Managers in the U.S. smiled knowingly in the 1950s when Japanese engineers made the rounds at trade shows, endlessly snapping photos. In the '70s, the smiles faded as those photos led to world-class products. Now, the U.S. is embracing an effective response: benchmarking.
Despite its ring of respectability, the term is a euphemism for legally ripping off someone else's idea, then improving on it. Once, U.S. managers gagged at such a thought. Today, senior executives at both electronics whiz Motorola Inc. and textile maker Milliken & Co. boast of stealing shamelessly from rivals--or from anyone who does things better. That change in mindset is boosting U.S. competitiveness by overcoming the not-invented-here syndrome. "Too many companies suffer because they refuse to believe others can do things better," says Robert C. Camp, manager of benchmarking competency at Xerox Corp.
U.S. industry took so long to adapt because it went unchallenged for two decades after World War II. Then when it got hammered, most managers denied reality and blamed unfair trading practices by offshore rivals. That happened at Xerox in 1979. When Japan's Canon Inc. introduced a midsize copier for under $10,000--less than it cost Xerox to make a similar machine--Xerox was sure Canon had priced it below fair value to "buy" market share. Xerox engineers soon confirmed the worst: Canon was radically more efficient. Yet it took Xerox more than a year to decide that "we had to get back on track or roll over and die," recalls Camp.
TEN STEPS. The resulting effort gave birth to the prototype for today's benchmarking campaigns. From 1980 to 1985, Xerox adapted various Japanese techniques to cut its unit-production costs in half and slash inventory costs by two-thirds. Since then, its share of the U.S. copier market has climbed 50%, to roughly 15%, says market researcher Dataquest Inc. Impressed, Camp didn't stop with manufacturing. He distilled Xerox' experience into a 10-step recipe for achieving quantum leaps in the performance of any department or process. The key: hunting down so-called best practices, then developing a strategy for matching what the best will probably be in the future--and doing it over and over again. "We're in a race without a finish line," says Camp, who by now has applied this approach to virtually every facet of Xerox' business.
The turnaround at Xerox triggered a flood of inquiries from other companies. By the mid-1980s, benchmarking was also leading to improvements at AT&T, Hewlett-Packard, and IBM. Ford Motor Co. set out to trim its 500-employee accounts-payable staff by 20%--until it peeked at the same operation at Mazda Motor Corp., of which Ford owns 25%. Mazda made do with 80% fewer people, adjusting for its smaller size. As a result, Ford aimed for--and got--75%.
BEAN PICKING. Motorola Inc. had a similar revelation. A delegation it sent to Japan in 1985 saw calculators and computers being made with defect rates 500 to 1,000 times better than at U.S. electronics makers. And the Japanese had lower production costs, disproving a belief of some U.S. managers that quality is expensive.
The spread of benchmarking now has created many role models at home. When Xerox set out to improve its order fulfillment 10 years ago, for instance, it went to L.L. Bean Inc. Several senior Xerox managers knew from personal experience that the Freeport (Me.) mail-order house shipped products quickly and reliably. Copier parts have little in common with Bean's outdoor paraphernalia, but the order-filling processes are similar: Both involve handling products so widely varied in size and shape that the work must be done by hand. L.L. Bean, it turned out, was able to "pick" orders three times as fast as Xerox. Lesson learned, Xerox pared its warehousing costs by 10%.
L.L. Bean's methods are nothing exotic. One is stocking high-volume items close to packing stations. More intriguing is that Bean's workers suggested the idea. It stemmed from a periodic exercise in which workers plot flowcharts tracing their movements to spot wasted motion. This impressed a delegation from Chrysler Corp.'s central parts plant, which visited Freeport last spring. Norm M. Hamway, manager of the Chrysler facility in Centerline, Mich., now says the carmaker should rely more on "problem-solving at the worker level."
Benchmarking can be just as effective in the opposite direction--helping small companies copy big-business practices. Manco Inc., a tiny Cleveland-area producer of duct tape, draws inspiration from Wal-Mart, Rubbermaid, and PepsiCo to keep archrival 3M Co. at bay. At Convex Computer Corp., "benchmarking is critical to our strategy," says Chief Operating Officer Terry L. Rock. The Richardson (Tex.) company isn't flush enough to hire a stable of experts, so borrowing best practices is "the only way for us to win," Rock adds.
NOT FOR AMATEURS. The caution for novices and small companies alike is not to go too far too fast. For two years, consultants at Ernst & Young in Cleveland and the American Quality Foundation in New York have been analyzing business practices at 580 companies in four industries--autos, computers, banking, and health care. Part of what they've turned up flouts conventional wisdom: While benchmarking produces big paybacks for companies already at a high level of quality, it can hurt quality neophytes.
Even industrial giants can run aground on benchmarking. When quality efforts aren't coordinated by top management, says J.M. Juran, a consultant and quality pioneer, it's quite possible for one department to launch a benchmarking program that inadvertently undermines another. One oft-cited example is when purchasing devises a better system of managing suppliers, but that leads to buying equipment or materials that hamper manufacturing efficiency.
That's why Henry J. Johansson, the Coopers & Lybrand partner in charge of manufacturing consulting, thinks benchmarking should be done in conjunction with business reengineering--rethinking work flow plus the procedures and systems used in various tasks. Doing this helps managers grapple with interdepartmental conflicts and bottlenecks. Armed with these insights, a company can concentrate on enhancing processes that add value. This structural revolution is already under way, says Johansson, at C&L clients as diverse as Allied-Signal, Boeing, Chevron, Eastman Kodak, GTE, and Merck.
PHH FleetAmerica, the $1 billion fleet-leasing arm of PHH Corp. in Hunt Valley, Md., is also heeding this advice. "We've looked at every process and defined the 16 key ones that run our business," says President William F. Adler. Each was benchmarked against both rivals and customer expectations to select the initial candidates for the reengineering that began in February. The aim, says Adler, is to improve "the things that add value to our customers."
So many companies are benchmarking--often at the insistence of companies they supply, or to meet the criteria for applying for the Malcolm Baldrige National Quality Award--that latecomers can have trouble finding partners to imitate. Last year, L.L. Bean hosted 35 benchmarking visits. This year, it has been receiving up to five requests a week--too many to handle. So now, only companies that show a compelling need are allowed to see how it's done. "We're looking for genuine interest in quality, not the merely curious," says Robert Olive, L.L. Bean's plant manager.
Locating willing partners and identifying best practices should soon get easier, thanks to a new computerized ini-tiative called the International Benchmarking Clearinghouse. Housed at Houston's American Productivity & Quality Center, the IBC is compiling a data base of best practices and how-to guidelines. It also runs an electronic bulletin board, where IBC members can share information or post appeals for benchmarking partners. More than 100 companies, most on the BUSINESS WEEK 1,000 list, have already paid graduated annual dues of up to $60,000. That could be a bargain, because 95% told IBC their benchmarking skills are still "rudimentary." And 80% also said benchmarking is fast becoming a condition of survival.