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A synergistic performance management model conjoining benchmarking and motivation Anatoliy G. Goncharuk

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Department of Management, Institute of Business, Economics and Information Technology, Odessa National Polytechnic University, Odessa, Ukraine, and

Jamie P. Monat Corporate and Professional Education, Worcester Polytechnic Institute, Worcester, Massachusetts, USA Abstract Purpose – The purpose of this paper is to develop an improved management/performance model that yields superior business productivity by conjoining internal benchmarking, external benchmarking, and a strong employee performance/behavior paradigm. Design/methodology/approach – Strengths and weaknesses of conventional benchmarking approaches to productivity maximization are examined through both literature surveys and experiments. Findings – It is found that most benchmarking efforts are hampered by resistance of employees to change. It is therefore concluded that benchmarking efforts could be enhanced by integrating employee motivation/behavior programs with the benchmarking efforts. Research limitations/implications – The individual elements of the proposed model have been field-validated; however the integrated model has not been field-tested. This is planned as future research. Practical implications – The conjoining of internal benchmarking, external benchmarking, and employee motivation/behavior programs should substantially enhance the results of productivity improvement programs based upon benchmarking. Originality/value – This is the first effort that integrates internal benchmarking, external benchmarking, and employee motivation/behavior programs. This synergistic management model should be quite significant in enhancing corporate productivity. Keywords Performance management, Benchmarking, Productivity rates, Motivation (psychology), Employee behaviour Paper type Research paper

1. Introduction To survive in the new globalized world economy and to compete successfully, enterprises must accelerate their productivity growth. This places high demands on enterprise management to find performance management models that can lead the company to success. In the literature and in practice, there are many approaches to productivity enhancement that help companies build strategy and achieve performance goals. The authors gratefully acknowledge the constructive comments and suggestions made by the reviewers and the editorial staff of BIJ.

Benchmarking: An International Journal Vol. 16 No. 6, 2009 pp. 767-784 q Emerald Group Publishing Limited 1463-5771 DOI 10.1108/14635770911000105

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Some of them like total quality management or Six Sigma focus on quality problems (Soltani and Lai, 2007; Camgoz-Akdag, 2007; Das et al., 2008) while others focus on improving various processes (business process reengineering, management by objectives, activity-based management (Gunasekaran et al., 2000; Abdolvand et al., 2008; Dahlsten et al., 2005; Gonza´lez et al., 2005)), degree of management command and control (market-based management (Best, 2008)) or teamwork (team-based management (Jouini et al., 2008)). All of these approaches require significant changes in employee behavior, which is difficult to achieve. As a result, these programs are often limited in their impact because of employee resistance to change. This problem may be solved by integrating three management concepts into one model: internal benchmarking, external benchmarking, and employee motivation/ development. Benchmarking helps companies find the best techniques to improve performance and processes. Its founder, R. Camp, defines benchmarking as a positive, proactive process to change operations in a structured fashion to achieve superior performance (Camp, 2006). While external benchmarking is much more common, internal benchmarking can be highly valuable. The third management concept, an excellent employee motivation and development program, facilitates the enterprise changes that are mandated by benchmarking. It induces and stimulates the staff to modify existing procedures and to use new techniques to achieve individual and corporate goals. Successfully joining these three concepts can be synergistic and can significantly accelerate an enterprise’s productivity growth. The purpose of this study is to develop a synergistic performance management model that will help enterprises to rapidly improve performance and productivity by joining individual and corporate goals while simultaneously identifying, studying, and adopting the best management techniques and processes. Achieving this requires: . Development of an optimal benchmarking scheme that activates intrafirm competition and finds the best techniques within the enterprise. . Development of an external benchmarking scheme that similarly identifies the best techniques in other companies. . An improved personnel motivation/development system that optimizes employee behavior to maximize productivity. . Integration of internal benchmarking, external benchmarking, and motivation systems into one synergistic model that provides continuous and rapid improvement of enterprise performance. In Sections 2 and 3, we describe the background and methodological basis of this study. Section 4 demonstrates successful application of the proposed internal benchmarking system, while in Section 5 we present an employee motivational model that ideally supports benchmarking. In Section 6, we combine those two models with external benchmarking to develop a comprehensive synergistic model. 2. Background Three basic management concepts underlie this study: internal benchmarking, external benchmarking, and employee motivation/development. The model developed here combines these three tools into a powerful management paradigm that amplifies their individual effects and achieves significant synergy.

