Performance measures, benchmarking and best practices in the new economy

Citation

Gunasekaran, A. and Putnik, G.D. (2006), "Performance measures, benchmarking and best practices in the new economy", Benchmarking: An International Journal, Vol. 13 No. 1/2. https://doi.org/10.1108/bij.2006.13113aaa.001

Performance measures, benchmarking and best practices in the new economy

Angappa Gunasekaran is a Professor of Operations Management at the Charlton College of Business, The University of Massachusetts – Dartmouth. He has widely published in operations management and information systems. Currently, he is interested in researching the areas of supply chain management, information technology/systems evaluation, enterprise resource planning, benchmarking and logistics systems and management.

Goran D. Putnik is a Professor of Production Engineering at the Department of Production Engineering, College of Engineering, The University of Minho – Guimaraes. He has widely published in operations management and production engineering. Currently, he is interested in researching the areas of supply chain management, information technology/systems evaluation, agile manufacturing, new product development, enterprise resource planning, benchmarking and logistics systems and management.

Performance measures, benchmarking and best practices in the new economy

Performance measures, benchmarking and best practices are the critical success factors towards achieving business excellence in the twenty-first century organizational competitiveness. The major challenge, which companies face, is developing suitable managerial tools for measuring performance, benchmarking and best practices in the new economy. The new economy comprises of global market, international competition, and physically distributed operations and selling goods on the cyberspace. Reviewing the literature on the related topics, should be able to come to a conclusion that there is a need for more research in the areas of performance measures, benchmarking and best practices in the twenty-first century organizations.

Organisations employ performance measures and benchmarking to promote and implement best practices in order to improve competitiveness. Considering the importance of performance measures and benchmarking in organizational competitiveness, this special issue attempts to cover the topics of performance measures, benchmarking and best practices in new economy in all types of business organizations. The objective of this special issue is to facilitate advances in the theory and practice of performance measures and benchmarking and in turn to implement and promote companies’ best practices in the new economy, at all organisational levels.

The term “new economy” has different interpretations. One of the most widely accepted terms is that the new economy is the economy of “new technologies”, i.e. the economy of electronic- and the internet-based services, e.g. e-commerce, e-manufacturing, and e-business, together with the technology that supports them, e.g. computers, telecommunication and supporting software. Today, it is difficult to imagine best practices and business excellence without these tools. Therefore, we define the term “new economy” as the economy of the future, performing best practices, where performance measures and benchmarking are indispensable tools. It is the economy that performs in previously unforeseen ways, whether it be the economy of “new technologies” or the economy of “traditional technologies”, and where the best practices and business excellence are all-important.

The papers that appear in this special issue are selected from a large pool of papers presented at the First International Conference on Performance Measures, Benchmarking and Best Practices in New Economy (Business Excellence 2003) which was held in Guimaraes, Portugal from June 10-13, 2003. Over 125 delegates from more than 30 countries have attended the conferences and presented their papers. Furthermore, the papers that appear in this special issue were subject to normal reviewing process of BIJ. We hereby provide an overview of papers that appear in this special issue on performance measures, benchmarking and best practices in new economy.

The paper, “Achieving business excellence through synchronous supply in the automotive sector” by Bennett and O’Kane provides the reader with an appreciation of the present trends in the UK automotive supply industry as they affect the first and second tier supply chain and aims to give researchers an insight into the complex interaction between suppliers and their customers involved. The UK automotive industry is undergoing a fundamental change, with the main centre of attention on the increasing integration of suppliers in the development of products and production processes. Pre-assembled components for new car models are being outsourced to external suppliers. While the supplier deals with the entire development process, from the original prototype construction to process production, the vehicle manufacturer can devote increasing attention to the core areas of business. This paper studies how external influences, i.e. the end customer; legislation or natural changes cause, or force the suppliers to re-assess their working needs, requirements and strategies. Also, the implications of leading edge working practices that are necessary along the downstream side of the supply chain to ensure minimum operating wastes and satisfy best practice.

