FINAL UNIT 7.pdf

8/10/2019 FINAL UNIT 7.pdf

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Quality of Supply andServices

Benchmarking is simply about making comparisons with other

organizations and then learning the lessons that those comparisons throw

up.

(Source

:The European Benchmarking Code of Conduct)

Benchmarking is the continuous process of measuring products, services

and practices against the toughest competitors or those companies

recognised as industry leaders (best in class).

(Source :The Xerox Corporation)

There can be innumerable definitions of benchmarking but in broader sense

benchmarking means: One has to improve through learning process and this

learning comes from others. It means that essentially it involves sharing

information for learning from other and adoption of best practices for

improvement and to bring changes in performance.

The benchmarking process though extensively involves comparisons of

performance but one has to keep in mind that it is simply not a competitor

analysis, only. One has to be constantly vigilant, alert about the external

environment and adopt the changes as per requirement to remain in

competition because things are changing very fast in the present times.

We can say that benchmarking leads to superior performance through

constant search and adoption for industry best practices.

Benchmarking is a very important management tool irrespective of the nature

of industry, management style or ownership. In private sector it is used to gaina competitive edge and in public sector it is used as a powerful tool for

improving and delivering modern public services. In private sector the

emphasis is to excel in competitive environment and be a front-runner so

benchmarking is used as a tool to seek innovation outside the industry

paradigm crossing all the boundaries. In public sector, the widespread and

systematic use of benchmarking helps in improving the performance and can

assist individual and organizational learning. We can very well see that

benchmarking is a tool to be adopted by everyone irrespective of nature of

business, type of industry, management control, etc. It is being recognised as

a valuable tool for external learning for everyone. In the subsequent

subsections we will learn different aspects of benchmarking.

7.1.1 Concept

What is Benchmarking?

We have already discussed some definitions of Benchmarking but at this

juncture it is important to understand the basic concept of Benchmarking and

Benchmarking

means improving

through learning

process and this learning

comes from others.


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Benchmarkingits purpose. We have seen that in broader sense Benchmarking is comparison

of performance. It can take many forms but usually it consists of giving scores

to various aspects of product, service or process and then comparing these

scores with the leaders scores. The scores are given against certain

parameters or identified areas, which need improvement (Harper, 2005).

Basically Benchmarking is a practical Management tool for improving

performance by learning from best practices and the processes by which theyare achieved. In short, it is a way of learning and making the most of other

peoples experience and expertise and avoiding the duplication of efforts,

rather avoiding reinventing the wheel (www.dgroups.org).

The purpose of Benchmarking is to help improve the effectiveness of process,

product quality and delivery of services. In all it helps the organisations to

keep themselves on a pedestal and compare themselves with their

competitors in turn helping them to improve. As a result the organisations can

be more creative and innovative in their efforts and can develop a competitive

edge over their competitors. Benchmarking can be considered as a strategic

tool for building competitive advantage. The main objective of Benchmarking

is to understand and evaluate the current position of an organisation, identify

the areas, which needs improvement and work on the ways and means of

performance improvement.

Let us now see different types of Benchmarking to understand the concept

in a better manner.

7.1.2 Types of Benchmarking

Benchmarking can be of different types. It depends on the organizations to

see, which type of benchmarking is the most useful for them. The different

types of benchmarking can broadly be classified as follows:

1. Strategic Benchmarking

2. Performance or competitive Benchmarking

3. Process Benchmarking

4. Functional Benchmarking

5. Internal Benchmarking

6. External Benchmarking

7. International Benchmarking

The description of different types is given in Table 7.1.

The type of

benchmarking

varies with

organization to

organization.


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Table 7.1 : Types of Benchmarking

Types Description Purpose

Strategic

Benchmarking

Organisations need to improve overall

performance by examining the long-term

strategies and general approaches that have

enabled high-performers to succeed. It involves

considering high level aspects such as core

competencies, developing new products and

services and improving capabilities for dealing

with changes in the external environment.

Changes resulting from this type of

benchmarking may be difficult to implement and

take a long time to materialize.

Re-aligning business

strategies that have become

inappropriate.

Performance

or Competitive

Benchmarking

Organisations consider their position in relation

to performance characteristics of key products

and services. Benchmarking partners are drawn

from the same sector.

Assessing relative level of

performance in key areas or

activities in comparison with

leaders in the same sector

and finding ways of closing

gaps in performance.

Process

Benchmarking

Focuses on improving specific critical processes

and operations. Benchmarking partners are

sought from best practice organisations that

perform similar work or deliver similar services.

This type of benchmarking often results in short

term benefits.

Achieving improvements in

key processes to obtain

quick benefits.

Functional

Benchmarking

Organisations look to benchmark with partners

drawn from different sectors or areas of activity

to find ways of improving similar functions or

work processes. This sort of benchmarking can

lead to innovation and dramatic improvements.

Improving activities of

services for which

counterparts do not exist.

Internal

Benchmarking

Involves benchmarking organisations or

operations from within the same organisation

(e.g. business units in different countries). The

main advantages of internal benchmarking are

that access to sensitive data and information is

easier; standardized data is often readily

available; and, usually less time and resourcesare needed.

Several business units within

the same organisation

exemplify good practice and

management want to spread

this expertise quickly,

throughout the organisation.

External

Benchmarking

Involves analysing outside organisation that are

known to be best in class. External

benchmarking provides opportunities of learning

from those who are at the leading edge. This

usually takes long time for the results to come.

Where examples of good

practices can be found in

other organisations and there

is a lack of good practices

within internal business units.