There are hundreds of publications about benchmarking and each has its own definition of the concept. But frequently these definitions are narrow (one-sided) and do not explain all of benchmarking’s capabilities. For example, Bhutta and Huq (1999) define benchmarking as “first and foremost a tool for improvement, achieved through comparison with other organizations recognized as the best within the area.” This definition is fine but narrow in that some types of benchmarking are oriented toward finding something fundamentally new for the business. We can broaden the benchmarking definition by stating that benchmarking is a tool for improving various aspects of a business, achieved through comparison with other organizations (both internal and external to the company) that are recognized as the best within the area or in other areas. Benchmarking is one of the most universal methods that can be used for performance management. The methodological application of benchmarking to enterprise performance management has been discussed by Camp (2006), Carris and Bartlett (1994), Elmuti and Kathawala (1997), Mann et al. (1998), Watson (2007), Voss and Blackmon (1997), and Zairi (1996). Two mutually supportive types of benchmarking are used in this study: external and internal. There are several types of external benchmarking, which is the more popular form: competitive benchmarking (Manning et al., 2008), process benchmarking (Gleich et al., 2008), performance benchmarking (George and Rangaraj, 2008), functional benchmarking (Denkena et al., 2006), and international benchmarking (Goncharuk, 2008a). These types are often mutually complementary and amplify the resources available for enterprise performance improvement. Although external benchmarking is more popular in literature and practice, internal benchmarking is a very strong (and underutilized) tool that can provide significant enterprise productivity gains through intrafirm competition. Some aspects of internal benchmarking are described by Hyland and Beckett (2002), Binder et al. (2006), Durst and Binder (2006), Southard and Parente (2007), but its combination with external benchmarking into a synergistic model has not yet been considered. Therefore, in our study we raise this point and combine the two types of benchmarking with another strong performance management tool: motivation and training. As noted in the introduction, many productivity enhancement tools (including benchmarking) have been suggested and applied to enterprises. However, all of these require implementation by the human beings who work for the enterprise, and getting employees to change their methods and procedures is notoriously difficult (Dent and Goldberg, 1999; Strebel, 1996; Zwick, 2002). Therefore, any new management initiative will be enhanced significantly if it is accompanied by an employee motivation/training protocol. Many such protocols exist in the literature and an excellent review is provided by Ambrose and Kulik (1999). Adsit (2004) and Locke and Latham (1990) focus on the proper setting of goals for employees. In their famous article, Kaplan and Norton (1992) describe the balanced scorecard and articulate the importance of establishing good corporate performance metrics. Drickhamer (2004) also has an opinion about metrics and their misuse as indicators of corporate performance. Many authors have explored the best way to reward employees (Behn, 2000; Kerr, 1975, 1995; Kinne, 2000; Kohn, 1993; Stewart et al., 1993). But few authors have incorporated employee behavior into a motivation/training protocol and only one author (Monat, 2005, 2007) has tied these

