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7/27/2019 BenchMarking Overview
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Benchmarking for Best Practices
Gemini Consulting
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Objectives
• To review how world-class companies use benchmarking
• To introduce Gemini Consulting’s approach to benchmarking
• To review a real case example—and the benefits that benchmarking canprovide to our clients
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Agenda
• The Value of Benchmarking
• Overview of Gemini Benchmarking Activities
• Benchmarking for Best Practices
• Benefits of Benchmarking—Case Examples
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Benchmarking Deals with Uncover ing and Implement ing Best Demonstrated Practices
A kicker box is always the same width —7.30. It grows vert ic ally. If the text is
one l ine, i t is centered w ith in the kic ker; i f mo re than one l ine, i t is f lush lef t .
Use 14 Point Bold Ita l ic type with pun ctuat ion.
―The search for industry best practices that lead to superior performance‖ —Robert C. Camp
―A surveyor’s marker of previously determined position . . . used as a referencepoint . . . standard by which something can be measured or judged‖ —Webster’s Dictionary
―Benchmarking is the continuous process of measuring products, services,
and practices against the toughest competitors or those companies recognizedas industry leaders‖—David T. Kearns, Xerox
Benchm arking establ ishes how m uch a company needs to impr ove to be at
world -class levels and is a cr i t ica l compon ent of the process for get t ing
there.
BENCHMARKING
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60% to 70% of the Largest U.S. Companies Now Have SomeForm of a Benchmarking Program in Place
Benchmarking’s popularity is partially driven by the fact that U.S. companiesmus t benchmark to win a Malcolm B aldr ige Nat ional Qual i ty A
U.S. com panies must benchmark to be co nsidered for a Malcolm Baldr ige
National Qual i ty Aw ard.
• Many major companies initiated benchmarking programs in the 1980s:
- Motorola - General Motors - Pepsico
- Oryx - First Chicago - Weyerhaeuser
- Alcoa - General Electric - Xerox
• Certain companies are perceived to be ―best in class‖ along specific dimensions:
• Kellogg
• Motorola
• Xerox
• IRS• Alcoa
• Leading Japanesemanufacturers
• Domino’s Pizza
• L.L. Bean
• American Express• Du Pont• General Electric
• Milliken
• Improving supply chain
• Shortening cycle time fromorder receipt to delivery
• Boosting productivity inlogistics and distribution
• Improving billing procedures• Improving safety• Managing organizational
processes• Cross-functional processes
Benchm ark Target Focus Benchmark ing Company
BENCHMARKING
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Example: Xerox Used Benchmarking to Face New MarketEntrants from Japan
Issues faced dur ing 1980s
• Xerox lost market share toJapanese competitors
• ―We did not understand the
severity of the competition . . .we were arrogant to think thatno one could do anythingbetter than we could‖
— David Kearns , Xerox Chairman
BENCHMARKING
Benchmark ing process
• Addressed most functions invalue chain:
- R&D
- Manufacturing and QA- Marketing and productmanagement
- Salesforce
- Logistics and purchasing
• Selected best-in-class
regardless of industry, e.g.:- Drug wholesalers
- Appliance manufacturer
- Catalogue retailers
Benef i ts Achieved
• Suppliers reduced by
70%• Manufacturing costs
cut by 50%
• Quality problems cutby 60%
• Accelerated cycle time
• Increased market
share
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Benchmarking Affords Companies the Opportunity to MakeStep Changes in Their Work Processes
Degree of
Improvement
Time
Benchmark ing
Improvements
Internal
Improvements
BENCHMARKING
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Benchmarking Also Improves Your Process Performanceand Competitive Advantage
Industry Average
Company Performance
Company Goal
World Class
Key Indicator
(e.g., Ac cou nts Receivable Outstan ding )
Industry Average
Company Performance
Company Goal
World Class
1989 1990 1991 19921988 Goal1995
BENCHMARKING
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As a Result, Companies Experience Strong Financial andCultural Benefits
• Benefits are both financial . . .