(Source:Adapted from www.tutor2u.net/business/strategy/benchmarking.htm)


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Benchmarking7.1.3 Performance Benchmarking

Benchmarking is mainly related to assess the performance level of

organizations or individuals. Performance Benchmarking specifies this

concept. In this type the performance information collection is generally

expressed in measurable, quantifiable units and making comparisons with

other compatible organizations. The performance benchmark parameters aregenerally measured for a longer duration spread over a period of two to three

years for effective monitoring and for witnessing the improvement.

It is also known as competitive Benchmarking. The main aim of this type of

Benchmarking is to assess the performance levels in key areas or activities in

comparison with the market leaders and finding ways to improve the

performance and innovate. This type of benchmarking is very important

keeping in mind the strategic perspective as it helps in building a competitive

advantage.

Performance Benchmarking answers the most important questions:

What are the most important performance yardsticks?

Where do we rank, compared with others?

Value of Benchmarking

Benchmarking is not only a concept but it is a proven tool adopted by

management very successfully. Benchmarking not only improves the

performance but also brings the value addition. The value addition can

be in the form of the following:

Helps identify and facilitate sharing of key performance factors for peer

organizations.

Evaluates performance measures and goal-setting as it relates to key

stakeholders like customers, investors, regulators, government and others.

Encourages collaboration on the development of industry performance

measurements.

While organization can benefit from a single quality practice, the impact of

moving from Conformance thinking to performance thinking yields

dramatic business improvements.

7.1.4 Features of Benchmarking

The main features of benchmarking are as follows:

It is a managerial tool.

It is a process of continuous learning and this learning comes from others

through exchange of knowledge experiences.

It is to identify best practices and compare with current performance.

It is to add the value to utility performance.

Performance

benchmarking is

also known as

competitive benchmarking.

The main aim of this type of

benchmarking is to assess

the performance levels in

key areas and find ways to

improve the performance.


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It is a practical approach in which step changes in performance can be

achieved by replicating the best practices already undertaken by someone

else. It provides better understanding of the `big picture and gaining a

broader perspective of the interplay of the enablers that facilitate the

implementation of good practice.

It gives impetus for seeking new ways of doing things which comes

through learning only. So it provides opportunities for staff to learn new

skills and be involved in the transformation process from the outset.

It promotes a culture that is receptive to fresh approaches and ideas and

creates an atmosphere of awareness.

It gives the greater confidence to staff in developing and applying new

approaches because it is already tested and applied somewhere else.

It helps to improve quality, productivity and assist to identify priorities for

improvement.

It allows a wide range of performance indicators to be studied and

performance shortfall to be clearly seen.

It is for standardization.

It is for validation of data.

It is to enhance performance of utility through data collection and analysis.

The last and most important feature is to satisfy customers and to develop

interest and motivation within the organization with an urge to improve

performance.

Usually benchmarking is treated as a structured process and it is best

provided by the development of a step by step model. The important part

here is that a proper structure provides the ways and means of conducting

benchmarking but it should not be formulated in such a manner so as to

Identify the most viable type of benchmarking measurement technique for

the organization you are working in and frame a simple, paper based

benchmarking for your organization.


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Benchmarkingcreate complex situations. The basic structure of any benchmarking process

consists of the following five steps. These steps can then be modified

according to the needs of the organisations.

1. Element:This involves identifying the product, service or processes one

wishes to benchmark.

2. Aspect:This step involves identifying the aspects of the product, service

or process, which one wishes to benchmark (e.g.if a product is

benchmarked with the market leader of the similar kind of product, then

the same aspects can be used to benchmark).

3. Scale:This uses the identified scale, e.g. if comparison is made with the

leader, then the same scale of performance measurement can be used.

4. Score:This involves allocating score to each aspect, within the scale. For

example, the rating agencies making a scale and giving score against

each aspect.

5. Benchmark:This is the final step where the comparison is done between

the scores of each aspect with that of the leader.

Let us now see an illustration, which will give an idea as to how the process of

benchmarking works. This simple model can be applied anywhere depending

on the requirement of the organization.

Illustration 7.1

Suppose different aspects related to operations are to be benchmarked with

that of the leader. Simple table can be used to compare the results.

Others Yours Gap Target

Staff 3.7 3.7 0.0 3.0

Supplier 4.0 3.5 0.5 3.0

Logistics 4.1 4.0 0.1 4.5

IT Systems 3.6 2.7 0.9 3.3

Applications 3.7 3.5 0.2 4.5

Data 3.6 2.0 1.6 3.0

Communications 3.4 3.5 -0.1 3.0

Facilities 3.6 2.5 1.1 3.0

(Source:Adapted from Harper, 2005, Electrum Media Limited)

The five basic

steps involved in

a benchmarking

process are

Element

Aspect

Scale

Score Benchmark


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The aspects which includes staff, suppliers, etc. in the illustration can be

measured keeping in mind set standards, which is to be benchmarked or

whatever may be viable depending on the need. These can also be

represented with the help of charts or with graphical representations and the

operational risk can be measured.

We can see that the Gap (Refer illustration) are identified. These gaps canthen be filled by reformulating certain strategies of the organisation and then

the specified goal(s) of the organization can be met keeping in mind the

target score.

This was an overview of the benchmarking process. In the similar manner we

can have different models of bench marking. Any type of benchmarking

process model should provide an adequate framework for the successful

planning and execution of benchmarking exercise (Matters & Evans, 2007).

In the subsequent subsection we will learn a six-step benchmarking

model. We do have a five step model also but here we will only see thesix-step model as it seems to be best suited for all types of organizations.