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elements together into a mutually self-supportive motivation/training structure. Integrating Monat’s employee development model with benchmarking should yield a powerful, synergistic tool for enterprise productivity maximization. 3. Research methodology In light of the underutilization of internal benchmarking and the suboptimal results of productivity enhancement programs due to employee resistance to change, we sought to develop a synergistic management model that integrated excellent productivity enhancement tools with an excellent employee behavior/motivation tool. We selected external benchmarking as our basic productivity maximization tool and sought to enhance it via its integration with internal benchmarking and a new employee goals-behaviors-metrics-rewards (GBMR) model. External benchmarking is well documented and proven. However, internal benchmarking models are less well-known and validated, and the impact of optimized employee performance programs on corporate productivity is not well documented. Therefore, our approach was to adopt the following steps: (1) Review the literature and conceptualize improved internal benchmarking and employee motivation systems. (2) Independently validate these with field testing. (3) Modify the conceptual frameworks based on the field testing results. (4) Develop the conceptual basis for an integrated synergistic productivity enhancement model incorporating internal benchmarking, external benchmarking, and employee motivation. (5) Field-validate the synergistic model. The results of Steps (1)-(4) are presented here. 4. Intrafirm competition and benchmarking One of the most important parts of the proposed model is the internal benchmarking system of intrafirm competition. Using known motivational tools this system should provide selective encouragement of and rewards for the best divisions (leaders) of the enterprise, and also sanctions of heads of the poorest performing divisions (laggers) along with opportunities for improvement. The improvement should comprise both training and the study of operational experience and management systems of the best divisions (leaders) within the enterprise. To find the best and worst divisions and reveal the firm’s basic problems, an internal benchmarking tool may be used. This method is best conducted by an internal benchmarking team (IBT). The IBT estimates performance, identifies corporate leaders and laggers, identifies the principal causes of growth or efficiency problems, and develops recommendations for management changes. The IBT implements all these functions during the internal benchmarking process, which comprises five phases and 12 stages (Figure 1). In creating the prescribed makeup and sequence of benchmarking stages, we used some elements of benchmarking processes suggested by companies such as BASF (Binder et al., 2006), Kodak (Geber, 1994), Xerox (Bhutta and Huq, 1999), and also of some large aerospace and the food-processing companies (Hyland and Beckett, 2002;

Stages

1. Organization

1. Identification of the basic problems and assessment of suitability for internal benchmarking 2. Formation of IBT 3. Designation of IBT leader

2. Planning

3. Analysis

4. Improvement 5. Control

Continuity of benchmarking process

Phases

4. Identification of internal benchmarking target items 5. Selection of basic performance indicators 6. Selection of analysis tools

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7. Data collection 8. Prioritization of benchmarking target items 9. Identification and analysis of root causes 10. Development of recommendations 11. Training and process improvement 12. Monitoring of results

Mann, 1998). Inasmuch as these firms had widely disparate models (with the number of specific process steps varying from 4 to 33), we attempted to create a flexible, universal model that is capable of adaptation to most enterprise situations but that eliminates the weaknesses of existing models (complexity, high cost, and long implementation time). a. Internal benchmarking scheme Each stage of the internal benchmarking scheme is explained below. Stage 1. Identification of the basic problems. In this stage, the enterprise management needs to identify and articulate its basic problems and to determine whether the problems can be addressed internally without the use of external benchmarking, contacts, or consultants. Specifically, for the deficiencies identified, there must be functional units within the enterprise that have overcome these deficiencies and whose processes can be emulated by the weaker operating units. This issue may be addressed using an algorithm developed by Goncharuk (2008b). The algorithm determines the potential benefits of internal benchmarking by answering the following questions: (1) Within the enterprise are there processes similar to the problem processes? (2) Are the technologies for those processes adaptable to the problem processes? (3) Are those processes considerably better than the problem processes? (4) Are those practices transferable? If all four questions have an affirmative answer then there is significant potential benefit from internal benchmarking, but if even one of them is in the negative the enterprise should pursue external benchmarking to improve productivity. In the case of an affirmative answer, broad internal benchmarking goals may be established. For example, if the firm’s problems are insufficient productivity coupled with an increase in raw material consumption in Division A, but Division B has