From the conceptual point of view, benchmarking seems a simple process. However, in practice, a number of different models and approaches are used for assessing the companies’ performance. Ribeiro and Sarsfield Cabral, in the first part of their paper, “A benchmarking methodology for metalcasting industry”, some benchmarking methodologies used for the performance assessment are analyzed. The planning stage of a specific benchmarking methodology for the foundry industry is presented. This methodology has been developed within the scope of the Analysis and Selection of Benchmarking Methodologies for Metalcasting Industry project. This project was supported by Portuguese Foundry Association, was structured in two stages:

(1)  developing the model for the performance assessment (including performance indicators specially designed for the foundry companies); and

(2)  conducting a pilot benchmarking exercise in order to validate the model.

Both stages (1) and (2) covered eight relevant national foundries. The exercise endorses the view that benchmarking is a time-consuming tool, demanding sound resilience and certainly a strong commitment of the top-managers. The authors suggest that in order to prevent a premature ending of the benchmarking exercise it is important to provide a method for organizing the improvement practices in hierarchical manner.

The paper, “An investigation of supply chain performance in the Indian automotive sector”, by Saad and Patel investigates the supply chain performance practices in a developing nation through a case of Indian automobile sector. It discusses the motives, enablers and inhibitors for the adoption of supply chain management concepts and attempts to identify performance measures for supply chain performance measurement. The relevant literature is reviewed and semi-structured interviews and an exploratory survey are used as a basis for the analysis of supply chain measurement in the Indian auto sector. The authors argue that there is an increasing awareness about the need to collaborate with world class players and enhance performance through the use of new management concepts. Their analysis suggests that performance improvement be not seen as a common task based on shared learning and joint problem solving.

Several major changes are currently taking place in the manufacturing industry all around the world. These changes have introduced new competitive demands (both in managerial and technological fields) stressing the adaptability requirements in the relationships between business partners. To face the new demand, a mix of structured knowledge and empirical experience will play an important role in building stronger and more sustainable manufacturing systems. Universities must challenge the young future engineers with authentic industrial experiences in order to build their practical framework and encourage their entrepreneurial growth. On the other hand, to intensify the innovation processes in small and medium enterprise (SME) companies a close collaboration with the universities must be promoted in a way that fits both needs. The paper, “Best practices of collaboration between university and industrial SMEs” by Peças and Henriques presents the experience carried on by a university group fostering the collaboration with SME companies involving young engineering students and researchers in projects designed for the resolution of real industrial problems. They proposed collaboration model and presented four real case studies. The results obtained demonstrated several benefits and some of them include:

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  training young engineering students for an active problem-solving attitude, within a systematic industrial perspective;

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  smoothness of the students transition to their professional life; and

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  promotion of a collaboration culture between SME and academia world for real problems-solving and for continuous improvement and innovation processes.

The paper, “Global benchmarking for internet and e-commerce applications”, by Ahmed, Zairi and Alwabel reports a global benchmarking exercise carried out to examine issues related to the development of the internet and e-commerce in the Kingdom of Saudi Arabia. It underpins the existing problems facing consumers and organisations and the hidden opportunities, which will be exploited by overcoming these obstacles. The significant of this research work is that consumers nowadays are using the internet as part of their daily activities and this can range from just gathering general information to purchasing products/services online. The authors have collected data by survey and using standard questionnaires. The result of this survey indicates that the more the awareness of using the internet the more benefit would be gained. The survey also revealed some barriers related to internet usage from users, managers and accountants perspectives. Although, the internet is no doubt useful, and timely, the delivery of service in Saudi Arabia is costly and inefficient.

The technique of decomposition appears intuitively well suited to solving the problem of developing performance measures for e-commerce. To produce a meaningful measure of performance necessitates e-commerce values are decomposed into lower levels until a “succinct statement” can be made about the value that e-commerce produces. The paper, “Value decomposition of e-commerce performance”, by Fink identifies value constructs and value variables for six e-commerce applications, which are determined by their “internal/external to the business” nature and focus on “customer/business”. It also develops values for corporate performance management and incorporates them into an integrated value framework. The paper concludes that although there is large agreement on the key values obtained from e-commerce, it is difficult to achieve the degree of integrity required by the decomposition technique. There are two key challenges to be met, namely achieving value splicing and functional integrity.