For more information on five-step/stage model one can refer to

www.benchmarking.com.au.

Application of Benchmarking

Benchmarking can be used for different purposes. It can be for:

1. Identifying and managing risk in the financial sector.

2. 360 Degree appraisals.

3. Benchmarking training for communications.

4. Benchmarking in IT Company.

5. Benchmarking for identifying and merging quality improvement.

One of the most popular benchmarking tool is a 360 degree feedback form,

which is used for performance appraisal. A sample of the 360 degree

feedback form is given below to help us understand the concept of

benchmarking and how it is applied.

Activity 1

Suppose you want to benchmark the financial risk of your organization or

the organization you are familiar with, with that of the leaders. Formulate a

simple benchmarking model to compare the results with that of leaders.


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Benchmarking

Problem Solving, Decisions, Analytical Skills

1 2 3 4 5 N/A

Analyzing problems:

Successfully

separates facts from

opinions when

identifying key issues

contributing to a

problem

Resolving problems:

Solves complex

problems successfully

after analyzing

possible solutions.

Decision impact:

Makes high-quality

decisions that

positively impact the

work of members in

own group

Comments :

(Source:Adapted from: Harper, 2005. Electrum Multimedia Limited.)

360 Degree Feedback Form

Feedback Your relationshipfor (Name) to them

Instructions:

Using the following parameters/aspects, select a number that you feel bestdescribes the individuals behaviour for each of the competencies below:

Performance Key:

1. Inconsistently demonstrates expected behaviours

2. Usually demonstrates expected behaviours

3. Consistently demonstrates expected behaviours

4. Consistently demonstrates behaviours above expected levels

5. Consistently demonstrates behaviours significantly above expected levels.

N/A I cannot provide a number for the individual.


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7.2.1 Six Step Process Model

There are many process models in benchmarking ranging from Four-Steps to

Twelve-Steps. Most of them are keyed to the Total Quality Management

(TQM), Deming Cycle of Continuous Improvement, PDCA cycle i.e. Plan, do,

Check and Act. The most important aspect is that one must first understand in

detail ones own process before setting out on a benchmarking expedition.

The simplest process model recommended by GOAL1/QPC2and APQC has

six steps as shown in Table 7.2.

Table 7.2: The Six Step Process Model in Benchmarking

Step 1 Step 2 Step 3 Step 4 Step 5

Plan ConductResearch

Select Process/Programmes,Partners

Collect and ShareInformation

Analyze, Adaptand Improve

Obtainmanagementscommitment

Inform staff ofthe plan

Choose abenchmarkingteam with rightmix of skills

Determinewhat you wantto benchmarkand why

Determinewhatinformation isavailable inhouse

Decide on howmuchinformationyou stillrequire andhow this willbe obtained

Find outmore on theactivity youwant tobenchmark:

Checkinformationin libraries

journals,etc.

Establish a list(not more than 6)of organizationswell known in thearea (e.g.publishers of goodnewsletter,organizations bestknown for training,user friendlywebsite, etc.)

From this listchoose threepotential partners

Contact them andexplain to themorganisationobjectives

Choose a partnerand agree on aframework 4

Establish anaction and agreeon contact person

Collect andexchangeinformation (thisis not a one-offaction; you mayneed to visit theorganization atleast three timesduring theprocess in orderto have a fullunderstanding ofhow things work)

Summarize andanalyze the datacollected.

Compare theanalysis withbaseline dataand try to identifythe gaps.

Summarize yourfindings

Developstrategies on howto improve ones

own processSubmit findings

to managementand try to obtainsupport forchanges

Feedback:Discuss thefindings at ageneral staffmeeting andagree on anaction plan

Step 6

Continue the process of Improvement

The key implementation strategy is to choose solutions to benchmark findings that also contain anelement of continuous improvement.

Organizational learning: With the experience gained, organize training for staff

Monitoring: Implement strategy and monitor improvement

Take stock and review processes: make a check list, identify what worked and what didnt

Finally, now that you have become an expert, complete the Deming Cycle of continuousimprovement by planning for the next benchmarking exercise and use lessons learned to improveyour new model

1 GOAL: Growth opportunity alliance of Greater Lawrence2 QPC: Quality, Performance and competitiveness

(Source:Adapted from www.dgroups.org/group/leap/impact/docs/p1.benchmarking).

Activity 2

Try to formulate a similar kind of feedback form for your organization. You

can develop a scale with different aspects.


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Benchmarking7.2.2 Advantages of Benchmarking

Benchmarking has proved to be one of the most effective tools for bringing

about quantum-leaps in performance. The main advantages of benchmarking

are as follows:

It is an effective wake-up call which helps to work as an agent for change.

It is a practical approach in which changes in performance can be

achieved by replicating the best practices already undertaken by someone

else. It provides better understanding of the big picture and gaining a

broader perspective of the interplay of the enablers that facilitate the

implementation of good practice.

It gives impetus of seeking new ways of doing things which comes through

learning only. So it provides opportunities for staff to learn new skills and

be involved in the transformation process from the outset.

It promotes a culture that is receptive to fresh approaches and ideas and

creates an atmosphere of awareness.

It gives the greater confidence to staff in developing and applying new

approaches because it is already tested and applied somewhere else.

It helps to improve quality, productivity and assist to identify priorities for

improvement.

It allows a wide range of performance indicators to be studied and

performance shortfall to be clearly seen.

7.2.3 Disadvantages of Benchmarking

There are certain disadvantages of benchmarking but they are very few.

The advantages outweigh the disadvantages, but it is important to know

and consider the possible disadvantages so that corrective measures can

be planned and implemented to minimize the impact of disadvantages. The

few common disadvantages are as follows:

Difficulties getting agreement on what indicators are to be used.