- ―Our program resulted in a 32% reduction in operating expenses per well, per day‖—Oryx Energy
- ―[Benchmarking] led to 50% savings in materials movement expense at several plants‖—General Motor s
- ―We’ve streamlined many functional areas using benchmarking‖—First Chicago
- ―Product development time was cut by 50% and total costs by over 60%‖—Xerox
- ―Global benchmarking led to 50% reduction in selected product development cycles‖—AT&T
• . . . And cultural:
- Creates organizational understanding and commitment to change
- Stimulates interfunctional/departmental dialogue and brainstorming
- Works as a motivational tool to get employees to stretch
- Broadens view of employees to include best practices of other industries
The Japanese have transformed benchm arking into a long-term strategic
weapon by integrat ing it into their planning process es.
BENCHMARKING
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Gemini Benchmarking Activities Vary According to theIssues Our Clients Face
GEMINI BENCHMARKING SERVICES
• How do they rate in creating value for their shareholders?
• How do they measure along key indices for a selected function?
• What are the competitor costs to perform agiven function? Overall costs?
• How do their functions or processesperform against those of best-in-classcompanies?
Best Results
• Strategic benchmarking
• Key indices benchmarking
• Cost benchmarking
Best Pract ices
• Functional or process benchmarking
Examples of Issues Our Clients Addressed Examples of Gemini Act iv i t ies
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Strategic Benchmarking Addresses the ExternalStakeholder’s Assessments of a Company’s Performance
GEMINI BENCHMARKING SERVICES
Average
of Peers
Client Company A Company B Company C
Gap withAverage of
Peers
Gap withBest of Peers
P/E Ratio o r Market/Bo ok Value
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Key Indices Benchmarking Focuses on Key Indices andCost Drivers across Competitors
GEMINI BENCHMARKING SERVICES
Client Company A Company B Company C Company D
Net Sales $54 $80 $90 $300 $300
Direct Sales Headcount 18 20 22 70 80
Examp le: Sales per Salesperson ($ Million/Person)
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14 Point Bo ld I tal ic type with p unctuat ion.
Cost benchm arking translates cost d r ivers into cos t est imates to assess
econom ic advantages or d isadvantages.
$3.0
$4.0 $4.1 $4.2
$3.8
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Best Practices Benchmarking Compares Practices and Performances of Specific Value Chain Functions or Processes
GEMINI BENCHMARKING SERVICES
MarketPlanning
TechnicalPlanning
Product/Service
Structuring
Operations
Product Delivery• Risk Assessment • Information
Customer Service• Service • Billings
Sales andPromotion
Best-in-Class
Support Activities
Examp le: Telecom Client Value Chain
Pdt/Svc Development Pdt/Svc Realization Pdt/Svc Delivery
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Most Current Benchmarking Efforts Center on BestPractices
GEMINI ACTIVITIES
• Provides a scorecard across currentcompetitors
• Shows how efficiently or effectively a
function is performed
• Data collection
• Indices- or cost-based
• Asks questions
• Highlights the ―whats‖ and ―hows‖
• Shows how best-in-class companies
perform selected functions or processes
• Action
• Work practices –based
• Answers questions
Let’s discuss best practices benchmarking in more detail.
Best Results Best Pract ices
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Agenda
• The Value of Benchmarking
• Overview of Gemini Benchmarking Activities
• Benchmarking for Best Practices
• Benefits of Benchmarking—Case Examples
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Effective Benchmarking Must Avoid Usual Pitfalls
BEST PRACTICES
Independent Initiative
vs.
Integrated with Other Efforts
Staff Consultant Exercise
vs.
Line Ownership
Unfocused
vs.
CSFs in Value ChainCost Comparisons
vs.
Multiple Measures
Data Collection
vs.
