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Best practices for the effectiveness of benchmarking in the Indonesian manufacturing companies

Benchmarking in manufacturing companies 115

Tutie Asrofah, Suhaiza Zailani and Yudi Fernando Graduate School of Business, Universiti Sains Malaysia, Penang, Malaysia Abstract Purpose – The purpose of this paper is to examine best practices that contribute to the effectiveness of benchmarking in Indonesian manufacturing industries. Design/methodology/approach – A total of 250 questionnaires are distributed to representatives of the Badan Pengelola Industri Strategis (BPIS) registered companies, specifically to the quality managers or production managers that are involved in the benchmarking process in companies. Findings – In total, 155 responded to the questionnaire; that gives a response rate of 51.67 percent. Analysis of the data has shown that some benchmarking practices, e.g. the manufacturing process, and organizational and environmental factors do significantly influence the effectiveness of benchmarking. Research limitations/implications – Further study needs to be undertaken to identify other best practices of benchmarking. A further limitation of the study is that the survey items are based on the literature review. Practical implications – A government body such as a benchmarking department (BPIS) can therefore focus on these factors for further development of benchmarking. BPIS Indonesia can organize more training and seminars for smaller manufacturing companies. From an organizational point of view, attention should be given to improving compatibility, employee innovativeness, and government intervention so that the best practices of benchmarking can be used proactively as a strategic tool. Originality/value – From the findings of this paper, in order for the benchmarking process to be successful, an organization needs these general requirements: top management commitment and support: a solid understanding of the manufacturing operations and requirements for improvement: willingness to share information with benchmarking partners; and dedication to ongoing benchmarking efforts. Keywords Benchmarking, Indonesia, Manufacturing industries, Best practice Paper type Research paper

1. Introduction Interest in benchmarking has increased significantly since 1979 when Xerox first introduced it (Camp, 1989). Recently, benchmarking as a tool is widely used by many companies. The concept of benchmarking has spread geographically to large parts of the world and implemented in a variety of manufacturing and service businesses, including health care, government, and education organizations (Camp, 1995). For instance, Ahren and Parida (2009) have applied benchmarking data for the railway The authors are grateful to reviewers of Benchmarking: An International Journal for their constructive comments.

Benchmarking: An International Journal Vol. 17 No. 1, 2010 pp. 115-143 q Emerald Group Publishing Limited 1463-5771 DOI 10.1108/14635771011022343

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infrastructure and they found that benchmarking is an effective tool that can support the management in their pursuit of continuous improvement. Along with the increased use of benchmarking, many researchers focused more on performance measures and setting targets and they found that many companies are more consistent in choosing benchmarking performance measures that are aligned with organizational strategy (Meybodi, 2009). In conjunction with this, recent studies have also examined how competitors and industrial outsiders learn how to improve business processes. Comparison of performance measures has developed into learning about best practices and some authors have used the term “bench learning” to describe this (Karloff and Ostblom, 2003). A lot of emphasis is on the importance of benchmarking today as a way to improve business. However, many people, especially those in small businesses, simply do not know enough about benchmarking. Benchmarking is a technique that is all about identifying, capturing, and implementing best practices and this type of benchmarking is usually referred to as best practice benchmarking (Gunasekaran, 1998). In addition, benchmarking is the process of adapting outstanding practices from within the organization or from other businesses to help improve performance, in which performance benchmarking is where a company compares its performance metrics to those of others. The importance of benchmarking as an enabler of business excellence has necessitated a study into the current state of benchmarking in Indonesia. Based on the study done by Stuivenwold and Timmer (2003), they found that Indonesian manufacturing industries have been relying on their benchmarking activities. Indonesian relative performance is well below that of other countries. On the other hand, Indonesia is often described as one of the East Asian success stories, which has transformed itself from a stagnant, primary-sector dominated economy to one where manufacturing has come to play a leading role, both domestically as well as in export markets (Fane and Condon, 1999). Kovacic (2007) also mentioned that the growth of the manufacturing sector was the key feature of overall growth during both the regulated and liberalized phases. In another study done by Subramaniam and Lokman (2006), it was revealed that the low level of investment in the Indonesian textile sector in recent years has resulted in a declining technological profile and low-productivity relative to key competing countries like India and China. There are a number of initiatives underway to prop up investment in new equipment and technology. East Java has the important role in the manufacturing sector industries in Indonesia. It has made major contributions to the gaining of value added and work forces in those industries. This data are supported by Badan Pengolahan Teknologi Informasi dan Komunikasi that states that Surabaya, the capital of East Java and the second biggest metropolitan city in Indonesia with approximately 3 million people, is transforming into a developing region. Meanwhile, there are several types of industries in Surabaya such as the food industry, jewellery, and apparels, from the processing to the assembly stage. Hence, these manufacturers should create a scheme to improve technology profile and productivity. The manufacturing sector itself has made the biggest contribution to the work force and to the output of the manufacturing industry. Benchmarking is rated very favorably by the manufacturing industries (Jain et al., 2008). It can be defined as a form of backward engineering, preceding the end performance goals, which are picked from other successful companies. The challenge