Difficulties in defining the data.

Gives only limited information about how to correct performance shortfalls.

The projects can be completed quickly but the results may take much

longer time.

Highly ambitious goals may lead to unsuccessful benchmarking process.


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Many organizations avoid the process lest their weaknesses be exposed

to their competitors.

Cultural differences may, lead to some difficulties in applying best

practices as happening MNCs.

7.2.4 Mistakes to be Avoided

It is important to avoid some common mistakes to achieve the desired

targeted benefits from the benchmarking exercise:

Benchmarking should not be just for the sake of doing.

Not defining the data items correctly and consistently and not collecting the

data accurately limits its effectiveness.

Not spending enough time in the beginning to select right framework of

performance indicators and subsequently spending too much time on one

part of the process at the cost of other key parts.

Focusing entirely on comparisons of performance measures and ignoring

the processes and activities for improvement.

Relying on pre-existing benchmarks instead of modifying/adapting

according to organizational needs.

Suppose you are asked to benchmark yourself against a subset of peer

group for providing a relevant comparison. Explain how you would go

about the whole process and the limitations you will incur while going

through this process.

.

.

.

.

.

.

.


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Benchmarking

Critical Success Factors (CSFs) are basically those that play an important role

in the success of an organisation. We must know that it is very important for

organisations which really matter in the success of that organization. CSFs as

they are popularly known are the essential areas of activity that must be

performed well if one is to achieve the mission, objectives or goals for ones

organisation or project (www.mindtools.com) If one is able to identify the

CSFs one can easily create a common reference point, which will in turn help

direct and measure the success of ones organization or project. This

becomes important as everyone in the organization will know what exactly

is important and will work in ones own way in reaching the goal. D. Ronald

Daniel in the 1960s floated the idea of CSFs and the credit of making it

popular goes to John F.Rockart of MITs Sloan School of Management. This

has now became an important tool for implementing strategies in the

organisation.

Definition

According to Rockhart CSF is defined as The limited number of areas in

which results, if they are satisfactory, will ensure successful competitive

performance for the organization. They are the few key areas where things

must go right for the business to flourish. If results in these areas are not

adequate, the organizations efforts for the period will be less than desired.

(Source:www.mindtools.com)

He also concluded that CSFs are areas of activity that should receive

constant and careful attention from the management.

The main focus of CSFs is on the most important areas and to get into thedetails of what is to be achieved and how it is to be achieved.

Let us take a hypothetical example to understand the concept. We will take

the example of an organization dealing in distribution of power. Figure 7.1

shows the elements involved in strategic implementation.

CSFs

Create successful relationship with

suppliers.

Customer relationship management.

Secure financial plans for expansion.

Figure 7.1 : Relationship of CSF with Mission and Goals

Mission

To become thenumber onepower house

in the city

Goals:

Gain market share locally by a defined margin. 24 hrs customer service. Sustain customer satisfaction rate to 98%.

Critical Success

Factors (CSFs)

are an important

tool for implementing

strategies in the

organization.


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We must understand here that a limited number of CSFs should be used to

avoid complications.

The stepwise process of identifying the CSFs:

Identifying the CSFs and implementing it as a strategic tool involves five step

process. These steps are as follows:

Step 1: Establishing the mission and strategic goals possible.

Step 2: Identifying the CSFs to achieve the set goal.

Step 3: Evaluating the list of possible CSFs to absolute essentials.

These are the actual CSFs.

Step 4: Monitoring and measuring each CSF.

Step 5: Continuous monitoring and re-evaluation of CSFs to ensure

that the right track is being followed to achieve the set goals.

Role of CSFs in Performance Benchmarking

As we have discussed that CSFs are an essential part in ensuring the success

of a product or a process. It is true that they play an important role in

evaluating the performance of an individual or an organization. CSFs are an

integral part of the benchmarking process as they help in understanding and

identifying the areas, which need more importance and the areas which need

less importance. This in turn helps in avoiding duplication of efforts and in turn

helping in saving the time. When we identify the gaps in the benchmarking

process while comparing the results, the role of CSFs come into play. These

gaps can be covered up by identifying the CSFs and working on them to

achieve the competitive edge. It can well be said that identifying the CSFs and

communicating them with everyone will help in keeping the project or process

on track and in turn will help in achieving the common goals of the

organisation.

To harness and get the benefits of any initiative, it is important to define and

adhere to certain basic success factors. In benchmarking exercise also, there

are certain critical success factors and it is important to ensure that:

Benchmarking is a management tool so senior managers should not only

support it but should be committed to continuous improvements.

The benchmarking exercise should be done by teams, preferably cross

functional team.

The team should have a clear picture of their organisations performance

and subsequently the team should approach others for comparisons.

The teams should have the right skills and competencies and enabling

environment so as to have access to training, advice and guidance over

the course of exercise.

The objectives of the exercise should be clearly defining in the beginning.

CSF is an

essential part in

ensuring the

success of a product or a

process.


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Benchmarking The scope of the work of benchmarking exercise should be clearly defined

in the beginning keeping in the mind the objectives, available resources

along with the experience and skill level of human resources and time

available.

Benchmarking is not a fad but has become the basic requirement of any

organization. It is a continuous process and requires efforts on part of the

organization on a continuous basis. The major key to a successful

benchmarking is doing a benchmarking on a regular basis so as to compare

results over time. This will help in developing a trend and identifying the gaps,

which over the time can be improved upon.