Action
Direct Competitor Only
vs.
Best-in-Class
Gemini Approachto Benchmarking
Common Errors
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Benchmarking for Best Practices Revolves aroundContinuous Improvement
BEST PRACTICES
Plan
Benchm arking is an ongoing cyc le, not a one-shot proc ess.
I m p l e m
e n C
o l l e
c t
Analyze
ContinuousImprovement
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Deciding What and Whom to Benchmark
Three quest ions m us t be answered . . .
• What should be benchmarked?
• What are the key performance metrics?
• Whom should we benchmark?
. . . By taking th e fol low ing s teps:
• Identify the alternatives
• Develop selection criteria
• Make the selection
BEST PRACTICES
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In Selecting Functions or Processes, We Consider Major Opportunities for Change
• Which functions represent the greatest percentage of costs?
• Which functions add the most value to the customers, shareholders, and
internal organization?
• Which functions have the most room for improvement?
• Which functions can realistically be improved?
BEST PRACTICES: WHAT
There is no s et answ er to determinin g appropr iate funct ion s to benchm ark.
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For Each Selected Process or Function, We IdentifyActivities, Practices, and Metrics
BEST PRACTICES: WHAT
How best-in-class firmstranslate customer
requirements into orders
Number of changes per order
Order entry
How best-in-class firmsmanage priorities and
scheduling
Number of customer contracts per producer
Key Activities Best Practices Metrics
Funct ional Example:
Special Orders
Process Example:
Sales Agents
The value-added
steps in each
funct ion or process
The way b est-in-
class f irms perform
those steps
The perform ance
measurements b est-in-
c lass f irms us e
Def in i t ion
type with punctuat ion.
A key question: how “deep” do we need to benchmark the selected processfunct ion to extract act ionable learnings?
Converting sales calls
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Identifying Whom to Benchmark Against IsKey
Examp les: How to determ ine best- in-class analog s for a manufacturer:
BEST PRACTICES: WHO
Process or Function
• Sales support • Order entry• Order tracking• Handling customer
inquiries
• Transaction-based
• Multiple orders from
multiple customers
• Combination of
technical products and
services
• Orders oftencustomized per
customer requirements
• Direct order PC
maker
• Dell Computer
AnalogousIndustryCriteria
Key ActivitiesAnalogousIndustries
Best-in-classFirms
BEST PRACTICES WHO
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Target Companies Offer Trade-offs betweenBenchmarking Cost and Returns
Internal(e.g., other businesses
of corporation)
Direct
Competitors
Best-in-Class(functional
or processleadersfromother
industries)
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Use 14 Point Bold I ta l ic type with pun ctuat ion.
The selected examples m ust be accepted as tru ly comp arable by the
organizat ion.
BEST PRACTICES: WHO
Value/Returns of
Benchmark ing
Dif f icu l ty/Cost of Benchm arking
Low High
High
Low
Value and Dif f icul ty o f Benchmarking for Dif ferent Types of Com panies
BEST PRACTICES
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Collecting Data
BEST PRACTICES
Internal
(based on readilyavailable data)
•Reviews•Libraries•Surveys•Internal site visits•Interviews
Secondary
• Industry reports• Professional
associations• Seminars• Technical journals• Vendors• Academia• Consultants
Primary Sources
• Industry surveys• Focus groups• Industry experts• Customer feedback• Site visits• Exchange of
information• Recent competitor
hires
Easier More Diff icu lt
BEST PRACTICES
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Many Gemini Benchmarking Efforts Have IncludedBroad Client Participation
• Provides oversight and leadership• Updates other executives• Participates in site visits
• Coordinate benchmarking effort• Develop plans• Conduct secondary and primary research• Analyze gaps• Help develop implementation recommendations
• Provide expert insight into functions and processes• Participate in collecting external data• Participate in gap analysis• Validate benchmarking plan
• Participate in site visits• Validate benchmarking plans• Collect internal data• Implement
BEST PRACTICES
Champion
Core Team (full-time)
Content Experts(part-time)
Other Participants(ad hoc)
• Client person
• 2 Gemini consultants• 2 client staff people
• Several client staff people
• Gemini consultantsand academics
• Other team [Geminiand client] members
Example:
Telecom Team Member Role
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Use 14 Point Bold I ta l ic type with pun ctuat ion.
