Meaningful Benchmarks Lead to Meaningful Improvement

In my last post, the topic was categories of performance and how they help create focus on the largest opportunties for improvement. I closed that post with "Categories alone don't create focus, but they are a start." 

To create laser like focus, we need another ingredient - meaningful benchmarks. A meaningful benchmark for each category not only creates focus, it creates accountability too. Compared to other tools and topics in the performance improvement arena, there is little discussion about meaningful benchmarks. Yet they are a primary ingredient in Lean Business Intelligence. 

Meaningful benchmarks don’t usually come from external sources, they are generated internally. In fact, satisfaction with industry average performance can be a path to complacency. Lean Business Intelligence defines three types of meaningful benchmarks; quantifiable, best-in-class, and goals. 

Quantifiable benchmarks are often used in working capital areas of performance, i.e. inventory. A quantifiable value for most actionable categories of inventory can be calculated (i.e. allocated to scheduled jobs, safety stock, etc.) This is further improved by using an actionable unit of measure, like days-on-hand. Such a unit of measure ensures the benchmark remains valid during seasonal fluctuations. (That's not saying the benchmark never has to be recalculated. If business conditions change, then recalculation is required, i.e. because you have a new supplier, customer or capacity constraint that impacts inventory requirements.)  

Best-in-class benchmarks are used in an area of performance where multiple shifts or facilities are involved. Performance areas like productivity, scrap levels, etc. Each shift or facility’s performance can be compared to best-in-class. This creates more accountability than an arbitrary goal. And if there are production mix or capital equipment differences, you can factor the differences into the benchmark. Its worth noting that even if best-in-class performance isn’t meeting expectations, usually the best performers will be motivated to maintain their position once others start catching up - automatically moving the benchmark...

Goal level benchmarks are "desired percentage improvements" or other arbitrary goals. They don’t create the accountability that the others benchmarks do, so they are not the most desirable. They are only used when the other benchmark types can’t be used. 

Process owners should participate in the creation of benchmarks, to the fullest extent possible. Involving them ensures they understand the reasoning behind the benchmarks. They are more likely to feel motivated by them. The downside of their participation is the desire of some to pad the value. This is especially true of the worst performers in a group. The benchmark process owner must be diligent to prevent padding. 

When actual performance is compared to meaningful benchmarks, both focus and accountability is created. The result is meaningful improvement. 

Using meaningful benchmarks indicates a business has a solid understanding of its processes. And its taking a fact-based approach to performance improvement. Exactly what Lean Business Intelligence sets out to do.