The model

The model for the European Quality Award is given in Figure 7.2.

It appears that the model consists of nine elements grouped in two halves, one of which comprises the enablers of the company and the other results.

The interesting thing about the model is the fact that it comprises both the enablers and the results. Through ISO 9000 many European Companies have gradually become acquainted with the assessment of parts of the enablers of quality management and of course they are also familiar with the assessment of parts of the results (the business results). However, there is no tradition that the two areas are assessed as a whole and in the same detail as shown here. Furthermore, it is interesting that an exact weight is stated for each single element of the model. These weights can of course be discussed and may be changed as time goes by.

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The assessment reflects the general perception of what characterizes leading TQM companies. In the following section each single element of the model is explained including also the detailed areas of every element which will later form the basis of the actual assessment.

7.4. Ludwig-Erhard Prize

The Ludwig-Erhard Prize is the German prize. It has been awarded since 1997 to honor companies for outstanding performance in a competitive environment. This prize was created by the Ludwig Erhard Prize Initiative, which includes 6 key organizations from German industry as well as the German Quality Association (DGQ) and the Association of German Engineers (VDI). The Ludwig Erhard Prize is based on the EFQM Excellence Model, a system for evaluating management processes and their results. The initiative aims to encourage organizations in Germany to use integral management systems, and the award is therefore given to those which have implemented such systems outstandingly.

The aim of the Ludwig Erhard Prize is to promote discussion of the ideas of Total Quality Management and its introduction into German companies as a system of safeguarding the future. In its capacity as the national prize for quality, it is intended that it should close the gap between local German quality prizes and the European Quality Award. The evaluation criteria and the evaluation and application process are broadly similar to those of the European Quality Award and are therefore not described in greater detail at this point.

8. Benchmarking

In the 1960s Rank Xerox appeared to be ‘the sweetheart of Wall street’. The company has developed a product –the photocopying machine- which was a real ‘milch’ cow. Each time the counted clicked, it meant money to Xerox. The company entered the Fortune 500 in 1962 as number 423 and works its way up to Number 70 in 1970.

The results of this rising was, however, that the company fell asleep. Much money was lost on adventures outside the ‘core business’ and the control of vital functions such as product development and production were lost. Furthermore, the company forgot to keep an eye on the real competitors. Of course, it had an eye on the progress of IBM and Kodak but the danger from the Far East as overlooked.

The situation became more and more critical and as Mr. Peter McColough, the former managing director of Xerox put it:

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The situation reached its preliminary climax when Canon declared open war with Xerox in an advertisement of 12 January 1981:

Waging total war against Xerox

Obviously, Canon was sure that, at this time, Xerox was an easy target for a direct attack. However, Xerox had faced the danger and would not accept the attack. Mr. David Kearns, the managing director, said ‘We are determined to change significantly the way we have been doing business’.

The challenge was accepted and as Canon had declared war, Xerox could also respond in the same way. The company sought advice and guidance in the classical art of war and found in Sun Tzu, a Chinese philosopher who lived around 500 BC, the strategy which should be used in the fight against the competitors.

If you know your enemy and know yourself, you need not fear the result of a hundred battles.

By this, the groundwork for Xerox’s future strategy was laid. They would fight the competitors by systematically gathering information on the market, the competitors and themselves for the strategic fixing of means and methods necessary to win the declared war. We know today that this procedure was the main reason why Rank Xerox could ride against the tide and regain the lost market shares.

They called this procedure benchmarking and this is the subject of this chapter.

8.1. What is benchmarking?

8.1.1. Definition

As stated above, benchmarking is based on Sun Tzu’s rule of the art of good war: ‘To know yourself and your enemy’. This was combined with an ancient Japanese word. Dantotsu, meaning striving towards becoming the best of the best. These two things united form the core of benchmarking as it also appears from the following definition given by Mr. David Kearns, the former managing director of Rank Xerox, in the childhood of benchmarking:

Benchmarking is the continuous process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders. The definition opens up the possibility that you should not only look at your toughest competitors but also to other companies from which you may learn something. However, as this is not evident from the definition, it has been necessary to make a more explicit definition of benchmarking.

The new definition was published by the American Productivity and Quality Center in 1992 and is the following:

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Benchmarking is a systematic and continuous measurement process; a process of continuously measuring and comparing an organization’s business processes against business process leaders anywhere in the world to gain information which will help the organization take action to improve its performance.

It is important to underline that benchmarking is not the same as copying As W.E. Deming (1993) put it in a speech at Hewlett Packard: ‘It is a hazard to copy. It is necessary to understand the theory of what one wishes to do’.

Benchmarking may form the basis of a renewed development in a company as this tool helps to identify the processes in which the best possibilities of improvements lie. The solutions used in other companies however, can only very seldom be transferred directly to the company in question. Adjustments in some form will be made but the understanding of the ‘theory’ behind the solutions should always form the basis of current improvements.