Kyrö in her paper, “Action research and networking benchmarking in developing nordic statistics on woman entrepreneurship”, develops a theoretical basis for the concept and process of benchmarking. Considering the concept, the paper suggests that the most recent developments in the content, forms and targets of benchmarking actually provide us with a new form of benchmarking, namely networking benchmarking. In networking benchmarking the participants create new best practices, rather than adopt them from others. Regarding the process of benchmarking, the study suggests that an action research approach provides an alternative for conducting networking processes. Both of these, the new networking benchmarking concept and the action research approach, extend the current theoretical basis for benchmarking, thus opening up potential directions for future scientific as well as practical developments. In order to explore the possibilities of these new theoretical constructions, this study applies them in a Nordic project, in which the representatives of five Nordic countries studied together how to develop their national statistical procedures on woman entrepreneurship by benchmarking and developing best practices for use in the Nordic countries. The results indicate that networking benchmarking and the action research model indeed have potential both as a theoretical frame and a practical tool, thus encouraging their further development.

Although benchmarking has proven to be valuable for large businesses and organizations for quite sometime, up until recently, serious doubts existed as to its usefulness for smaller businesses. In the paper, “An expert diagnosis system for the benchmarking of SMEs performance”, St-Pierre and Delisle present the PDG, a benchmarking system meant to evaluate SMEs from an external perspective in order to produce a diagnosis of their performance and potential, complemented with relevant recommendations. Their research results show that benchmarking allows SMEs to improve their operational performance thus confirming the usefulness of benchmarking. These results also confirm the value of the recommendations included in the PDG report concerning short-term actions to be undertaken to modify management practices. They believe the PDG system proves that if the benchmarking approach is tailored to SMEs’ needs, an adequate tool can be devised and used to help SMEs maintain or increase their competitiveness.

The paper, “Performance measures in English small and medium enterprises: survey results”, by Sousa, Aspinwall and Rodrigues presents a literature review and discusses the methodology used. The objective of this work was to determine the current state of knowledge related to performance measures and their degree of implementation in SMEs in England. General opinions regarding performance measurement in English SMEs are described, including the most important measures and the biggest obstacles to the adoption of new ones. Hypotheses about differences between groups are tested and discussed. This work concludes that there is a gap between the theory/knowledge of performance measures and the practice in English SMEs and that innovation and learning measures should be applied more widely. Training of employees and difficulty defining new performance measures were highlighted as the most important obstacles to the adoption of new performance measures. Only a limited SMEs were applying statistical process control and cultural change programmes.

Mora Monge, Subba Rao and Gonzalaez and Sohal in their paper, “Performance measurement of AMT: a cross-regional study” examine the relationship of performance in advanced manufacturing technologies (AMT) to the levels of AMT investments and planning and implementation activities in AMT. The study was conducted in two regions of America: Anglo-Saxon (U.S.A. and Canada) and Hispanic (Mexico and Costa Rica). Drawing from an extensive survey of the literature on manufacturing strategy and AMT, several factors emerged as possible predictors for performance. The question ought to be answered in this research is: do AMT investments and planning and implementation activities have an impact on Performance? And if so, are there differences between the Anglo-Saxon and Hispanic regions? These questions are answered using data from 222 firms, 125 Hispanic and 97 Anglo-Saxon.

In the paper, “Benchmarking performance indicators for banks”, Ho and Wu construct a performance evaluation for banks with the stock performance taken into consideration. If all financial indicators in the set are placed into the evaluation process, data collection would be more difficult and resources would be wasted. Grey relation analysis (GRA), a new method for commerce is used to evaluate the relative performance of three major banks in Australia. The purpose of using GRA is to reduce the number of indicators by selecting representative indicators from financial statement analysis. In addition, this paper compares the GRA results with the financial statement analysis and shows that the same result can be obtained.

China geographically is similar with USA, the overall turnover represent 7 percent of that of USA; and in term of passengers uplifted in 2001 China airlines was similar with UK’s, but the structure was totally different. China Airlines operations are mainly confined within domestic market, more than 90 percent traffic from domestic market, contrasting with British airlines 25 percent. The company is operating 339 routes, which consists of 53 international and 286 domestic, operating more than 1,000 scheduled flights on weekly basis, serving 29 cities in 19 countries. About 66 percent of its revenue was from the domestic market. Over the last two years, Air China has experienced dramatic changes in both international and domestic market. Total quality management (TQM) model in the early 1980s has rejuvenated it and become a recognised approach necessary to achieve greater efficiencies, improved reputation and continuing growth. If TQM is to be implemented within Air China, an understanding of the long-term impact on the company’s future and commitment by senior management to ensure effective leadership and teamwork are all needed ingredients to success. The paper, “SWOT analysis for Air-China performance and its experience with quality”, by Ahmed, Zairi and Almarri reports on the learnt lessons during the implementation of TQM principles in Air China operations. The objective is to realize the quality-strategy integration that needs to be seen throughout the process of strategy management.

