Did you face a question from your customer (internal or external) asking for a Benchmark? Let us explore the myth behind a Benchmark, when to use what and how to not boil the ocean while still getting help towards decision making.

Benchmarking is all about helping you to take decisions with data and comparison.

There are two essential types of comparisons

  • One is called Comparative Benchmarking where you compare your processes/ products/ people etc with yourself (e.g. if you had 10 people to do Billing process today, how many people did you have 6 months back, 2 years back, and how many people do you plan to have 1 year from now -by looking at your Business plans?. Also you can compare 10 people in Billing with X no of people in Order Entry!.)
  • The other type is Competitive Benchmarking where you compare your processes/ products/ people etc with other competing organizations/ companies/ or stnd best practices etc.

More often than not the second type (competitive benchmarking) is sought after, least visible, difficult to do and after spending too much effort & time it has conditions that “the Org or Competition compared has several other differences which should be kept in mind while comparing this one process or one product”! 😯

And the first one “Comparative Benchmarking” is hardly given importance- while it can easily be done (given that the information is within the Org itself), does provide meaningful insights & does not lack in flaws of Competitive Benchmarking. ➕

Let us take an example; you go to buy apples in the market, what do you perceive the most in the apple? Lets say 3 parameters- size, color and smell. Now if you want to rate all the Vendors (who are selling the apples at the same price) against these 3 parameters will you be able to take a decision- about whom to buy the apples from? Mean I rate each of them on a scale of 1 to 3 on each of the 3 parameters-. But still I cant decide as the total score may all come the same!

Now this was a product example. Similarly we can take a process example. For instance if you have a Accounts Payable process which takes 3 days on an average for your Invoice verification & registering the Invoices. Now you want to compare this with Vendor Registration (which take 2 days) and Sales Order creation (where in 1 day 5 orders are created)? Can you really compare these different processes with only an average cycle time value?

But what if I tell you that you can compare a Accounts Payable process with a Sales Order creation process, and you can really say which one is better than the other? Wow— can this be done? Yes. It would open up so many opportunities to measure, baseline, benchmark and improve Business Processes within a company/ Organization right..

Share this secret with others and I would be delighted to know more such techniques of Process Benchmarking from you~

Process Measure Mean (Actual as of today) Mean (Target given by Mgmt) Stnd. Deviation (Actual as of today)
Accounts Payable Days to complete Invoice Verification 3 1 1.1
Sales Order Creation # of Orders in a Day 5 6 1.23

As you can see from this table both the processes have different types of measures and different ways to interpret the means & your Management has given some mandates to improve these 2 processes. Now you have a task to say that which process should I take up first? You want to take the worst process and improve it and then go to the more better process. But can you compare these 2 processes and tell that which one is better than the other?

Infact this type of Benchmarking is so essential that it will help you in project prioritization, doing improvement analysis and also help in basing your decisions on data rather than a finger in the air to pick the right choice!

So here you go. Let me add one column to this table. This column says “Process Sigma”. As you can see the Sigma is the one from Six Sigma.- as the computations of this Sigma are quite involved (with DPMO – defects per million observations) I would be happy to explain you if you want to know more.

Now you can compare the 2 processes.

One thumb rule: The higher the sigma the better the process. And with sigma you can compare between two processes if you know their sigmas.

Process Measure Mean (Actual as of today) Mean (Target given by Mgmt) Stnd. Deviation (Actual as of today) Process Sigma
Accounts Payable Days to complete Invoice Verification 3 1 1.1 2.0
Sales Order Creation # of Orders in a Day 5 6 1.23 1.7

You might have heard of 6 Sigma — yes the aim is to go towards 6 Sigma which is value 6 of the Sigma — as you can see there is a long way to go for these 2 Business processes until they reach a 6 Sigma level!.

This comparison is a useful technique to not boil the ocean (do a lot of surveys and go to competitors or consultants for benchmarking), but yet achieve Benchmarking in a true sense of business process comparisons.

I would be happy to hear your comments towards my way to do Benchmarking & your experiences for this subject as well!

Happy holidays to the “Process Community”. 🙂

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regards,

Bhavin Shukla

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2 Comments

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  1. divyesh vasani

    Thanks Bhavin.

    So in this example you mean the sales order creation process is worst than Accounts payable.

    So the sigma you put based on AS IS process right, not the new metrics added by management.

    Will be good if you can share some links on bringing sigma count in business processes.

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    1. Bhavin Shukla Post author

      Greetings Divyesh.

      yes you are spot on in your comparison of the 2 processes. this is one dimension by which you get the ability to benchmark processes and attain continuous PI advantages.

      and you are also right on the process sigma. the new metrics is a placebo and dont get confused by its presence- as it is always a mandate of the management and nothing more.

      would recommend you to go through a proper six sigma training, as sharing sites which may carry some incorrect info would be futile. so lets avoid seeing google stuff here.

      DPMO – defects per million observations is the key concept for calculating sigma- but you may want to look into your organization and go through a crash/ basic course of six sigma-

      thanks,

      With regards,

      Bhavin Shukla

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