lies in developing customized processes and methods, which would achieve the end goal standards. Embracing benchmarking techniques assumes that management has an open mind for allowing liberal information exchanges between the recipient and the donor companies (Kumar and Chandra, 2001). As mentioned also by Miller et al. (1992) benchmarking is a concept that became important and “fashionable” for industrial management in the 1990s. In the manufacturing sector, benchmarking is commonly used where predominantly quantitative economic parameters, e.g. inventory turnover, set-up times, lead-time, number of vendors, direct labor time or working time, market share, return on sales, and return on equity are measured. As benchmarking practices are adopted by more and more organizations, the techniques devised by many manufacturers range from the simple type of product benchmarking to many types of benchmarking such as process, function, and strategies (Fink, 1993). Meanwhile, benchmarking as stated by Voss et al. (1994) has evolved from an approach that focuses mainly on measures of performance to that which focuses on the management activities and practices that lead to superior performance. More recently, the practice of benchmarking is being widely used for organizations seeking ISO 9000 certifications (Meybodi, 2006). “Benchmarking is simply the process of measuring the performance of one’s company against the best in the same or another industry” (Stevenson, 1996). Following this definition, Stevenson (1996), further argues that benchmarking is not a complex concept but it should knowledge and the experience of others to improve the organization. It is analyzing the performance and noting the strengths and weaknesses of the organization and assessing how to improve performance. The knowledge that is available for comparing operations and processes is vast (Boxwell, 1994). The purpose of this paper is to investigate the impact of benchmarking practices on benchmarking effectiveness in the manufacturing companies in Indonesia. Since the benefits of benchmarking are proven the world over, it is of concern to note that in Indonesia, according to a report from Kompas (2005), only 2 percent of organizations are undertaking process benchmarking, with 18 percent undertaking performance benchmarking. A review of benchmarking literature revealed that there are different types of benchmarking. In some cases, a model has been uniquely developed for performing a particular type of benchmarking (Anand and Kodali, 2008). This poses the following problems: it can create confusion among the users as to what are the best practices for the effectiveness of benchmarking. As best practice benchmarking is recognized as one of the key approaches necessary to achieve excellent performance, this is important for the Indonesian organizations are registered with Badan Pengelola Industri Strategis (BPIS) under Badan Usaha Milik Negara Indonesia. Companies in Indonesia especially in Surabaya have been equipped with competitive advantages to compete for survival. Implementing benchmarking in organizations is one of the ways to create a sense of urgency by telling them where they are and how good they have to be, and what has to be done to get there. The critical characteristic is the examination of processes, as it is only through an understanding of how inputs are transformed into outputs that the attainment of superior results can be pursued effectively. Therefore, the main objective of this study is to understand the best practices that are influencing the effectiveness of benchmarking. Specifically, this study is to see whether manufacturing process factors, organizational factors, and environmental factors are


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best practices that contribute to the effectiveness of benchmarking in the Indonesian manufacturing companies. 2. Literature review 2.1 Benchmarking Benchmarking is the process of identifying “best practice” in relation to both products and the processes by which those products are created and delivered. The search for “best practice” can take place both inside a particular industry, and in other industries, (for example the lessons learnt from other industries). According to Hurreeram (2007), benchmarking is a systematic and continuous process of searching, learning, adapting, and implementing the best practices from within own organization or from other organizations towards attaining superior performance. On the other hand, Vermeulen (2003) explains that benchmarking is the process of identifying, understanding, and adapting outstanding practices from within the organization or from other businesses to help improve performance. Benchmarking encourages a company to become open to new methods, ideas, processes, and practices to improve effectiveness, efficiency, and performance (Deros et al., 2006). Accordingly, the objective of benchmarking is to understand and evaluate the current position of a business or organization in relation to the “best practice” and to identify areas and means of performance improvement. Benchmarking has been defined as a continuous, systematic process for evaluating the products, services, and work process of organizations that are recognised as representing the best practice, for the purpose of organizational improvement (Sarkis, 2001). Since benchmarking focuses on continuous improvement of specific product characteristics or processes, which are critical to the success of a firm’s business strategy, it is recognised as a cost-and time-effective method in meeting competition (Watson, 1992). Furthermore, benchmarking can also be described as a structured process where the structure of the benchmarking process is often developed by the development of a step-by-step process model, which provides a common language within organizations (Spendolini, 1992). According to Spendolini (1992), there are several criteria that can be summarised to differentiate among companies with and without benchmarking exercises as shown in Table I. The American Productivity and Quality Centre (O’Dell, 1994) defines benchmarking as the processes from organizations anywhere in the world to help other organizations to improve performance. Codling (1996), defines benchmarking as an ongoing process of measuring and improving products, services, and practices against the best that can be identified worldwide. In addition, benchmarking is also a potential tool to support performance improvement. It is a systematic process for securing continual improvement through comparison with relevant and achievable internal or external norms and standards (Malano and Burton, 2001). Benchmarking is also about establishing a company’s objectives by using practices of best in class, and as such is an effective performance management instrument. These characteristics need proper communication on the objectives and success of implementation of a benchmarking system that relies on employees performing with the view of meeting those objectives (Gani, 2004). The ability to apply the logic behind benchmarking comes from developing an understanding of the root cause of process improvement at the benchmark

Defining customer requirements Establishing effective goals Developing true measures of productivity Becoming competitive

Industry practices

Without benchmarking

With benchmarking

Based on history/gut feeling Acting on perception Lack external focus Reactive Lagging industry Pursuing pet projects Strengths and weaknesses not understood Internally focused Evolutionary change Low commitment

Based on market reality Acting on objective evaluation Credible and customer focused Proactive Industry leadership Solving real problems Performance outputs known, based on best in class Understand the competition Revolutionary ideas with proven performance High commitment Proactive search for change Many options Breakthroughs