Figure 1. Internal benchmarking scheme

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excellent productivity and raw material usage efficiency, then a broad goal of internal benchmarking might be improved materials usage efficiency via the elimination of waste and “bottlenecks” inside Division A. Stages 2 and 3. Formation of IBT and designation of IBT leader. Here, the firm must select and prepare experts who will join the benchmarking team. At least one of the selected participants should specialize in each of the basic problems revealed during the previous stage. The IBT develops the plan including definition of roles and duties of each member, the articulation of project stages, and realistic dates. The IBT must be monitored and managed by a top executive, for example, the deputy director or the chief operating officer who bears the responsibility for the team’s results. Stage 4. Identification of specific internal benchmarking target items. Specific processes and operations that contribute to the basic problems identified during Stage 1 are identified. For example, inefficiency in the primary processing of materials may be identified as a principal cause of increased raw material consumption. These specific issues are then listed. Stage 5. Choice of the basic performance indicators. The basic indicators which permit the comparative analysis of various processes within the company during benchmarking are selected. Here, some key performance indicators (KPIs) that concern each process on the list of specific benchmarking target items may be used. For example, unit output rate (units per minute), raw material scrap during a particular processing step, or labour hours per unit produced might all be KPIs related to a productivity issue. Stage 6. Selection of analysis tools. In this stage the IBT defines what analysis tools can adequately determine the reasons for problems and can be used to compare performance and establish benchmarks. Good tools for this analysis might be the root cause analysis (RCA) toolkit, “5 Why’s,” an Ishikawa diagram, or Pareto analysis. Various parametric or non-parametric methods of efficiency analysis may be used, for example, data envelopment analysis (DEA) with application to KPIs. Stage 7. Data collection. The necessary information (inputs, outputs, duration of operations, KPIs, etc.) is collected for each benchmarking target item. Data are grouped by common features (e.g. similar processes) and prepared for analysis. Stage 8. Prioritization of benchmarking target items. The data are analyzed using the selected analysis method for each target item. On the basis of these measures the specific target item list is prioritized. If DEA is used, we recommend using the DEA super-efficiency model (Goncharuk, 2007) to prevent the complexities associated with full ranking. The result of this stage should be the prioritization of the specific benchmark items (processes, operations), and their confirmation or the identification of additional target items. Stage 9. Root cause analysis. In this stage the enterprise determines the root causes of problems and causal factors using the information about problem objectives and RCA tools. Also the experiences of the benchmark divisions and processes are studied and the factors contributing to their success come to light. Stage 10. Development of recommendations. In this stage, a list of actions that are necessary for elimination of the basic problems and achievement of the benchmarking goals is developed. Potential impact on cost, time, resource requirements, and net improvements are identified.

Stage 11. Training and process improvement. On the basis of the recommendations developed by the IBT, the managers make concrete decisions directed toward improving the specific target items. Such actions, depending on root causes of a solved problem, can include both technological improvements, organizational changes, process redesign, and changes to the employee GBMR (for example, corporate training and coaching). Because employee development and training are such critical elements of the benchmarking model, this section is amplified below. Stage 12. Monitoring of results. Enterprise senior management monitor the results of the actions taken and juxtapose them with the goals and the original basic problems. If the goals are not reached and problems are not solved, the sequence of benchmarking stages is traced to find mistakes. Detection of mistakes is the basis for a return to that phase (stage) for correction. b. Field-testing of system The proposed system of internal competition using internal benchmarking was field-tested in a longitudinal study on six food companies (confectionary, sugar, meat-processing, and bread-baking plants) in the south of the Ukraine in 2006-2007. Measurement parameters were reduced to a few key productivity and efficiency indicators that show how effectively the companies used their inputs (materials, energy, and labour) before and after the introduction of the internal benchmarking model. Data for 2006 were taken at the conclusion of that year and data for 2007 (after changes had been implemented) were taken at the end of 2007. All data were provided by each company’s management. Specifically, we measured changes of the following indicators: . Labour productivity is defined as the ratio of total output to the number of employees, where total output is the sales dollar value of all goods produced. . Output-materials ratio is defined as the ratio of total output to the value of purchased raw materials, spare parts, and outpurchased intermediaries used for production. . Energy efficiency is defined as the ratio of total output to energy input where energy input is the dollar value of all electricity, oil, gas, and gasoline used in plant operation. . Wastage is defined as total dollar value of damaged, out of date, reduced, or generally unsaleable items (goods, materials, intermediaries, and spares), that are thrown away and written off as a loss. . Cost of system per employee was calculated by totaling the cost of wages for the IBT team and manager (including salary-related costs such as health insurance, pension, disability insurance, and income taxes) and dividing this total by the number of employees. The preliminary study has already provided positive results (Table I): average labour productivity of all plants increased 18-89 percent, output-materials ratio grew 13-65 percent, energy efficiency rose 14-22 percent, wastage declined 21-49 percent while average wage grew only 12-18 percent. The average cost of implementation was $275 per employee. This suggests that the proposed system works and that it is possible to improve enterprise efficiency without large expenses.

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Therefore, implementing a system of internal competition and benchmarking increases the company’s business efficiency by tens of percent. And in spite of the fact that internal benchmarking results are typically more modest than results for external benchmarking, it seems clear that this process can be an extremely effective tool for optimizing performance by exploiting excellent processes and employees within a company while identifying and improving weak processes and employees.