Broad c l ient part ic ipat ion usu al ly increases buy- in and faci l i tates the future
change process .
BEST PRACTICES
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Analyzing Gaps between Internal and ExternalPerformance Suggests Change Programs
BEST PRACTICES
TryHarder
Emulate LeapFrog
Changethe Process
Four Types of Change Prog rams to Meet Best- in-Class Standards
• Vague
• Unactionable
• Demoralizing
• Long-runmediocrity
• Band-Aid
• Dynamic
• Creative
• Out-of-industry(often)
• Strategic or operationalparadigm shift
• ―Position‖builder
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Agenda
• The Value of Benchmarking
• Overview of Gemini Benchmarking Activities
• Benchmarking for Best Practices
• Benefits of Benchmarking—Case Examples:
- Human Resources Function for a Service Company
- Corporate Planning Process for an Industrial Company
A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
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A Recent Gemini Assignment Illustrates the Process andBenefits of Benchmarking
• A joint client –Gemini team benchmarked the Human Resources function
• Identified potential savings of $31 million (NPV) over the next five years
• Recommendations are currently being implemented
C S U SOU C S U C O
A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
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Historically, Benchmarking and Competitor AwarenessHad Been a Low Priority at Our Client
Background
• ―Upper management does not realize the importance of benchmarking‖
• ―It’s unbelievable how little we know about competitors and our marketplace‖
• ―We don’t even benchmark our competitors, let alone those consideredbest-in-class‖
A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
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The Benchmarking Team Identified ImprovementOpportunities in Eight Key Activities
• Benefits Administration
• Outplacement
• HR Data
• Exempt Staff Employment
• Management Employment/Staffing
• Management Development/Succession Planning
• Salary and Wage Administration
• Communications
Imp rovement Oppor tuni t ies
type with punctuat ion.
We wil l u se staf f employm ent to i l lus trate the data col lect ion, analysis, and
recomm endat ion phases.
A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
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The Team Visited Four Best-in-Class HumanResources Organizations . . .
• Companies benchmarked:
- Merck
- 3M
- GE
- Xerox
• These best-in-class companies shared three common elements with our client:
- A quality orientation
- The pursuit of a differentiation strategy
- Recognition of HR’s critical role in implementing strategy
A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
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. . . And Conducted In-Depth Interviews with ManyAdditional Companies
Motorola
American Airlines
MCI
Marriott
The TravelersHewlett-Packard
United Airlines
IBM
Pepsico
Exxon
PEPCO
Federal ExpressDEC
Baldrige winner
Employment
Workforce
Workforce
WorkforceHR status
Employment
Baldrige winner
Management development
Recruiting
Local utility
Baldrige winner Outplacement
type with punctuat ion.
Intensive telephone interviewing provided depth and a basis for “apples-to- apples” comparisons.