Not invented here Few solutions Continuous improvement

Source: Adopted from Kendal (1999)

organization and the translation of the lessons learnt into appropriate change of the other organizations. By a process of conscientious learning and cautious adaptation, an organization can learn the lessons needed to move its performance results to a desired level of performance. In summary, benchmarking has the ability to draw on existing knowledge and tools for strategic planning, competitive analysis, process analysis and improvement, team building, data collection and perhaps most importantly, organizational development (Fernandez et al., 2001). 2.2 Process of benchmarking The popularity of benchmarking has grown during the last five years. It is used in a variety of industries, including services and manufacturing. The benchmarking process is more than just gathering data on how well a company performs against others – it is a method to identify new ideas and new ways to improve processes and, as a result, to better meet customers’ expectations. Sprint Corp. uses benchmarking as a tool in its strategic business process improvement and reengineering. According to Jeff Amen, Sprint’s Benchmarking Manager, the concept is to understand what the organization does and what its critical components are as stated by McNair and Kathleen (1992), “To benchmark is to shrug off history and to embrace the future.” The benchmarking process has many defining features. It must be purposeful, externally focused, measurement based, information intensive, objective, and action generating. It should not be done merely for the sake of the organization’s image. All practices performed should have sincere intentions. Benchmarking is often used to meet or exceed these expectations. A practical benchmarking method consists of two parties: benchmarker and benchmarkee. The former is the organization carrying out a benchmarking procedure whereas the latter refers to the organization being benchmarked. The benchmarking approach is simply built on performance comparison, gap identification, and the change management process (Watson, 1993). A review of benchmarking literature shows that


Table I. Comparison with and without benchmarking

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many of the benchmarking methodologies perform the same functions as performance gap analysis (Karloff and Ostblom, 1993). The rule is first to identify performance gaps with respect to production and consumption within the organization and then to develop methods to close them. The gap between internal and external practices reveals what changes, if any, are necessary. This feature differentiates the benchmarking approach from comparison research and competitive analysis (Walleck et al., 1991). Some researchers make the mistake of believing that every comparison survey is a form of benchmarking. Competitive analysis looks at product or service comparisons, but benchmarking goes beyond just comparison and looks at the assessment of operating and management skills producing these products and services. The other difference is that competitive analysis only looks at characteristics of those in the same geographic area of competition whilst benchmarking seeks to find the best practices regardless of location. 2.3 Types of benchmarking As mentioned earlier there are three primary types of benchmarking, which are in use today. These are process benchmarking, performance benchmarking, and strategic benchmarking (Bogan and English, 1994). According to Bogan and English (1994), process benchmarking focuses on the day-to-day operations of the organization. Some examples of work processes that could utilize process benchmarking are the customer complaint process, the billing process, the order fulfillment process, and the recruitment process. All of these processes are in the lower levels of the organization. By making improvements at these levels, performance improvements can be realized quickly. These types of benchmarking result in quick improvements to the organization. Performance benchmarking focuses on assessing competitive positions through comparing the products and services of other competitors. When dealing with performance benchmarking, organizations want to look at where their products or services are in relation to that of their competitors’, based on factors such as reliability, quality, speed, and other product or service characteristics. Strategic benchmarking deals with top management. It deals with long-term results. Strategic benchmarking focuses on how companies compete. This form of benchmarking looks at what strategies the organizations are using to become successful. This is the type of benchmarking technique that most Japanese firms use (Bogan and English, 1994). This is because the Japanese focus on long-term results. Other types of benchmarking are competitive benchmarking, cooperative benchmarking, and collaborative and internal benchmarking (Boxwell, 1994). Competitive benchmarking is the most difficult type of benchmarking to practice. For obvious reasons, organizations are not interested in helping a competitor by sharing information. This form of benchmarking is measuring the performance, products, and services of an organization against its direct or indirect competitors in its own industry. Competitive benchmarking starts as basic reverse engineering and then expands into benchmarking. Reverse engineering is a competitive tool used in benchmarking. It looks at all aspects of the competitor’s strategy. This does not just include the disassembly and examination of the product but it analyses the entire customers’ path of the organization’s competitor. This is a difficult thing to do because this information is not easily obtained. Therefore, it requires extensive research. It is also important to remember that when one is using competitive benchmarking, the goal is to focus

on one’s direct competitors and not the industry as a whole. According to Boxwell (1994), “Co-operative and collaborative benchmarking are the most widely used types of benchmarking because they are relatively easy to practice.” These forms of benchmarking are a more accommodating way of getting information. In cooperative benchmarking, organizations invite the best in class organizations to meet with their benchmarking team to share knowledge. This is done without much controversy because these organizations are not direct competitors. During this process, information flows one way. Collaborative benchmarking does the opposite, since here information flows in many ways. With collaborative benchmarking, information is shared among groups of firms. It is a brainstorming session among organizations. It is important to realize that not all collaborative efforts are considered benchmarking. It is sometimes called “data sharing.” Data sharing results do not focus on the process but only the result, while benchmarking focuses on the processes of the organizations (Boxwell, 1994). Internal benchmarking is used to identify the best in house practices in the organization and to disseminate these practices throughout the organization. Internal benchmarking allows managers in the organization to be more knowledgeable about the organization as a whole. Table II shows a summary of the types of benchmarking and their purposes. 2.4 Benefits of benchmarking The benefits of benchmarking are a better understanding of strengths and weaknesses of processes, improved cycle time, improved supplier’s management, reduced production costs, etc. The number of manufacturers using benchmarking techniques has been increasing dramatically. Based on the case studies and reports in the USA in the late 1990s, all Fortune 500 companies were using benchmarking on a regular time basis (Kumar and Chandra, 2001). However, due to the lack of a complete understanding of benchmarking, not all organizations find it easy to employ the tools effectively. Advantages or the benefits of benchmarking are also becoming a powerful management tool because they overcome paradigm blindness. Paradigm blindness can be summarised as the inability to changing the way of thinking and doing things by regarding certain ways as the best ways because these are the ways that things have always been done. Besides, that, benchmarking also opens organizations to new methods, ideas, and tools to improve their effectiveness for help to solve the problems within organizations. According to Camp (1989), benchmarking can enable the best practices from any industry to be creatively incorporated into the processes of the benchmarking function. Second, benchmarking breaks down the reluctance in making operational changes. In addition, benchmarking is a valuable tool for setting goals; it is something that is necessary in order to remain competitive and for learning new ideas (Balm, 1996). From study done by Magd (2008) in Egypt, he indicated that the most important reasons for initiating benchmarking are to maintain and increase competitive advantage, increased profitability, and achieve continuous improvement. Moreover, the most important benefits derived from benchmarking include improved customer satisfaction and improved response time. As cited in Lee et al. (2006) by Thiagarajan and Zairi (1998), in terms of intangible benefits, benchmarking has proven to be the best discipline for getting people to focus on the customer and for achieving significant improvement in customer satisfaction. Benchmarking has helped improve