774 5. Employee motivation and development A critical element of the internal benchmarking model is Stage 11 during which employees are motivated to improve. Getting employees to break old habits and change existing work patterns is notoriously difficult. Therefore, any management improvement program would benefit from a concomitant employee motivation/ development program that encourages the adoption of new behaviors. During this stage, employee goals, behaviors, metrics, and rewards must be established to optimize performance. a. Goals, behaviors, metrics, rewards framework Monat (2005, 2007) has developed a framework for an optimized employee GBMR system comprising four integrated elements: (1) Establishment of goals. High productivity companies establish clear goals for their employees, at all levels. Goals must be both hierarchical and comprehensive – that is, they are developed starting with corporate goals, then divisional goals that support the corporate goals, then departmental goals, and finally individual goals. Taken together, the individual goals must be mutually supportive and, if achieved, should lead to achievement of the overall corporate goals. All goals must be quantitative, measurable, and specific. The goals at each level of an enterprise must be both necessary and sufficient to support the goals of the next level up in the corporate hierarchy. In the internal benchmarking model, goals must be established at each level for each specific benchmarking target item on the list developed during Stage 4. (2) Establishment of supportive behaviors. Achievement of individual goals is not always fully within the control of the individual employee. An employee may do everything right and still not achieve his goals due to forces outside his control (such as natural disasters, political changes, or external market forces). Therefore, it is essential to articulate the desired employee behaviors that support the individual goals. Behaviors are not goals, rules, or responsibilities.

Company

Table I. Results of internal benchmarking system on food companies for 2007

1 2 3 4 5 6

Number of employees

Labour productivity

1,253 511 484 312 116 54

18.6 88.6 40.5 39.3 21.8 18.9

2006-2007 change (%) OutputEnergy materials ratio efficiency 13.3 64.7 24.9 21.9 19.1 14.3

13.9 22.1 19.4 16.8 15.2 14.8

Wastage

Average wage

2 21.8 2 49.2 2 38.6 2 30.1 2 24.0 2 25.8

12.4 12.7 13.7 14.5 16.2 18.1

Instead, behaviors are specific actions or activity patterns that must be followed and that are wholly within the control of the employee. Employees and their supervisors must work together to determine which employee behaviors will yield attainment of the desired goals. This can be a very beneficial discovery process that yields useful information about both the people and the enterprise. As for goals, behaviors must support the next level up in the organization and are therefore hierarchical. Ideally, faithful execution of the desired behaviors by the employee will yield achievement of the stated goals. But this is not always the case since some aspects of goal attainment are likely not within the employee’s control. If an employee properly executes desired behaviors but his goals are not achieved, then either the stated behaviors (not the goals) are inadequate or outside forces came to bear. This is why it is important to reward employees for proper behaviors, not for goal attainment. In Stage 11 of the benchmarking model, desired behaviors must be articulated at each level for each benchmark item goal. (3) Establishment of metrics. A metric system that measures employee behavior must be developed. Metrics must be simple, clear, quantitative, and non-conflicting. Some metrics (such as the number of proposals written in a day or the number of problem cases analyzed in a month) are easy to establish as they derive logically from desired behaviors. On the other hand, metrics for “soft” behaviors (such as degree of cooperation with other groups or creativity) may be quite difficult to articulate. All behaviors, however, can be measured in some way. These metrics must be fully transparent so that all employees can see and understand their personal metrics at any time. (4) Establishment of a rewards system. Companies must develop and maintain a reward system that rewards employees for exhibiting desired behavior. Since rewards are intended to encourage desired behaviors (and vice-versa) they must be clearly associated with their precursive behaviors – meaning that they should be given as soon as possible after the desired behavior has been exhibited. Rewards must also have value (financial or symbolic) that is commensurate with the behavior. Finally, the rewards given must be consistent with the employee’s hierarchy of psychological needs, per Maslow. Rewarding a wealthy employee with a $100 gift certificate is not likely to be effective. b. Integration Many companies effectively use several of the four GBMR elements. However, these elements: goals, behaviors, metrics, and rewards – are like the legs of a four-legged stool. All four must be in place and effective or the stool will collapse. Thus, the best benchmarking companies effectively integrate the four GBMR elements to yield a comprehensive, self-supporting GBMR system. This optimized system fully supports Stage 11 of the internal benchmarking model. c. GBMR system validation A validation study of 13 medical device manufacturing companies was conducted in 2006 to determine the differences in GBMR system practices between the best companies (those with the highest productivity) and the remaining companies.

