Benchmarking:

-> DEF: It’s a process that companies apply in order to understand the real performance of the company by comparing it with other companies in the industry.

“The continuous process of measuring its own products, services, practices against the toughest competitors or those companies recognized as industry leaders”.

(Camp, 1989)

-> DEF: comparison of two or more companies.

• Know how they’re performing.
• Not a standard procedure. Companies are doing according to their necessities.
• Continuous process;

-> OTHERS DEFINITION:

• performance improvement process by identifying, understanding and adopting outstanding practices from within the same organization or from other businesses” (Cook, 1995)
• “The process of continuously comparing and measuring an organization against business leaders in the world to gain information which will help to take actions to improve its performance” (American Productivity and Quality Center, 1999)

-> CHAR:

• Never ENDS: continuous process that needs recalibration in the perspective of continuous improvement;
• Never COPIES: information learned is not copied but adapted to the specificities of context;
• Never CHEATS: it should be an hoest, legal and virtuous analysis.

-> EXAMPLE:

Eni 2017 results –> positive net profit, so the company is gaining something. But how is the company performing? We don’t have the horizontal common analysis, so we don’t know if in the previous years it was better or not –> we could benchmark it, so compare the company with the industry and competitors.

ROE = 7%2 . How can we explain this value? Is this a contingency, is it a market trend? Looking at competitors can be helpful:

A lower EBIT and a higher net profit means that the earning coming from operations is not high and a lot of profit comes from nonoperating activities (look at TOTAL).

Instead, ENI and BP have a higher EBIT than the net profit, so this means that their operations are doing good.

According also to the dimension of the company (looking at the total assets), ENI is doing quite well. These companies are also compared based on the ROA because these companies are asset heavy.

Automotive sector. Why Volkswagen had a drop in 2015? They cheated so this led to a drastic situation. So, if we look at trend analysis and competitor analysis we can see if some major events happened.

Steps:

1. Identify strategic objectives: we need to have an idea about what we want to achieve.

1. Sample selection: 5 – 10 competitors is a good number (with similar strategic objectives)
2. Involvement modality: how do we communicate with competitors.
3. Performances choice for the comparison
4. Data correction: study the background of the company.

1.Identify Strategic Objectives:

PERFORMANCE Orientation	PROCESS Orientation
-> DEF: Identification of best practices in terms of flexibility, timeliness, quality, costs, … Comparison of indicators	-> DEF: Identification of the best practices in terms of organizational structure, responsibilities, technologies, … Comparison of processes
No guarantee that the various best practise are comparable; Trade-off between the benchmarked performances and the others (not measured): if benchmarked performances improve, what happens to the others; Possibility of a time lag between performance and processes.	Difficulty of focusing the analysis on competitive differential (a process includes a variety of factors);ù Difficulty to identify the link between processes and performance.

📌Performance it’s a little bit easier to calculate the performances, rather than comparing processes

2.Sample Selection:

-> Different options exist:

1. Leader Benchmarking: benchmarking on a specific performance or process. We are comparing the company with the leader of the market.
   • (performance) Fincantieri benchmarked itself against Boeing on its quality-focused strategy
   • (process) IBM benchmarked itself against Federal Express on its logistics system
2. Sector Benchmarking: benchmarking with companies that act within the same industry.

-> Focus: industry;

1. Internal Benchmarking: benchmarking with different units of the same company.

-> The performances that we need to be looking for are those important for the company in terms of how the company will imagine itself/want to be in the future.

-> In the case of controlling management, the sector benchmarking is the most suitable approach: reasonable and feasible goals, without being under-stimulating.

3.Involvement Modality:

-> Two ways:

• UNCONSCIUOUS: indirect involvement of competitiors

-> Information by web sites, publications, magazines, employees, customers and vendors, suppliers, databases, reverse engineering, BS and other institutuonal public documents;

• CONSCIOUS: Direct involvement of the competitors, which provide the needed information.

-> Best and more precise results BUT…

• Necessity of the organizations approval;
• Necessity of reveal the own data.

-> None of the companies is doing the analysis, but a consultant company is doing a research in an anonymus way.

4.Performance Choice:

1. Definition of the scope: identification of the areas of the company that need to be benchmarked.

-> Examples:

• Whole company
• Some products/services (only finished goods, service features, …)
• Work processes (manufacturing, supply, logistics, …
• Support Functions (HR, Marketing, …)

1. Definition of the measurement system: definition of indicators for comparison
   • ROE, ROA,
   • More specific indicators depending on the objectives: like the incidence of intangible assets and the number of patents to understand if the company is innovative, etc.

5.Data Correction:

-> Best practices may descend from two different reasons:

1. Better management: to be individualize through benchmarking.
2. Difference in the conditions of the context: to be eliminated to make companies comparable.

-> Factors influencing context include:

• Scale (for example, Barilla and Nestlé: Nestlé is much bigger so we would need to scale it down).
• Strategy (efficiency vs. effectiveness) (for example mission and vision could be different, so we can
  look for them in the Letter to the shareholders and stakeholders).
• Market expectations and perception (difficult to quantify)
• Product itself in Leader Benchmarking (for example, different companies could be leaders in different areas, so it could be difficult to compare companies, like Apple and Samsung).

Benchmarking Tools:

• SOFTWARE: Sfotware are solutions such as Tableau and Power BI can help organizationals costs collect and analyze benchmarking data;
• ASSOCIATIONS: associaions such as the American Productivity & Quality Center (APQC) offer benchmarking resources and best practives;ù
• INDUSTRY REPORTS: industry reports such as those published by Gartner and Forrester provide insights into idustry best practices and benchmarks;
• CONSULTANTS: benchmarking consultants can provide expert guidance on benchmarking strategies and best practices.

Examples:

• Wal-Mart: Wal-Mart used benchmarking to improve its logistics and invetory management processes, resulting in significatn cost savings;ù
• McDonald’s: used benchmarking to improve the speed and accuracy of its dirive-thru service, resulting in increased customer satisfaction.
• Ford: used benchmarking to improve its quality control processes, resulting in higher sales and increased customer satisfaction.

Company Scope:

-> Companies used for benchmark are based on the following criteria:

• Copanies that dominate global production or service revenues and volumes within the automotive manufacturing sector;
• Compoanies that control globally relevant segements of production and/or service provision, based on an assessment of vehicles sold;
• Companies that connect (eco)systems globally through subsidiaries and supply chains;
• Companies that influence global governance processes and institutions;
• Companioes that have a global footprint, particulary significant in developing countries.