Where business need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performance to succeed. It involves considering high-level aspects such as core competencies, developing new products and services, and improving capabilities for dealing with changes in the external environment. Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialize Businesses consider their position in relation to performance characteristics of key products and services. Benchmarking partners drawn from the same sector. This type of analysis is often undertaken through trade associations or third parties to protect confidentiality This focuses on improving specific critical processes and operations. Benchmarking partners are sought from best practice organizations that perform similar work or deliver similar services. Process benchmarking invariably involves producing process maps to facilitate comparison and analysis Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic improvements

Strategic benchmarking

Functional benchmarking

Process benchmarking

(continued)

Improving activities or services for which counterparts do not exist

Achieving improvements in key processes to obtain quick benefits

Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance

Re-aligning business strategies that have become inappropriate

Purposes

122

Performance or competitive benchmarking

Description

Table II. Summary of types of benchmarking

Type

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This involves benchmarking businesses or operations from within the same organization (e.g. business units in different countries). The main advantages of internal benchmarking are that access to sensitive data and information is easier; standardized data is often readily available; and, usually less time and resources are needed. There may be fewer barriers to implementation as practices may be relatively easy to transfer across the same organization. However, real innovation may be lacking and best in class performance is more likely to be found through external benchmarking This involves analyzing outside organizations that are known to be best in class. External benchmarking provides opportunities of learning from those who are at the “leading edge.” This type of benchmarking can take up significant time and resource to ensure the comparability of data and information, the credibility of the findings and the development of sound recommendations The best practitioners are identified and analyzed elsewhere in the world; perhaps because there are too few benchmarking partners within the same country to produce valid results. Globalization and advances in information technology are increasing opportunities for international projects. However, these can take more time and resources to set up and implement and the results may need careful analysis due to national differences

Internal benchmarking

Source: Adopted from Bogan and English (1994)

International benchmarking

External benchmarking

Description

Type

Where the aim is to achieve world-class status, or simply because there are insufficient “national” businesses against which to benchmark

Where examples of good practices can be found in other organizations and there is a lack of good practices within internal business units

Several business units within the same organization exemplify good practice and management want to spread this expertise quickly, throughout the organization

Purposes


Table II.

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communication and established the importance of internal customer satisfaction. In a study done by Brah et al. (2000), the 391 survey questionnaires sent out revealed that the success of benchmarking can be measured by the extent to which practitioners of benchmarking have attained their objectives, justified costs by the benefits attained from benchmarking and their perception of the overall success of the process. They also revealed that the achievement of the benefits of benchmarking are significant and the respondents indicated the existence of other means of improving their operations such as total quality management (TQM), reengineering, ISO certification, strategic planning, etc. 2.5 Effectiveness of benchmarking Benchmarking is emerging in leading-edge companies as an information tool to support continuous improvement and to gain competitive advantage. Meanwhile, the effectiveness of benchmarking itself is a series of interrelated performance measures, which covers processes, strategies, and financial performance (Anthony, 2003). In order to benchmark effectively, a company needs a strong strategic focus and some flexibility in achieving management’s goals. To implement benchmarking effectively, adequate planning, training, and open interdepartmental communication are needed. Developing and using measures help to identify the current performance and monitor the direction of changes over a period. Measures identified during the planning stage of benchmarking may also help to determine the magnitude of the performance gaps and select what is to be benchmarked (Vaziri, 1992; Karloff and Ostblom, 1993). It is also possible to shape up future strategies depending upon the measures and their findings obtained in a benchmarking project. It is thus crucial to introduce several performance measures and discuss their rationale in tourism benchmarking. Qualitative measures are considered as the degree of perceptual values assigned to each numerical value, e.g. 1 indicates “not satisfied” and 7 indicates “very satisfied.” The level of a customer’s satisfaction is regarded as a part of qualitative measures (non-metric or non-quantitative) as it indicates only relative positions and perceptions in an ordered series. As a result, qualitative measures seem to be relatively subjective. In quantitative measures, differences between two or more points are mathematically equal (or at the same distance) and refer to an absolute value (Hair et al., 1995). Both interval and ratio scales are examples of quantitative (metric) measures. Quantitative measures can be extended to include some other measures relating to the level of tourist satisfaction (customer perspective). For instance, the length of check-in and checkout at the destination airport, and at accommodation facilities, time spent waiting for transport, the time spent waiting for food to be served in a restaurant or the time spent in waiting for a response about a complaint. As such, quantitative measures seem to be more objective. 2.6 Best practices of benchmarking As highlighted in the earlier section, there are best practices, which would affect the effectiveness of benchmarking. Unfortunately, the literature that directly addresses the best practices of benchmarking effectiveness is lacking. Hence, this literature review focuses on other related field such as TQM and quality-related areas, in order to uncover the underlying best practices. By reviewing a more extensive selection of literature, it seems obvious that benchmarking helps organizations understand where they have