Benchmarking web site functions involves measuring and comparing functions’ development. The paper, “Benchmarking web site functions”, by Boisvert and Caron presents the first phase of a more comprehensive research project aimed at evaluating and documenting the impact of the internet on business processes. This paper presents the rationale for web site function benchmarking, along with the methodology, and main results of this exercise. They also suggest how companies could plan web site functions development. The methodology developed for this benchmarking exercise includes the development of an approach to describe and measure web site functions, data collection logistics and a data analysis model. The main results provide a method to identify directions of web site development, a typology of web sites by development profile, and benchmarks and comparisons of web site function development.

Since benchmarking has become a common approach to optimize production processes by comparing certain aspects of a company with its competitors. However, one of the biggest challenges is not only to define suitable benchmarking topics and partners, to gather and statistically evaluate characteristic data, but also to derive concrete measures to interpret the results, i.e. to overcome the revealed weaknesses. The paper, “Knowledge-based benchmarking of production performance”, by Denkena, Apitz and Liedtke presents a successfully implemented and used functional benchmarking methodology for production performance of small and medium batch size processes, that is currently extended by using a knowledge base for reasoning strategies to semi-automatically support the interpretation of the extracted statistical data. The knowledge-based concept allows using sophisticated interpretation strategies of an existing base of real company data. The decisive point of the approach presented is to map production variables on room for improvement by taking varying parameters into account. The proposed tool is a valuable tool that takes advantage of a statistically firmed analysis of a substantial database and combines it with the comprehensive expertise of experienced specialists in the field of performance assessment.

B2B internet marketing has emerged as one of the key drivers of change and successful business practice. However, such developments affect the dynamics of traditional marketing as revealed in this recent survey of 123 UK industrial companies. The study, “B2B international internet marketing: a benchmarking exercise”, by Eid, Trueman and Ahmed provides the foundation for further research and good practice in benchmarking since it combines the best aspects of traditional and new internet marketing activities. Here 33 critical success factors were found to influence internet marketing practice; from strategy and web site design to global dimensions and corporate business environment. This study provides theoretical foundation for research into global B2B internet marketing, as well as a guide for practitioner decision-making if they are to remain competitive in the dynamic electronic marketplace.

The paper, “Comparative evaluation of practices: lessons from R&D organizations” by Mrinalini and Nath focuses on an international benchmarking study of R&D organizations. This paper highlights some critical issues related to indicators that are used to compare organizational practices. It is argued that for evaluation of organizational practices, in many cases, depending upon quantitative indicators is neither possible nor even desirable. In case of quantitative indicators much of the analytical rigour of the benchmarking study could be lost. It is argued that if at all any need for quantitative indicators arise it is at a much later stage of the benchmarking exercise. Qualitative understanding of the problem is the most desirable aspect of the organizational benchmarking exercise, which is complimented and supported with the quantitative performance indicators.

Acknowledgements

The Guest Editors would like to thank all the participants of the First International Conference on Performance Measures, Benchmarking and Best Practices in New Economy (Business Excellence 2003) which was held in Guimaraes, Portugal. Without the support of authors of the selected papers, this special issue would not have been a reality. Also, the Guest Editors would like to thank over 75 referees who reviewed manuscripts for this special issue. Special thanks go to John Peters, Emerald Publishing Group Ltd who has been supportive of the Business Excellence 2004 Conference and this special issue project. The Guest Editors of this special issue would also like to thank Ms Rosie Knowles (Managing Editor, BIJ) for her constant encouragement and excellent support throughout this special issue project. Finally, gratitude is expressed to the University of Minho (Portugal) and Dean Raymond Jackson of the Charlton College of Business, The University of Massachusetts – Dartmouth (USA) for their encouragement and support to the conference and the special issue.

Angappa Gunasekaran, Goran D. Putnik