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To achieve this, quantitative measures of both productivity and GBMR system quality were required: (1) Productivity measurement. We used a simplified US Bureau of Labor Statistics (2004) – type productivity metric for this study: productivity ¼ (revenues)/ (total employees) where three-year averages were used to minimize impacts of short-term market, inflation, staffing, and inventory changes. This productivity estimator was calculated for each company surveyed by dividing three-year average revenues by three-year average employee count for the same time period. (2) Measurement of the quality of the GBMR system. To measure the quality of each company’s GBMR system, a scoring model and survey were developed. The survey topics covered included: . factual data on company product, size, age, sales, sales history, standard industrial classification code, number of employees, and ownership; . if and how goals are set for employees; . if and how desired employee behaviors are established; . details of the company’s reward system; . details of the company’s system to measure employee performance; and . details of the company’s training, record-keeping, and integration of goals, behaviors, metrics, and rewards. Total scores of between 0 and 164 were possible, depending upon how effective each company’s GBMR system was. A company that sets no goals for all its employees or that does not clarify the differences between goals and desired behaviors would score low. Similarly, an enterprise without quantitative metrics that measure behaviors (not goals) and that has a poorly defined reward system would score low. Conversely, a company that has all these components, linked together in a self-supporting structure would score high and might be considered a benchmark company. We sent surveys to about 30 US companies in the medical device industry in the northeastern USA. Most selected companies had annual revenues between US $3 million and $60 million to minimize scale differences; but two larger companies were included for comparison. We received 13 useable survey responses. While not a high figure, this number of data points is sufficient to draw conclusions at the 90 percent confidence level. This study is indicated a positive correlation (r ¼ 0.5) between GBMR score and productivity. The two best companies from the study were segregated from the other 11 companies as noted in Table II.

Table II. Summarized data

Companies

Average GBMR score

Average productivity (thousand $ per employee)

4 and 5 1-3 and 6-13

118 72

327 168

The two best companies may be viewed as external benchmarks; they had 64 percent higher GBMR scores and almost twice the productivity of the other companies surveyed. The results were further analyzed to determine what (if any) GBMR practices were followed by the best companies that were not followed by the others. In general, the best companies had a fundamentally different attitude toward motivating and rewarding employees. This attitude is characterized by a more serious attitude toward training and developing employees in setting goals and evaluating performance, by monitoring not only achievement of goals or of behaviors but by monitoring achievement of both goals and behaviors, by maintaining a large variety of ways to reward employees for good behavior, and by providing supervisors the ability to reward employees for excellent behavior on the spot (without approval). The two best companies provide substantial employee training on setting goals and desired behaviors, on measuring performance, and on rewards. This training is coordinated at high levels within the company (e.g. human resources (HR)) and takes several forms, including classroom and online. The other companies, on the other hand, provide little-no training on these issues, or leave training responsibilities to company managers. The best companies also provide a large variety of means to reward employees for good performance, outside conventional salary increases and bonuses. These include additional vacation time, additional responsibilities, additional independence or authority, plaques with gift certificates, on-the-spot bonuses, public acknowledgment of contributions, profit sharing, and stock options. The 11 poorer companies relied only upon two to three traditional financial rewards such as salary increases and bonuses. This implies that the best companies have a better understanding and appreciation of Maslow and the need to reward individuals based upon individual needs, some of which may not be financial. The need for reward approvals was much more common in the poorer performing companies. It appears that the best companies trust their supervisors to make good decisions substantially more than do the other companies. Similarly, in the best companies, immediate supervisors had a more direct hand in establishing employee goals and rewards than in poorer companies, which relied more on senior executives and/or HR. Again, the best companies appear to trust supervisors more with employee development responsibilities, and to train them better. In summary, the two best companies have a more serious attitude toward employee development than do the other companies. The best companies do a better job of training, of passing employee development responsibilities down to supervisors, of trusting their supervisors, and of understanding motivational psychology via Maslow. The proposed GBMR system thus appears to be validated and should support Stage 11 of the internal benchmarking model perfectly. Additionally, this validation demonstrates the dramatic potential for improvement when external benchmarking is used. It would be beneficial to have a unified model that merges internal benchmarking, external benchmarking, and motivational models into one comprehensive synergistic model.