strengths and weaknesses depending upon changes in supply, demand and market conditions. This allows organizations to realize what level(s) of performance is possible by looking at others and how much improvement can be achieved. Additionally, this promotes changes and delivers improvements in quality, productivity, and efficiency, which in turn bring innovation and competitive advantage, and is a cost-effective and time-efficient way of establishing a pool of innovative ideas from which the most applicable practical examples can be utilized. Despite these benefits, time constraints, competitive barriers, cost, lack of both management commitment and professional human resources, resistance to change, poor planning, and short-term expectations are regarded as the main problems affecting successful benchmarking research (Bendell et al., 1993). A poorly executed benchmarking exercise will result in a waste of financial and human resources as well as in a waste of time. Ineffectively executed benchmarking projects may tarnish an organization’s image (Elmuti and Kathawala, 1997). Moreover, there is no single “best practice” because it varies from one person to another and every organization differs in terms of mission, culture, environment, and technological tools available. These best practices are highlighted and discussed in the following sections. 2.6.1 Manufacturing process. Complexity refers to the number of levels and types of interactions present in the system that are related to numerousness and variety of sub-systems within the system (Milgate, 2000). Meanwhile, best practices that are more complex and radical are harder to implement, because the knowledge associated with them is dispersed across many individuals, routines, and techniques. The perceived complexity of the innovation is found to be a significant negative factor in innovation implementation and knowledge transfer in most studies (Simonin, 1999; Tornatzky and Klein, 1982; Verhoef and Langerak, 2001), but not in all (Beatty et al., 2001). Besides, that, complexity also can be defined as the degree of difficulty in understanding an innovation (Beatty et al., 2001). Based on research conducted by introducing new technology, it can be intimidating to organizational employees, particularly if there are needs to change their existing business practices or to acquire new skills. In addition, the implementation means that the organization must integrate with telecommunications and networks applications. Many managers view the web as something that will add complexity, rather than viewing the web as a solution to their interconnectivity problems (Jarvenpaa and Ives, 1996). The complexity of an organization is also related to the size of the firm (Ahmad and Schroeder, 2001). Compatibility is the degree to which an innovation is perceived as being consistent with the existing values, needs, and past experiences of potential adopters (Rogers, 1983). In evaluating best practices, one of the key issues to examine is whether the practices will actually work in the adopting organizations (Davies and Kochhar, 2000; Zairi and Ahmed, 1999). Compatible best practices have a higher chance of survival than the ones, which are not compatible. Compatibility is also found to have a positive significant relationship with innovation implementation (Verhoef and Langerak, 2001). According to Ketokivi and Schroeder (2004), most manufacturing practices depend on each other in a manufacturing environment. And, these practices must be consistent with each other’s workplace culture for the achievement of success in the entire manufacturing system (Davies and Kochhar, 2000; Fullerton and McWatters, 2001). An early work by Skinner (1969) identifies flexibility as one of four manufacturing objectives, with other objectives comprising production costs, delivery, and quality.


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In addition, more recent research considers flexibility as a competitive priority that must be considered alongside other such priorities, specifically production and distribution costs, quality, delivery dependability, and delivery speed (Davies and Kochhar, 2002; Dangayach and Desmukh, 2001). Barad and Sipper (1988) describe flexibility as the ability of the manufacturing system to cope with environmental uncertainties. Slack (1988), discussed flexibility in terms of management objectives and stated that due to its multidimensional definition, there is no single measure of flexibility. Later, Carlsson segmented flexibility to operational, tactical and strategic levels in references to the degree of commitment and time required for changes. After that, other dimensions of flexibility were termed required or potential flexibility as stated by Gerwin (1993). According to Narasimhan and Das (1999), new product flexibility is defined as the capability of a company to design, prototype and produce new product to meet stringent time and cost constraints. Meanwhile, volume flexibility is the capability of the system to respond to the volume fluctuations and expand productions on short notice beyond normal installed capacity (Narasimhan and Das, 1999). 2.6.2 Organizational factors. The criteria for top management commitment are visionary leadership and championship, new culture thinking and goals, and long-term strategic plan and direction. Under visionary leadership and championship, the performance item measures top management’s dedication to continuous improvement and growth and having a clear vision of the direction of the company in future. These two aspects are important for a company to become excellent manufacturers where everyone, especially the chief executive, must be committed to success (Walley, 1992). The allocation of budget for retraining, the ability to motivate employees in achieving organizational goals, and employees’ participation in decision making are not highly ranked, scoring slightly above four, indicating that it is not extensively practiced. Successful manufacturers have consistently harnessed the skills and experience of their whole workforce for “continuous improvement” while at the same time giving them the clear guidance on which sort of improvement should be given priority. Those facilities that have fully achieved excellence or made significant progress are much more likely to report a majority of their workforces in self-directed or empowered teams (Taninecz, 1997). Internal problems with current process have led to the identification and adoption of best practices (Forker and Mendez, 2001). Similarly, Chau and Tam (2000) found that the level of satisfaction in the existing system triggers implementation innovations. In addition, the primary objective of implementing TQM and many strategy tools is to satisfy the customer. In this context, customer orientation is viewed as how much effort a company has expanded in order to achieve customer satisfaction. A survey conducted by Sinclair and Zairi (1995) revealed that customer satisfaction was the most important area that drove the organization to improvement. Meanwhile, Agus et al. (2000) suggested that the implementation of TQM could lead to the enhancement of customer satisfaction and ultimately improve the financial performance of manufacturing companies. Therefore, customer satisfaction has a strong impact on TQM implementation in order to improve product quality, features, and delivery (Agus et al., 2000). One way for organizations to become more innovative is to capitalize on their employees’ ability to innovate. As Katz (1964) puts it: “an organization that depends solely upon its blueprints of prescribed behavior is a very fragile social system.”