As we know by now that benchmarking helps in evaluating the performance

on an individual basis as well as on the organizational basis. It is important tonote that performance benchmarking should be accompanied with other types

of benchmarking to give a holistic performance based evaluation technique. It

has been seen that paper based manual benchmarking system is quite

tedious and time consuming. Therefore, now-a-days organizations are going

in for automated benchmarking systems, like 360 degree feedback forms,

which require less efforts and can be applied effectively and can produce

return on investments within a short span.

It is important to understand that there are certain critical factors, which are

required for making benchmark successful. These can be summarized as

follows:

Choosing the right things to be benchmarked;

Involving the right people at the right time;

Having a common understanding of the whole process involved;

Understanding the situation prevalent at the time of benchmarking;

Choosing suitable partners;

Managing the improvements.

What is the role of critical success factors (CSFs) in performance

evaluation?

.

.

.

.

The key to

successful

benchmarking is

performing it on a regular

basis.


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The major success factor is to remember that benchmarking is a continuous

improvement strategy and a process of change management. To conclude it

can be said that any activity can be benchmarked but the crux of the success

lies in learning the lessons in the benchmarking activity, which in turn should

become the source for continuous improvement and innovation in the process

of benchmarking.

To better understand the concept of benchmarking, role playing exercise and

a case study is given in Appendix A and Appendix B.

1. What do you understand by benchmarking? Explain giving examples.

2. Explain the different types of benchmarking with the help of examples.

3. What are the different steps involved in identifying the CSFs? Discuss with

the help of an illustration.

4. Distinguish between different types of benchmarking giving real world

examples.

1. Role Playing Exercise: Customer-utility-vendor-NGO-SERC interface

through public hearing to evolve a consensus on the modalities and

quantum of penalties to be imposed on the utility for non-performance.

(Source:DRUMtraining program : USAID Ministry of Power).

2. Survival of the fittest: Measuring performance in a changing businessenvironment. Mike Kennerley, Andy Neoly and Chris Adams

http://www.emeraldinsight.com/insight/viewPDF.jsp?Filename=html/

Output/Published/EmeraldFullTextArticle/Pdf/2670070405.pdf

(Source:DRUMtraining program : USAID Ministry of Power).

Links to the articles referred:

1. Harper, Stuart. November 2005. Benchmarking and Risk

www.electrum.co.uk/services/papers/benchmarking.pdf

2. 23rdNovember 2007, Strategy-Benchmarking

www.tutor2u.net/business/strategy/benchmarking.htm3. Matters, Margaret & Evans, Anne. 23rdSept. 2007. The nuts and bolts of

benchmarkinghttp://www.benchmarkingplus.com.au

4. Maboguije-Visser, Lola. 25thAugust 2004. Benchmarking

www.dgroups.org/group/leap/impact/docs/p1.benchmarking.25 AUGUST

2004. doc?015=no.

5. Critical success factors23rdSeptember 2007.

www.mindtools.com/papers/article/newLDR-80.htm


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BenchmarkingAppendix A

Role Playing Exercise: Customer Utility Vendor NGO SERC interface

through public hearing to evolve a consensus on the modalities and quantum

of penalties to be imposed on the utility for non-performance.

Current Situation

The Vikas Pradesh Electricity Regulatory Commission (VPERC) of Vikas

Pradesh had three years back asked all the DISCOMs to take initiative and

implement time bound plan to improve the power distribution system and

quality of electricity supply service to the customer. It had told the utilities at

that time that after three years (i.e. today) a scheme would be finalized for

imposition of penalties on them if they dont adhere to the quality norms.

In order to achieve this, the VPDISCOM had taken necessary steps toimprove the quality of electricity supply over the last three years and has

improved the services substantially and expects to achieve the expectations of

the customer and the SERC.

SERC has called for a scheme from the utilities for imposing the penalties on

them. It intends to circulate them for public consumption and sought the

reaction with the intention to conduct a public hearing before passing any

orders on the penalty scheme.

The SERC has stipulated the following steps:

1. Submission of penalty scheme by the utilities;

2. SERC to seek comments from the customers by publicizing the scheme;

3. Fixing a date for hearing;

4. Conducting the public hearing and passing the orders.

The factors to be considered in the penalty scheme are:

1. Power supply voltage;

2. Number of power supply interruptions;

3. Duration of power supply interruptions;

4. Time taken to rectify/correct the complaint to the satisfaction of the

customer;

5. Methodology and procedure for the resolution of any dispute over the

penalty;

6. Any other item to be considered in the penalty scheme.


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Participants

The participants will be evenly divided into the following five teams:

Team 1 : Customer Groups, Local Leaders, Local Governments (CGs)

Team 2 : NGOs

Team 3 : DISCOMs

Team 4 : Vikas Pradesh Electricity Regulatory Commission (VPERC)

The Role-Playing Exercise

Team 3 (DISCOMs) would evolve, and develop a scheme for penalizing

themselves on slippage or non-conformation to the quality of supply. The

scheme would set a standard of quality service as a basis for imposing the

penalty. Team 3 would submit the proposal to the Team 4 (VPERC), which in

turn publicizes, and invites the comments from Team 1 and Tem 2 comprising

the other stakeholders. All assumptions are up for grabs. Team 1 (RCGs) and

Team 2 (NGOs) would register their differences and agreements on theproposal. The Team 5 (VPERC) will call all other teams for a public hearing

seek views of all the stakeholders on the proposed penalty scheme. Team 5

(VPERC) would make a final decision, which will be followed by a short debate

among all the teams about the Commissions decision.