Benchmarking has had many definitions since Xerox started. One of the more suggestive has been made by Mr. Fred Bowers of Digital Equipment Corporation in a conference paper at American productivity and Quality Center in 1992. Bowers see benchmarking as a company’s attempt to model the human process of learning.

Human beings are exceptionally capable of identifying and using ‘best practice’ everywhere they meet it. From the world of sport we have many fine examples. The Fosbury Flop (high jump) which became known all over the world in connection with the Olympic Games in 1968, is one of the best. Today high jumpers all over the world use their own version of this jump. They have understood the theory behind the jump and where the centre of gravity lies.

8.1.2. Types of Benchmarking

Dependent on the object of analysis, benchmarking is normally divided into the following three types:

1- Internal benchmarking 2- Competitor benchmarking 3- Functional/generic benchmarking

The objects of analysis of internal benchmarking are departments, divisions, or sister companies of the same concern in order to identify the best performance of a given activity within the company.

In many companies the same activity is displayed in many different places, e.g. order booking, stocking, distribution and product development. In this case, it would be natural to start seeking the ‘best practice’ internally in the company. The advantages thereof are firstly to ease the admittance to information and data. Secondly, this form of benchmarking opens up the possibility of a deep understanding of how benchmarking can be implemented. The procedure can-so to speak- be practiced internally. Furthermore, experience shows that internal customer satisfaction through reduction of the variations of quality and productivity and it

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improves at the same time the ability to communicate and cooperate in the company. If you examine the disadvantages of internal benchmarking, it must be that only very rarely are ‘world class performances’ found internally in the company. The consequences thereof are that internal benchmarking cannot stand alone but is the first step on the road towards the final goal of benchmarking: to be the ‘best in class’.

By competitor benchmarking the company compares itself directly to present and potential competitors within the same range of products (e.g. competitors at foreign markets) in order to gather information on the competitors’ products, processes and results to be able to compare this information with the company’s own results and to learn from the differences. Gathering information about the behavior of competitors is naturally always of supreme interest for a company. When Rank Xerox started its benchmarking analysis in the early 1980s its production costs per unit were higher than Canon’s sales price. Obviously there was something which Canon could do which Xerox could not. To gather information about this was crucial to Xerox. Consequently, Xerox made an investigation of the conditions of production in a wider sense, not only with Canon, but also with Minolta, Toshiba and Ricoh. In doing this, Xerox was helped to a great extent by its Japanese joint venture named Fuji Xerox Co. Ltd. They discovered that the Japanese producers of photocopying machines had sought their ideas from inter alia Toyota and Honda, one of which was the ‘just in time principle’ and they were very fast at adapting their ideas to their own production.

The advantages of competitive benchmarking, beside the fact that the company, puts itself in a certain position in comparison with its competitors, is that at a very early stage, the company’s attention is drawn to the expectations which the customers may rightly have from it. Furthermore, the results have a high degree of comparability as the products and thus the basic production structures are identical. The disadvantage of this form of benchmarking is that the gathering of data is difficult. In many cases, you have to consult indirect sources as direct information from the competitors is unattainable.

In the third type of benchmarking, called functional/generic benchmarking, the potential comparative partner is any company which has obtained a reputation of being excellent within the area which is benchmarked. IN this case, it means that the company does not necessarily have to limit itself to its own trade but keep its eyes open to ‘best practice’ everywhere. If, for instance, you want to study the dispatch of orders, it may be natural to compare with a mail order company or other companies which handle a great number of orders every day. If instead you want to study information systems, it could be a computer company with which you should compare yourself.

The advantage of this form of benchmarking is that the probability of finding world class practice grows as the number of potential benchmarking partners is expanded. On the other hand, it is obvious that the possibility of transferring the found practice directly to one’s own company is smaller than by the other types of benchmarking. Another advantage is that the collection of data in this case is considerably easier than by competitive benchmarking as it is much easier to get the cooperation going with companies from other lines of business than your own line.

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As a final conclusion concerning the three types of benchmarking, we refer to Figure 8.1.

The figure distinguishes on the horizontal axis between three types of benchmarking. On the vertical axis is measured the probability of finding world class practice and the extent of the possibility of direct transfer (that is without adjustment) to one’s own company of the practice found.

As previously mentioned, it can be seen that usually the procedures found internally can to a large extent be transferred directly. On the other hand, the probability of finding world-class practice internally is usually small. It is the exact opposite by functional benchmarking. Here the probability of finding world class practice is large. On the other hand, it is usually necessary to adjust ‘best practice’ to the conditions of one’s own company. Competitive benchmarking lies in the middle of these two extremes.