Work has become more knowledge-based and less rigidly defined. In this context, employees can help to improve business performance through their ability to generate ideas, use these as building blocks for new and better products, services, and work processes. Many practitioners and academics now endorse the view that individual innovation helps to attain organizational success (Axtell et al., 2000; Smith, 2002; Unsworth and Parker, 2003). In order to realize a continuous flow of innovations, employees need to be both willing and able to innovate. Many studies focus mainly on the creative or idea generation stage of innovation (McAdam and McClelland, 2002). However, innovation also includes the implementation of ideas. Here, we define innovative behavior as behavior directed towards the initiation and application (within a work role, group or organization) of new and useful ideas, processes, products, or procedures (Farr et al., 1990). Thus, defined, innovative behavior can be seen as a multi-dimensional, overarching construct that captures all behaviors through which employees can contribute to the innovation process. To initiate innovations, employees can generate ideas by engaging in behaviors to explore opportunities, identify performance gaps or produce solutions for problems. Opportunities to generate ideas lie in incongruities and discontinuities – things that do not fit expected patterns, such as problems in existing working methods, unfulfilled needs of customers, or indications that trends may be changing. In the implementation phase, employees can play a valuable role in the innovation process by demonstrating application-oriented behavior. 2.6.3 Environmental factors. Ungan (2007) claimed that in selecting the improvement path, one of the questions that must be answered, is whether the organization can get outside help if it needs to do so. In this study, outside help is a component of a partner’s motivation to share knowledge. Government intervention is measured as the external support towards the factors that influence the implementation of benchmarking types. According to Thong (1999), outside support may come either from a third party or the partner company whose best practices are adopted. Direct state interventions in business activities are minimized. Government policies concentrate on creating a competitive environment for enterprises and on providing macro-economic and social conditions that are predictable, thus minimizing the external risks for economic activities. It is flexible in adapting its economic policies to a changing international environment. As for market orientation, since customer focus and employee empowerment are the most important practices, service organizations should consider this and formulate plans on how to enhance customer focus and employee empowerment. Service organizations should emphasize continuous customer satisfaction assessment. As proposed by Griffin and Hauser (1992), a customer feedback system can be set-up and frequent meetings with customers conducted for better understandings. It is important for organizations to understand as well as to respond to their customer’s needs. 2.7 Framework The dependent variable in this research is benchmarking effectiveness among manufacturing industries. In this study, the focus is on benchmarking effectiveness. The influential factors are based on manufacturing factors, organizational factors, and environmental factors, which are used to identify their influence on benchmarking effectiveness among manufacturing industries. Thus, the study conceptualises the framework shown in Figure 1.


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Figure 1. Framework

Manufacturing process factors: • Complexity • Compatibility • Flexibility Organizational factors: • Top management commitment • Customer orientation • Innovativeness of employees Environmental factors: • Government intervention • Customer feedback

H1

H2

Benchmarking effectiveness

H3

Source: Control variable: length of operation

Based on the framework proposed above, the following hypotheses are drawn: H1. The benchmarking effectiveness is influenced by manufacturing factors. H1a. The benchmarking effectiveness is influenced by complexity. H1b. The benchmarking effectiveness is influenced by compatibility. H1c. The benchmarking effectiveness is influenced by flexibility. H2. The benchmarking effectiveness is influenced by organizational factors. H2a. The benchmarking effectiveness is influenced by top management commitment. H2b. The benchmarking effectiveness is influenced by customer satisfaction orientation. H2c. The benchmarking effectiveness is influenced by innovativeness of employee. H3. The benchmarking effectiveness is influenced by environmental factors. H3a. The benchmarking effectiveness is influenced by government intervention. H3b. The benchmarking effectiveness is influenced by customer feedback. 3. Research design The data used in this study comes from the manufacturing plants. The population of the study comprises companies that were randomly selected from all types of large manufacturing companies in Surabaya, Indonesia, which were registered with BPIS such as textile products companies, auto parts and supplies, and home

appliances companies. Moffett et al. (2008) supported this population as they found that currently larger organizations are more likely to adopt benchmarking practices, with considerable variation across organizational sectors. A total of 384 companies’ made up the total population of the sample, out of which 250 were selected based on reasons such as the location of premises, which influenced access and the need to consider time constraints. The minimum requirement of sample is one variable to ten respondents, thus a sample size of 90 are expected to be observed in this survey is more than adequate for this study. Therefore, the samples were randomly selected based on the companies that had proper addresses and business within the Surabaya Industrial Zone. In order to obtain sufficient samples for analysis, a total of 250 questionnaires were sent to representatives of the registered companies who were either quality managers or production managers and whoever was involved in the benchmarking process in the companies. The questionnaires are designed to measure the variables, where the relationship of the affected variables is analyzed. All the questions in the questionnaire are based on the hypotheses generated which aligns to the unit of analysis. Sekaran (2003) highlighted that erroneous results may occur if the questions are not reflecting the unit of analysis, which leads off beam conclusions. As a result, the questions were designed in a way that the respondents able to understand and answer the questions faster. The questionnaires were developed by taking into consideration the examples from previous literature (refer Table III for details). A five-point Likert scale was used to measure the levels of perceptions of the respondents towards the effectiveness of benchmarking practices). The five-point Likert scale is used to offset the central tendency bias that may be encountered with Asian respondents (Chen et al., 2005). Independent and dependent variables in this study are operationalised by the five-point Likert scale with 1 – strongly disagree to 5 – strongly agree. The questionnaire contained a total of 56 questions directly related to the best practices of benchmarking effectiveness.