The participants will be divided into various teams and each team will be

assigned an identity of an organization. Each team will need to select a team

leader who will act as the spokesperson for the team. At the end of the role-

playing exercise, the spokesperson for each team will make a brief

presentation on its position. The facilitators will provide any clarifications and

assist the teams without taking any sides.

(Source: DRUMTraining program : Performance benchmarking and quality of

USAID-Ministry of Power, Supply and Service).


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BenchmarkingAppendix B

The design and use of performance measurement systems has received

considerable attention in recent years. Many organizations have redesigned

their measurement systems to ensure that they reflect their current

environment and strategies. But how to maintain them over time? Increasingly,

the environment in which organizations compete is dynamic and rapidly

changing, requiring constantly charging strategies and operations that reflect

these changing circumstances. Despite this, few organizations appear to have

the internal culture and systematic processes in place to manage their

performance measurement systems in order to ensure that they continue to

reflect their environment and strategies. This article presents case study

research that investigates what actions organizations can take to ensure that

their measurement systems change over time.

Business environments, like physical environments, change over time.

Indeed, in recent times, it seems as though the pace of change has

accelerated exponentially. To survive and prosper in this rapidly changing

climate, organizations must be ready to adapt. One of the most important

items on senior executives change agenda needs to be keeping the

organizations performance measures and measurement systems relevant to

todays business needs. Failure to do so will invariably lead to a diminution of

the companys reputation; to customer defections; and to breakdowns in

relations with other key stakeholders not least, the deterioration of investor

confidence in management. Some retailers, energy companies, auditors,

telecommunications equipment suppliers and investment banks have all

recently learned this the hard way. Indeed several have already become

extinct.

Managing with Measures

A companys performance measurement system need to be a living entity, not

a fossilized relic of some past intent nor, more commonly but arguably worse,some monstrous hybrid of past and present requirements. Todays

performance measurement systems must reflect the wants and needs of all

the organizations stakeholders (its investors, customers, employees,

suppliers, regulators and communities); what the organization want and needs

from its stakeholders on a reciprocal basis; and the strategies, processes and

capabilities the organization is implementing to satisfy these sets of wants and

needs. Inevitability these wants and needs, and the strategies required to


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respond to them will change over time. In accordance the measurement

system needs to be realigned to reflect those changes.

By the term performance measurement system, we mean three inter-related

elements: singular measures that quantify the impact of specific actions; a set

of measure that combine to assess the performance of an organization as a

whole; and a supporting infrastructure that enables data to be acquired,collated, sorted, analysed, interpreted and disseminated for management use.

And the word use is key here; if managers do not use the data, why is it still

being measured and distributed to them?

But what factors affect the way an organizations measurement system

changes over time? Perhaps surprisingly, until now very little research has

been done in this particular field. Much has been written about frameworks to

aid the design of appropriate measures (such as the performance prism, the

balanced scorecard, and so on) and the overhaul of measurement systems

that are over-dependent on financial data, but not much about maintaining

them over the long haul. However, recent research carried out at Cranfield

School of Managements Centre for Business Performance and funded by the

Engineering and Physical Sciences Research Council, has sought to close

that gap in our knowledge.

This article summarizes the findings of this study, based on seven case

examples undertaken to identify the key factors that affect the way that

performance measurement systems change over time, and an in-depth case

study carried out to further investigate the path-finding observations that this

research revealed.

The seven companies used to develop the research into the way in which

performance measures change within organizations represented a broad

cross-section of UK industry:

Phase 1 Initial Case Examples

1. A transport infrastructure maintenance company;

2. A supplier of IT services;

3. A retail and commercial stationer;

4. A global package delivery courier;

5. An energy generation and supply utility;

6. A food packaging manufacturer; and

7. A printing equipment manufacturer.


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BenchmarkingThe focus of this work was to identify the factor, which both encourage and

inhibit the introduction of new measures, the modification of existing

measures, and the deletion of obsolete measures.

The conclusions from this first phase of the research identified four critical

factors that were most influential as enablers of and barriers to successful

performance measurement systems. These were:

Culture:The existence of a measurement culture within the organization

ensuring that the value of measurement, and so the importance of maintaining

relevant and appropriate measures, is appreciated.

Process:The existence of a process for reviewing, modifying and deploying

measures.

People:The availability of the required skills to use, reflect on, modify and

deploy measures.

System:The availability of f lexible information technology that enable the

collection, analysis and reporting of appropriate data.

In addition, it was found that modifications to performance measurement

systems were sometimes triggered by changes within the individual businesss

working environment, either externally (e.g. competitor actions or regulatory

requirements) or internally (e.g. company ownership or management

changes). Table 7.3 illustrates the component factor within each of these

categories that form both barriers to and enablers of the evolution of good

performance measurement systems.

Evolution Framework

The case example data, collected through the seven companies, also

demonstrates that there are a number of stages through which a performance

measurement system goes in order to change or evolve. The data clearly

shows that the active use of the performance measurement system is a

pre-requisite to any evolution. This requires that the performance

measurement system be used to manage the business so that the importance

of the measures is demonstrated throughout the organization and to highlightwhether the measurement system is providing the appropriate information

as and when required.

Given the availability and constructive use of the performance measurement

system, there are three subsequent steps to effective evolution. These are:


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Table 7.3 : Barriers to and Enablers of Measures Evolution

CriticalFactors

Barriers to MeasuresEvolution

Enablers of Measures Evolution

Culture Management inertia towardsmeasures due to otherpriorities;

Ad hoc approach tomeasurement;

Measures not aligned tostrategy;

Actions not aligned tomeasures;

Lack of management concernfor non-investor stakeholders.

