline of a lot of preparation before those visits take place.
The visit validates the material you have prepared, but it does more than that. "Benchmarking" means learning: your people learn that others out there do things differently. You not only discover information, you change the point of view of the people who go on a visit. We want behavior change. Many of the people that management teams push to improve have been in those capacities for years, and they have got the worst case of tunnel vision you could possibly imagine. They have not been used to looking outside.
For instance, the bar code, a proven way to increase productivity and reduce data capture errors, was debugged, engineered and put into use in the grocery industry almost twelve years ago. Yet major industrial firms have not turned to it except in the last three to five years. The blood banks and libraries had bar codes installed before a lot of big firms did. If they had been doing benchmarking ten years ago, they could have picked up a productivity enhancer and struck a blow for competition.
The face-to-face site visits help change behavior because they make the learning more personal: you can see people actually using the improved process you are studying.
Compare equivalent things
Hospital admissions show a lot more complexity than hotel registrations. You need to make certain that you compare equivalent things. You do that by looking at the focus of your investigation as a process. Break down the processes into their elemental steps, define what is done and how it is done at each step. When you get it down to a certain level of detail, you can make a one to one comparison with what the other organization does.
What, for instance, are the steps in an admitting process? What are the steps in a retail check-out process? Taking the process view ensures credible comparisons.
Beyond that, you adjust for some things, using a normalization method. People often adjust for a different work ethic. They say, "Sure, you can do that with non-union people in Arkansas, but up here in Connecticut we can't do that." At some point, though, you've really got to challenge yourself on that. Don't use that as a dodge to keep from considering the practice.
Benchmark practices first
We talk about benchmarking to improve our "products, services, and practices." Of those three, you should benchmark practices first, because practices are what you implement in a process to change it. At a retail checkout counter, the process is called "checkout." One of the steps in the process is "data capture." That's what you do. How you do it is through "bar code scanning." That's the practice. You could use other practices to capture data, such as writing it down with pencil and paper, or using a traditional cash register.
Look at what you do as a process, write down your own process and document it, then use that as the baseline to compare yourself to others.
Implement, then go one better
After you have found the best practices and handed them off to the people that own the process, then you've got to get them to use their own creativity not just to implement the best practice, but to go it one better. For example, at Xerox we consider customer satisfaction our number one priority. A guarantee contributes a great deal to customer satisfaction. Several companies have a strong reputation for guarantees. L.L. Bean simply says, "If you are not satisfied with our product we will give you your money back." Now we thought that was a "best practice." How could you do better than a money-back guarantee? So we went to our customers and we said, "We believe that our equipment is so good that we will give you a guarantee. We will give you your money back if you are not satisfied." But the customers said, "We don't want our money back. We want the device to work."
Then our people came up with a creative idea. Our customer satisfaction guarantee now says that if you are not satisfied within three years of the purchase of the device, we will exchange the machine at our expense until you are satisfied. We took a "best practice" and went one better on it.
Benchmarking in healthcare
Benchmarking is going to make its most significant gains in healthcare in administrative practices - everything in the way you handle the the patient, outside of the medical procedures. The medical procedures themselves would be the second area, since different organizations often use different specific practices in implementing the same medical procedures. Healthcare presents just as much opportunity for benchmarking gains as either manufacturing or the service industries.
We at Xerox originally tended to have the same kind of myopic view as healthcare did: we felt that we knew what was best. Our market share shrank from 80 percent down to 18 percent. We almost went out of business. I wouldn't wish that on anybody. You can't do that anymore: you cannot be so smug as to believe that you are the only one who knows how to do it. If you do, some innovative person out there is going to say, "I don't believe that. I'm going to go find a better way." And then look at the world of hurt you are going to be in.
Benchmarking is just beginning in healthcare. Start someplace that is not threatening, where people are willing to try. For example, companies have said to me, "Look, we don't share information very well, and in fact the industry really just hates each other." That was the case in the oil industry. I said, "Fine. Pick a place where you have a common problem." They picked safety and environmental health, a set of common industry problems. They have done some significant benchmarking there to get them started.
Healthcare is in the same place with the benchmarking work that is being done on the admissions process. That's a good start. From there you can go through the rest of the administrative processes, such as billing, and eventually into the rest of hospital operations.
Making it more efficient
The professionals and the cadre of companies that are really serious about benchmarking are searching for more efficient ways of doing this. The American Productivity and Quality Center has established the International Benchmarking Clearinghouse in Houston to help in this search. They can offer a number of products and services - for example, putting together common interest groups. These consortia - people who want to tackle a particular problem, such as time to market or customer satisfaction - will share the cost of studying it, even doing some of their work over public networks via modem.
We have to look for more such ideas on how to benchmark more effectively, and the Clearinghouse will act as a test bed for them.
There are a lot of ways to get started on understanding benchmarking. Never send anyone out to do some benchmarking without putting them through at least a day of training. There are seminars and conferences, including those that the Healthcare Forum has put on. There are group efforts. There are consultants. There are books, including my own. There are also public seminars where you can hear the experience of other companies doing this kind of work. You can find experts in the field to come and put on management executive briefings and awareness sessions, train people, and even facilitate benchmarking teams. The good news is that the International Benchmarking Clearinghouse exists, and you can go to them as a repository of information as well as services.
Ultimately, if an organization is going to do this, they're going to have to make somebody responsible for it. Somebody, part time or full time, has to be the focal point of benchmarking, or it's not going to happen.
Benchmarking as change agent
It is very difficult to change an organization. But benchmarking, by itself, can contribute significantly to that change. The simple act of uncovering the best practices tells you that you've got to change. If you take the sum of all the best practices, you paint a vision of what you are going to look like when you're done implementing all of them. That helps move people to change. You can say, "This is what we are going to look like and, by the way, I can take you to three companies, or six companies, and show you what this practice looks like in action."
People talk a lot about "productivity," but I don't like the word any more. It has become non-productive. When people say, "We need to be more productive," it carries the sense that they mean a reduction in force. We ought to be talking, instead, about "continous improvement," because "productivity" has also come to mean a one-time push for a high level of performance - after which you fall back to your old ways. The quality movement has shown us that we have to improve continuously. That's why the formal definition of "benchmarking" speaks of a continuous process. That's why the last of our ten steps is "recalibration" for the next round. You have to look continuously for better practices. There is no finish line.