4. Analysis 4.1 Profile of respondents From 250 distributed, 155 companies provided feedback. Hence, the response rate was 51.67 percent. From the results, it is shown that 76.1 percent of the respondents were males and 23.9 percent of the respondents were females. Most of them were from the Variables

Dimensions

Manufacturing factors Organizational factors

Complexity, compatibility, and flexibility Governmental intervention and customers feedback

Environmental factors Benchmarking effectiveness

Source adapted

Beaty et al. (2001) and Verheof and Langgerak (2001) Anthony et al. (2002), Lobo and Zairi (1999) and Zeitz et al. (1997) adopted in Lee et al. (2006) Verheof and Langgerak (2001) and Top management commitment, customer satisfaction orientation, and Anthony et al. (2002) innovativeness of employee McNair and Kathleen (1992), Anthony (2003), Beaty et al. (2001) and Verheof and Langgerak (2001)

Table III. Distributions of questionnaires items for major variables

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operational level (34.2 percent), followed by the production level (22.6 percent), and the managerial level (21.9 percent) and the owners of the companies (9.0 percent). From the analysis, we also found that the majority of the respondents had been working for the companies for six-ten years (51.6 percent), and there was no respondent with working experience of more than 15 years. Because of the nature of the type of business, the respondents’ profiles could be further divided, with 43.9 percent of the respondents working in food and beverage companies, while those working at industrial and engineering companies’ made up 20.6 and 9 percent were respondents who worked in electrical and electronic companies. Company ownership structures revealed that 47.1 percent of the respondents were Indonesian companies, followed by joint venture companies with 27.1 percent and multinational companies with 25.8 percent. Most of the respondents employed more than 150 people (63.2 percent), followed by companies employing 100-150 people (36.8 percent). From the analysis, 40.0 percent of the respondents worked for companies that had been operating between 11 and 15 years. The results based on the feedback from the respondents on benchmarking practices implemented in their respective organizations are presented below. Table IV shows that 100 percent of the companies have been implementing benchmarking practices. Most of the companies have been involved in benchmarking practices for three years (41.3 percent) while others have done so for five years (21.3 percent). According to them, the main purpose of implementing benchmarking practices is to increase quality (36.1 percent), followed by profit orientation (27.1 percent). From the analysis, it is also found that most companies had completed three best practices (41.9 percent) followed by others who had completed just one practice (32.3 percent). 4.2 Reliability analysis The result in Table V shows that all the independent variables have Cronbach alpha value of more than 0.80, so it can be considered that all the variables are reliable and acceptable. The average values obtained for all the variables are above 0.7, these values can be considered as good. Customer orientation has the highest reliability 0.96 while effectiveness benchmarking has the lowest reliability with 0.74.

Descriptions Company implement any benchmarking practice Length of time of involvement in benchmarking practice (years)

Main purpose of company implementing benchmarking practice

Table IV. General information of benchmarking practice

Number of benchmarking practices that the company has completed

Frequency Percentage Yes No 2 3 4 5 6 Expansion Performance Product Profit Quality 1 2 3

155 0 21 64 22 33 15 5 24 28 42 56 50 40 65

100.0 0 13.5 41.3 14.2 21.3 9.7 3.2 15.5 18.1 27.1 36.1 32.3 25.8 41.9

Variable

Cronbach’s alpha

Item dropped

No. of item

0.93 0.94 0.91 0.91 0.96 0.95 0.95 0.81 0.74

0 0 1 0 0 0 0 0 0

6 6 5 5 6 6 5 5 3

Complexitya Compatibilitya Flexibilitya Top management commitmenta Customer orientationa Innovativeness of employeesa Government interventiona Customer feedbacka Effectiveness bechmarkingb a

b

Notes: Refers to independent variable; dependent variable; NA ¼ 0

Benchmarking in manufacturing companies 131 Table V. Results of the reliability test

4.3 Descriptive analysis for variables The descriptive procedure is useful for obtaining summary comparisons of approximately normally distributed scale variables and for easily identifying unusual cases across those variables by computing z-scores. The independent and dependent variables measured are based on a five-point Likert scale. Looking at the summary of statistics in Table VI for the individual component, interesting information about the respondents is revealed. The low-mean scores of the involvement, Complexity indicate that they tend to score more unkindly than the others; the high-mean scores of the effective performance benchmarking show that they are more generous; and the cognitive mean score shows it to be slightly middle-of-the-road. Based on the results below, the mean of all variables ranges from 3.59 to 3.96. However, the standard deviation of all variables ranges from 0.76 to 1.01, the highest standard deviation being the innovativeness of the employees (1.01) and the lowest standard deviation being effective benchmarking (0.76). 4.4 Hypothesis testing 4.4.1 Manufacturing process. Huq et al. (2008) have identified critical issues for benchmarking such as age of company and industry specific. Therefore, the age of company is been chosen as control variable in this study. Table VII presents, the regression analysis for the manufacturing process factors of best practices on effectiveness benchmarking. Model 1 shows the regression analysis with the control variables, that is, age of company has been operating. The model is significant with Variable Complexity Compatibility Flexibility Top management commitment Customer orientation Innovativeness of employees Government intervention Customer feedback Effective benchmarking

Mean

SD

3.5974 3.6065 3.9269 3.6800 3.7914 3.8172 3.8361 3.8271 3.7269

0.94882 0.91817 0.87989 0.98498 0.97786 1.00104 0.96281 0.83248 0.75828

Table VI. Descriptive statistics for major variable

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Table VII. Result of regression analysis for manufacturing process factors on effective benchmarking

Variable Control D1 (,5years) D2 (6-10 years) D3 (16-20 years) D4 (.21 years) Predictor (s) Complexity Compatibility Flexibility F R2 Adjusted R 2 F 2 change R 2 change