Senior managementsponsorship;

Consistent communication of

multi-dimensionalperformance to staff;

Open and honest applicationmeasures;

No Blame/No gameenvironment;

Integration and alignment ofreward systems;

Process Lack of proactive multi-dimensional performancereview process;

Poor measures selectionapproach;

Lack of data analysis andinsights;

Insufficient measure ownershipdelegation;

Ownership of cross-functionalmeasures not addressed.

Integration of measures withstrategy development;

Integration of measures withprocess redesign;

Inclusion of-non-financialmeasures in businessperformance reviews;

Formal measures reviewprocess conducted at regularintervals.

People Lack of manager/ supervisortraining in managing withmeasures;

Shortage of data analysis skillsand specialist resource;

Shortage of expert IT data

extraction programme staff; High staff turnover.

Provision of appropriateperformance measurementresource;

Investment in measuresusage and analysis skills-building;

Inclusion of appliance ofmeasures in employeeperformance review;

Community of measuresusers who make improvementsuggestions.

System Inflexible legacy systems;

Poorly or partially implementedERP systems;

Difficult to tailor off-the-shellperformance reporting software;

Poor use of graphicalrepresentation;

Excess of raw data.

Investment in IT hardware andsoftware;

Data mining/ warehousingcapability;

Readily customizableinformation systems;

Internal systems developmentadaptation capability.

External/InternalTriggers

Change in regulatory/ legislative requirements;

Changes in competitive environment;

Changes in company ownership;

Changes in management;

Changes in technology.


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Benchmarking Reflectionon the existing performance measurement system to identify

where it is no longer appropriate and where enhancement needs to be

made.

Modificationof the performance measurement system to ensure

alignment to the organizations new circumstances and/or strategic intent.

Deploymentof the modified performance measurement system so that it

can be used to manage the performance of the organization.

Figure 7.2 : Framework of Factors Affecting the Evolution of Performance Measurement Systems

External Triggers

Reflect Deploy

Modify

Use

ExternalTriggers

Performance Measurement System:

Individual measures.

The set of measures.

Supporting infrastructure thatenables data to be acquired,

collated, sorted, analysed,

interpreted and disseminated.Pre-requisites

InternalTriggers


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Table 7.4 : Evolutionary Capabilities Maturity Model

Reflect Ad hoc Basic Emerging Managed Excellence

The current setof measures isaccepted andthe need to

changemeasures is notrecognized.

Thoseresponsibleformeasurement

appreciate theneed to reflecton measuresand changethem.

Managersappreciatethe need toreflect on

and changemeasures.

Those usingthe measuresappreciate theneed to reflect

on andchange them.

Constant reviewofappropriatenessof measures is

embedded in theculture of theorganization.

No process ofreflection onexistingmeasures.

Reflection onmeasureshappens, butit is an ad hocactivity.

Reflectiononmeasures isscheduledand linkedto strategyreviews.

Reflection onmeasures isscheduled andlinked tostrategyreviews.Clear criteriaexist.

Reflection onmeasuresagainst clearcriteria is anautomatic andon goingprocess.

No resourcesare dedicatedto review ofmeasures.

Thoseresponsibleformeasurementareencouraged toreflect on themeasures.

Managersareencouragedto reflect onthemeasures.

Those usingthe measuresareencourages toreflect onthem.

Dedicatedresource exists,withresponsibility forensuring thatreflection takesplace.

MODIFY:

The current setof measures is

a accepted andthe need tomodifymeasures is notrecognized.

Thoseresponsible of

measurementappreciate theneed to reflecton measuresand thenmodify them.

Managersappreciate

the need toreflect onmeasuresand thenmodifythem.

Those usingthe measures

appreciate theneed to reflecton measuresand thenmodify them.

Constantreflection and

modification ofmeasures isembedded inthe culture oftheorganisation.

No clearprocess existsto modify andredesignmeasures.

Modification ofmeasuresrequires asignificantproject drivenby seniormanagement.

Modificationof measuresrequires aproject thatcan besupportedby internalresources.

A recurringprocess is inplace thatenablesmeasures to bemodified.

It is easy tomodifymeasures asand whennecessary. Allmodificationsareimplementedquickly.

The skillsrequired tomodify themeasures arenot availablewithin theorganization.

Only seniormanagementhave the skillsandknowledge todesign andmodifymeasures.

Management at alllevels havethe skillsandknowledgeto designand modifymeasures.

Measurementresources areavailable tosupport usersin defining theirown measures.

Employees atall levels havethe skills andknowledge todesign andmodifymeasures.

Process

Culture

Culture

Process

People

Peo

le


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BenchmarkingDEPLOY:

Individuals areresistant tochange andstand in theway of thedeployment.

Considerablemanagementtime is requiredto overcomebarriers to thechange of

measures.

Action is takento encourageacceptance ofnew measuresby all of thoseinvolved in

measurement.

Measurescan easily besuccessfullydeployedthroughoutthe

organization.

Deploymentof appropriatemodifiedmeasures iseffortlesslyaccepted

throughouttheorganization.

There is noprocess inplace to deploymodifiedmeasures.

A performancemeasurementintroductionprocess has tobe initiated inorder to deploymeasures.

Animplementation project isrequired todeploymodifiedmeasures.

Individualdepartmentscan deploymodifiedmeasures asand whenrequired.

All owners ofmeasures candeploymodifiedmeasures asand whenrequired.

No resourcesare dedicated

to deploymentof modifiedperformancemeasures.

Externalsupport and

seniormanagementattention isrequired todeploymeasures.

Managementhave the skills

to implementmodifiedmeasureswhen they aredefined.