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6. Unified model and synergy Although excellent results were obtained with the internal benchmarking model, there is no reason that this model cannot be applied to external benchmarking as well for even greater improvements. In fact, the GBMR system validation described above was a partial external benchmarking project that identified superior management practices with respect to employee goals, motivation, and rewards. These superior practices yielded a factor of two productivity difference between the best and the worst companies surveyed. Figure 2 depicts a comprehensive productivity maximization model that incorporates internal benchmarking, external benchmarking, and an optimized employee motivation/performance system. Each action of the unified scheme is explained below. Action 1. Performance measurement and monitoring To identify its basic problems an enterprise must measure and monitor generic KPIs for its processes and divisions. This should be an ongoing management responsibility, whether or not benchmarking (or any other productivity enhancement tool) is instituted. KPIs may include parameters such as a customer satisfaction index, revenue growth, profit growth, total or partial measure productivity, employee development rating, percent on-time shipment, or rate of new product introduction. If the enterprise is large this can be done using specialized computer software for performance scorecards or dashboards (Lawson et al., 2006); for example, The Hyperion Performance Scorecard by Hyperion Solutions Corporation and The ARIS Performance Dashboard by IDS Scheer AG. But if the enterprise cannot afford such software it can introduce a system of controllers to manually monitor and collect the critical data. A detailed description of how to develop and implement KPIs is provided by Parmenter (2007). Actions 2-9 Actions 2-9 are similar to Stages 1-10 of the internal benchmarking model (Figure 1). Between Actions 2 and 3 a decision must be made whether to use internal or external benchmarking. This decision may be facilitated using Goncharuk’s algorithm described in Section 4. If all four algorithm questions have an affirmative answer then there is significant potential benefit from the internal benchmarking path (Actions 3-9), but if even one of them is negative the enterprise should pursue external benchmarking instead (Actions 10-13). Action 10. Choice of input and output indicators and data collection To ensure an effective external benchmarking process, we must carefully select indicators and collect data on the relative performance of the enterprise measured against other enterprises within the industry. Here, different productivity input metrics could be used, for example, number of employees, material inputs, depreciation, or total assets. Productivity output indicators could reflect production, financial, or market activity of benchmark enterprises, such as total output, operating income, or net sales. Because many productivity analysis methods (such as DEA) do not test for input data errors and since the analysis can be very sensitive to them (Cherchye et al., 2000), special care should be taken to ensure high-quality data. Errors can be minimized if

1

Performance measurement and monitoring

2

Identify and articulate the basic problems

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The choice of kind of benchmarking Internal benchmarking 3

4

5

6

External benchmarking

10 Choice of input & output indicators data collection

Formation of IBT

Designation of IBT leader Choice of performance indicators and analysis tools

11 Three-level analysis 12 Selection of benchmark planning of efficiency growth

Selection of analysis tools 13

7

8

9

Development of recommendations

Data collection and targets ranking 14 Root Cause analysis

Training learn and adopt the best practice: Intrafirm

Development of recommendations

External 15 Motivation GBMR system

data are taken only from official statistical publications or from audited annual or quarterly reports. Action 11. Three-level analysis In this stage the performance of the enterprise relative to other enterprises (both from the same and from different industries) is analyzed using a procedure that specifies a three-level analysis: (1) Interindustry analysis, in which more than one industry is analyzed and the most efficient enterprises from each industry are grouped together as the benchmarking standard, or industry leaders, for that industry.