Benchm arked Reason for Inclusion
A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
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The Team Found That World-Class Companies WereSignificantly Outperforming Our Client’s HR Practices
HR headcount/jobs filled 1:64 1:107 1:189 1:180 1:150 N/A
Applicant yield 7% <5% <5% 10% –12% 6% <5%
Employment budget per $920 <$400 $300 $625 $666 N/A
jobs filled
Measure Client
Company
A
Company
B
Company
C
Company
D
Company
E
A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
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We Identified a Variety of Successful HRModels
Employ
by Major
Site
Appl ica-
t ions
Screen
Testing
Screen Interviews
Advert ise-
ments Referrals Company
Dis-
tr ibuted
Services
Cen-
tralized
Decen-
tralized
Common
Policies
A ¦ ¦ ¦ ¦ ¦ ¦ ¦
B ¦ ¦ ¦ ¦ ¦ ¦ ¦
C ¦ ¦ ¦ ¦ ¦
D ¦ ¦ ¦ ¦ ¦ ¦
E ¦ ¦ ¦ ¦ ¦ ¦
F ¦ ¦ ¦ ¦ ¦ ¦
G ¦ ¦ ¦ ¦ ¦
H ¦ ¦ ¦ ¦
A CASE EXAMPLE: HUMAN RESOURCES FUNCTION
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We Recommended Major Changes within the Scopeof a Gemini Transformation Project
• Make HR facilitator in hiring process:- Manages recruitment channels- Keeps applications on file- Screens applicants for manager - Allows managers to decide who will
work for them
• Utilize three major recruitment channels:- Advertising/job fairs- Employee referrals- Site-based applications distribution
(centralized processing)
• Redesign applicant screening process:- Aggressively screen applicants- Utilize on-site and remote testing
• Close several employment offices:- Hiring and testing to occur on site or at
job fair locations
• Current system is passive, creating unneededHR support
• New model is consistent with the client’snotion of empowering managers
• Cuts employment office costs• Avoids ―perishable inventory‖ problems • Uses methodologies successfully employed
both inside and outside the client
• Eliminates ―bricks and mortar‖ and supportcosts of employment-related headcount
• Moves closer to ―best practices‖ model
• Reduces employment overhead:- Cuts headcount- Reduces corporate facilities costs
Rationale Recommended Appro ach
A i Ti f W S fA CASE EXAMPLE
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Aggressive Timeframes Were Set for Implementation
• Develop implementation team
• Select and put in place set-up team
• Begin distribution of applications andmodel recruiting sessions
• Three months
• Four months
• Six months
• Eight months
• Ten months
• Phase out employment offices
• Complete implementation
Act ion
Timeframe
(from Benchm arking Date)
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Agenda
• The Value of Benchmarking
• Overview of Gemini Benchmarking Activities
• Benchmarking for Best Practices
• Benefits of Benchmarking—Case Examples:
- Human Resources Function for a Service Company
- Corporate Planning Process for an Industrial Company
A th G i i A i t Sh d Additi l Li htA CASE EXAMPLE: PLANNING PROCESS
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Another Gemini Assignment Sheds Additional Light onthe Process and Benefits of Benchmarking
• A joint client –Gemini team worked on the planning process for a largeindustrial corporation:
- Two natural work teams (NWTs) looked at the current process
- A benchmarking team reviewed best practices from other companies
• Identified major improvement areas for the corporate and business planninggroups
• Recommendations have been and are still being implemented across thecorporation
The benchmarking f indings energized the group and accelerated change —the NWTs real ized that major im provement could be introd uced.
W Vi it d S l W ld Cl C i tA CASE EXAMPLE: PLANNING PROCESS
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We Visited Several World-Class Companies toDiscuss Their Corporate and Business Processes
• The benchmarking team visited professionals in more than a dozen U.S.and European corporations:
- Half in the natural resources field
- The other half in diversified industries
• These companies met stringent selection criteria:- Large size (more than $5 billion in revenues) and organized into several divisions
- Multinational and well managed (―world class‖)
- Have formal planning processes
•Our discussions revolved around:
- Goals of the planning process
- Scenario planning and strategy formulation
- Planning process timetables, strengths, issues, and responsibilities
Findings: Corporate Planning Has ManyA CASE EXAMPLE: PLANNING PROCESS
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Findings: Corporate Planning Has ManyResponsibilities
Core respon sibi l i t ies • Review and oversee planning methodologies and processes
• Coordinate and oversee the planning process
• Test and challenge divisional plans
• Consolidate divisional plans
• Run corporate models
Add i t ional responsib i l i t ies
• Help businesses formulate their strategies and develop plans
• Evaluate investment proposals (e.g., M&A opportunities)
•
Develop macroeconomic and industry-specific outlooks• Develop scenarios; coordinate scenario planning
• Coordinate and deliver ad hoc studies
Corporate planning is in creasingly perceived as an internal consultant , or
“think tank,” organization.