Managementtime or

measurementpersonnel arededicated tothedeploymentof measures

Users at allorganizational

levels havethe ability,authority todeploymeasures.

Systems arenot flexible anddo not allowmodification ofmeasureseasily.

Changing datacollection andreporting toolsrequires majorsystemsdevelopment.

Internalsystemsdevelopment isrequired toreconfiguredata collectionand reporting

tools.

Managementandoperationalpersonnelhave theability andauthority to

modifysystems.

Systems areultimatelyflexible. Usersat all levelshave theability andauthority to

modify them.

Of these three steps, reflection is clearly the most critical. Without this,

nothing changes or, at least, only randomly. During the reflection stage,

each of the constituent elements of the performance measurement system

should be critically appraised and reviewed to ensure that they remain

appropriate to the requirements of the organization today. Reflection on the

singular measures is to identify whether the measures in place are measuring

performance in the right way. Reflection on the set of performance measures

is to identify whether the processes and systems are in place to ensure that

data is collected, analysed and distributed effectively and efficiently. A numberof audit approaches and self-assessment aids are available to assist with

these vital tasks.

Audit of a measurement systems ability to change over time

The case examples data demonstrate the presence of an evolutionary cycle

reflect, modify, deploy, use with the active and effective use of measurement

as a prerequisite for evolution. External and Internal factors can and often do

C

ulture

Process

Peo

le

S

stems


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disrupt normal evolution patterns too, acting as a trigger for reflection on

what is measured.

The data also identifies that for the primary components of the cycle to be

executed, and for the performance measurement system to proactively evolve,

the enablers of evolution grouped under the headings cultural process,

people and systems must be in evidence within the evolutionary cycle.

Consequently, for organizations to effectively manage the evolution of theirperformance measurement system, they must consider the capabilities

required as they relate to each of these stages in the form of a maturity model,

which acts as a useful assessment tool.

The representation of the essential capabilities in this way enables

organizations to evaluate their ability to evolve on a five-point scale and

identify the actions they need to take in order to accelerate improvement in

how they manage with measures.

Phase 2 The Audit in Practice

In order to investigate the concepts identified in the case examples and apply

the audit in practice, an in-depth case study was undertaken to investigate

how the measurement system within an electrical wholesale company

changed over time. The company, which we will call Electrical plc, currently

has over 100 branches throughout the UK.

Changes in Electric Plcs performance measurement system over time

The initial measurement system used to evaluate Electricals performance was

designed to meet its requirements in the early 1990s. At that time, the

company had fewer branches and had a strategy of rapid growth in branch

coverage that drove sales expansion and short-term profitability. To support

this strategy, a branch profit and loss measurement system was implemented.Each branch manager was responsible for the branches net profit and was

awarded a bonus related to profitability achieved. This measurement system

significantly contributed to the development of an entrepreneurial cultural and

was quite appropriate for the company then.

By the late 1990s, however, Electrical had increased its market share

considerably and now had more branches. The firms executives identified that

the entrepreneurial cultural it had actively encouraged through its performance

measurement system also resulted in competition between branches that

prompt sub-optional behaviour. As a result, the companys strategy was

changed to focus on inter-branch co-operation, the sharing of knowledge and

acting as one company with a network of branches rather than as independent

branches competing with each other.

Clearly, the performance measurement system would have to change too and

so a companywide balanced scorecard was implemented using an external

facilitator. The branch bonus system was then aligned to it. The revised

measurement and aligned bonus system contributed to a change of culture

within the organization. Branch staff now gave greater focus to customer

service, while increasing inter-branch co-operation and sharing. This change


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Benchmarkingin behaviour has given Electrical a competitive advantage as it focuses on

customer service that enables higher profit margin, rather than just focusing

on sales as is the norm within its industry.

The Systems Change Capability

The changes in Electricals performance measurement system demonstrate

the importance of ensuring that measurement systems remain appropriate to acompanys environment and strategy. Having changed its measurement

system to reflect its revised strategy, Electricals attention has now turned to

how they can ensure that the measurement and bonus systems remain

aligned to the firms environment and strategy. The companys executives

recognize that they are trading in a highly competitive marketplace and that

strategies and measures will have to change more frequently in the future if

competitiveness is to be maintained.

An audit of the measurement systems ability to change (evolutionary

capabilities), as outlined above, is an excellent way to address this problem.

In Electricals case, discussion around the audits findings highlighted the

actions required to ensure that their measurement system continues to

change appropriately over time as the companys circumstances change.

Process

In order to maintain evolution, Electrical have now implemented a 3-stage

process to review measures and the mechanisms by which data is collected

and reported. This includes quarterly review workshops to reflect on the

measures used and provide a forum to suggest new or modified measures for

introduction. A new process is also planned to encourage and facilitate

feedback from all branch managers as measures are used. This should

ensure that measures remain relevant to all organizational levels.

People

An external facilitator brought many of the skills required to modify and deploy

the balanced scorecard measurement system. Three directors are engaged in

the steering committee that manages the implementation and use of the

performance measurement system. This ensures that sufficient attention is

paid to its effectiveness. A dedicated balanced scorecard manager has been

employed to support the use and evolution of the performance measurement

system so that the skills required to manage and modify all elements of the

measurement system are maintained within the organization, reducing the

need for external support. An internal education program is planned to make

employees throughout the organization aware of how they can use the

measurement system effectively and contribute to its evolution.

Systems

The information systems used to collect, analyze and disseminate the

performance measurement data were developed internally. The skills and

resources that will enable maintenance and further development of these

systems are retained within the organization.


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