Figure 2. The synergistic performance management model

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(2) Intragroup analysis, in which individual enterprises within the benchmark industry leader groups are identified. (3) Intraindustry analysis in which only firms within our industry are categorized as having high, average, or low efficiency. This analysis yields a list of the most appropriate benchmarks (firm-leaders) from ours and other industries that will be used on the next stage of external benchmarking. Action 12. Selection of benchmark and planning of efficiency growth If the analysis indicates that the subject enterprise is the branch-leader and that no other enterprise in the industry performs better, then a benchmark company from another industry must be chosen. But if the subject enterprise is not the branch-leader, a firm from the industry is selected as a benchmark. After a benchmark has been selected the potential reduction of inputs and increase in outputs are calculated (along with the potential increase in productivity.) These then become key targets for performance improvement. Action 13. Development of recommendations As for the internal benchmarking model, in this stage a list of actions that are necessary for elimination of the basic problems and achievement of the benchmarking goals is developed. Potential impact on cost, time, resource requirements, and net improvements are identified. Action 14. Training and process improvement On the basis of the recommendations developed during Action 13, company managers make decisions to improve specific target items. These decisions are likely to include capital investments, process changes, changes in organizational structure, and technological improvements. However, all changes require implementation by the personnel involved, and therefore extensive training will be required. This training should be required of all personnel involved in impacted processes and should demonstrate the superiority of the best practices, both inside and outside the company. Effective training will likely be both classroom and hands-on. But training alone is not sufficient for success; employees must be motivated to make the desired changes and they must be rewarded for doing so. Success in these efforts requires attention to the employee GBMR system. Action 15. Motivation/GBMR system The GBMR system requires the establishment of goals, behaviors, metrics, and rewards at each level of the company. Based on the results of the benchmarking analysis, new goals must be established for the enterprise, then for the divisions, then for the departments, and finally for individuals. After this, behaviors must be developed at each level that will result in goal achievement. Metrics that measure each employee’s behaviors must be installed, and a reward system that appeals to each employee’s hierarchy of Maslowian needs must be established. Finally, the four elements: goals, behaviors, metrics, rewards – must all be integrated into a comprehensive, self-supporting employee development system.

This model thus incorporates the best elements of internal benchmarking, external benchmarking, and an optimized employee motivation-reward system. It requires field testing and validation. 7. Results and discussion Field studies on the effectiveness of external benchmarking are well documented and are not reported here. Our own field study on the effectiveness of internal benchmarking demonstrated significant (12-89 percent) average increases in labor productivity, energy efficiency, and waste reduction while increasing the average annual employee wage by only $275. Our field study on the productivity impact of excellent employee GBMR systems indicated a strong positive correlation between GBMR system quality and productivity: the two companies with the best GBMR systems had 64 percent higher GBMR scores and almost twice the productivity of the other companies surveyed. No results have been obtained yet on the effectiveness of our proposed combined synergistic model; this is planned for future work. The prospects for productivity gains deriving from the synergistic model are exciting. While external benchmarking has proven its worth, coupling it with internal benchmarking should yield even more substantial improvements. But by addressing employee resistance to change through the use of an excellent motivational system, the effectiveness of both kinds of benchmarking should increase dramatically. 8. Conclusions and future work Enterprises world-wide face significant productivity and performance issues today. Many fixes have been proposed in the past, including one-minute management, business process reengineering, activity-based management, quality programs, and many others. Although all of these have merit, none has proven to be a panacea or a quick and easy route to productivity enhancement. Further, very few of these tools have conjoined an employee motivation/performance model with another productivity enhancement management model. In our study, we have demonstrated that internal benchmarking can be of significant value in maximizing enterprise productivity, yielding productivity enhancements of 18-89 percent while reducing waste by 20-49 percent. We have also demonstrated that enterprises employing an effective employee (GBMR) model can have almost twice the productivity of those with weak or non-existent GBMR systems. We argue that any management improvement program is impeded by employee resistance to change and that therefore coupling an employee motivational model with another management model is likely to yield large benefits. Finally, we have described a synergistic management model that conjoins internal benchmarking, external benchmarking, and an employee motivational GBMR system that should work well for enterprises, yielding combined productivity enhancements that exceed those deriving from any of these used in isolation. This new comprehensive model requires validation and field testing, which are topics for future research. References Abdolvand, N., Albadvi, A. and Ferdowsi, Z. (2008), “Assessing readiness for business process reengineering”, Business Process Management Journal, Vol. 14 No. 4, pp. 497-511.

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