Visits Highlighted That Companies May Have up toA CASE EXAMPLE: PLANNING PROCESS
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Visits Highlighted That Companies May Have up toThree Corporate Planning Cycles
A typica l planning process
Board approves Operating Plan
Top executives approve Operating Plan
Businesses prepare Operating Plan
Corporate economists revise economic andindustry-specific outlooks
Top executives approve Long-Range Plan
Corporate Planning tests/challenges Long-Range Plan
Businesses develop Long-Range Plan
Top executives approve and issue economic and industry-specific outlooks
Corporate economists develop economic and industry-specific outlooks
Businesses formulate their strategies (at any time during the first half of the year)
PlanningCycles
3. Operatin g Planning
2. Long -
Range
Planning
1. Strategy
Formulat ion
J F M A M J J A S O N D
J F M A M
1992
1993
Findings: Several Corporations Are Modifying TheirA CASE EXAMPLE: PLANNING PROCESS
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Findings: Several Corporations Are Modifying Their Planning Processes
• Rely on time-consuming, numbers-
intensive activities
•
Extrapolate historic performance insteadof ―true‖ strategic thinking
• Suffer from top management’s tendency
to ―adjust‖ plans without reviewing
program-specific detail
• Allow little time for planning
• Reengineer the planning process to achievehigher efficiency and effectiveness
• Streamline the corporate planning andbusiness planning organizations
• Deemphasize numbers-driven nature of plans
• Introduce a strategy formulation cycleseparate from the long-range planningprocess
• Appoint high-level planning committees tofocus on major strategic issues
• Introduce scenario-planning workshops
• Eliminate mechanistic approaches toplanning
• Decouple long-range plans from operatingplans
• Encourage top management to overcome itsnatural tendency to crunch numbers
• Modify the planning schedule (e.g., conductstrategic planning every two years asopposed to every year)
Comm only Perceived Weaknesses How Companies Address Them
Findings: Companies Increasingly Rely on OutsideA CASE EXAMPLE: PLANNING PROCESS
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Findings: Companies Increasingly Rely on OutsideParties for Their Macro-Level Assumptions
Interviewees m ent ion several reason s fo r this trend
• ―Our corporate economics group was dismantled eight years ago.‖—Metal Co.
• ―. . . macroeconomic outlooks are bought rather than developed in-
house.‖—Paper Co.
• ―Our Corporate Economics department engages in high-value-addedactivities such as promoting our company’s image with variousshareholders. We purchase [vendor] economic forecasts, review them, andmodify them as needed.‖—Chemical Co.
• ―It is becoming very expensive for us to maintain our models. . . . We areconstantly looking for more efficient ways of getting the work done.Outsourcing seems to offer economies of scale for a number of economicforecasting activities.‖—Computer Co.
We Recommended Major Changes Which the ClientA CASE EXAMPLE: PLANNING PROCESS
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We Recommended Major Changes, Which the ClientIs Already Implementing
These changes have already been imp lemented and the cl ient has
experienced that the increased f lexib i l i ty in its long-range plans al lows
better, “more strategic” decision making and communications.
Samp le of recommendat ions from b enchmarking
• Role and responsibility changes:
- Corporate Planning to test validity of and consolidate divisional plans
- Businesses to develop stronger, more strategic long-range plans, not just budgets
• Scenario planning:
- Corporation to introduce scenario review and sensitivity analysis to major environmentalchanges
• Outsourcing:
- Increased use of third-party providers (e.g., economic, industry-specific think tanks)