Model 1, b

Model 2, b

20.367 * 20.266 * 0.113 0.346 *

20.087 0.007 20.074 20.067

23.370 * 0.384 0.368 23.370 * 0.384

0.534 * 0.051 0.434 * 42.552 * 0.670 0.654 42.355 * 0.286

Note: *p , 0.05

R 2 ¼ 0.384, adjusted R 2 ¼ 0.368, R 2 change ¼ 0.384, and F change ¼ 23.370. It is found that the control variables do contribute to the model. Model 2 displays the findings after the inclusion of the independent variables with the control variables. After statistically controlling the length of time that a company has been in operation, the model has improved significantly. The R 2 is 0.670; followed by the adjusted R 2 ¼ 0.654, R 2 change ¼ 0.286 and F change ¼ 42.355. This model provides evidence of positive and significant relationships between the manufacturing process factors and the companies’ best practices on the effectiveness of benchmarking. The positive value of b indicates that the manufacturing process such as complexity (b ¼ 0.534, p , 0.001) and flexibility (b ¼ 0.434, p , 0.001) are found to be significantly correlated with the companies’ best practices on the effectiveness of benchmarking. However, compatibility (b ¼ 0.051, p . 0.05), is not found to be significant correlated with the companies’ best practices on effectiveness benchmarking As a result, H1 is partially supported. 4.4.2 Organizational factors. Table VIII presents the regression analysis for organizational factors of best practices of effective process benchmarking. Model 1 shows the regression analysis with the control variables, that is, the length of time that a company has been operating. The model is significant with R 2 ¼ 0.404, adjusted R 2 ¼ 0.419, R 2 change ¼ 0.419, and F change ¼ 27.057. It is found that the control variables do contribute to the model. Model 2 displays the findings after the inclusion of the independent variables with the control variables. After statistically controlling the length of time that a company has been operating, the model has improved significantly. The R 2 is 0.600; followed by the adjusted R 2 ¼ 0.581, R 2 change ¼ 0.181 and F change ¼ 22.125. This model provides evidence of positive and significant relationships between organizational factors and the companies’ best practices on the effectiveness of benchmarking. The positive value of b indicates that organizational factors such as top management commitment (b ¼ 0.177, p , 0.01, innovativeness of employees (b ¼ 0.156, p , 0.05) and customer orientation (b ¼ 0.306, p , 0.001) do have positive relationships and are significantly correlated with the companies’ best practices on the effectiveness of benchmarking. As a result, H2 is supported.

Variable Control D1 (,5years) D2 (6-10 years) D3 (16-20 years) D4 (.21 years) Predictor (s) Top management commitment Customer orientation Innovativeness of employees F R2 Adjusted R 2 F 2 change R 2 change

Model 1, b

Model 2, b

20.370 * 20.267 * 0.147 * * 0.377 *

2 0.188 * 2 0.093 0.134 * * 0.339 *

27.057 * 0.419 0.404 27.057 * 0.419


0.177 * * * 0.306 * 0.156 * * 31.476 * 0.600 0.581 22.125 * 0.181

Notes: *p , 0.001, * *p , 0.05, and * * *p , 0.01; D is indicated as a dummy variable for length of company has been operated

Table VIII. Result of regression analysis for organizational factors on effective benchmarking

4.4.3 Environmental factors. Table IX presents the regression analysis for environmental factors of best practices on the effectiveness of benchmarking. Model 1 shows the regression analysis with the control variables, that is, the length of time that a company has been operating. The model is significant with R 2 ¼ 0.428, adjusted R 2 ¼ 0.413, R 2 change ¼ 0.428, and F change ¼ 28.116. It is found that the control variables do contribute to the model. Model 2 displays the findings after the inclusion of the independent variables with the control variables. After statistically controlling the length of time that a company has been operating, the model has improved significantly. The R 2 is 0.0.662; followed by the adjusted R 2 ¼ 0.648, R 2 ¼ change 0.234 and F change ¼ 51.144. The environmental factors such as government intervention (b ¼ 0.138, p , 0.05), are found to be significantly correlated Variable Control D1 (,5years) D2 (6-10 years) D3 (16-20 years) D4 (.21 years) Predictor (s) Government intervention Customer feedback F R2 Adjusted R 2 F 2 change R 2 change

Model 1, b

Model 2, b

20.362 * 20.254 * 0.167 * * 0.400 *

2 0.174 * 2 0.061 0.148 * * * 0.325 *

28.116 * 0.428 0.413 28.116 * 0.428

0.138 * * 0.479 * 48.324 * 0.662 0.648 51.144 * 0.234

Notes: *p , 0.001, * *p , 0.05, and * * *p , 0.01; D is indicated as a dummy variable for length of company has been operated

Table IX. Result of regression analysis for environmental factors on effective benchmarking

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with the companies’ best practices on the effectiveness of benchmarking and the customer feedback (b ¼ 0.0.479, p , 0.001) was significant. As result, H3 is supported. 5. Discussions Complexity is the degree of difficulty in understanding an innovation (Beatty et al., 2001). The interactions among the members of an organization have also become complex. Benchmarking has its objectives, and it requires attention to reduce the complexity. A study by Jaikumar (1986) found that complex manufacturing processes are difficult to implement. Meanwhile, the result for the effectiveness of benchmarking that is influenced by complexity is significant. This result indicates that the levels and types of interactions present in the new system can help members reduce the problems since the production process is highly automated and the rework process has become simpler. Furthermore, the reduction of complexity also helps to facilitate the smooth interaction among different functional areas and can include increasing information sharing and common performance. The compatibility factors also significantly influence the benchmarking implementation in manufacturing industries. Most manufacturing practices depend on each other within their environment. Based on the results of this study, the effectiveness of benchmarking that was influenced by compatibility had no positive impact. This means that there was no significant impact in effectiveness of benchmarking practice because compatibility factors could be implemented to reduce misconception in the workplace since the system could cause many problems in the company and could also be disruptive to the company’s environment because the system had been newly implemented. This differs from the findings by Davies and Kochhar (2000), Fullerton and McWatters (2001) and Rogers (1983) which stated that these practices should be consistent with the different workplaces for the success of the entire manufacturing system to occur. Flexibility can be described as the ability of the manufacturing system to cope with and handle the uncertainties within companies. Companies should be aware of the minor changes of their products or outcomes and must always be able to adapt to the changing market environment. New product flexibility is the ability of a company to design, prototype, and produce a new product to meet the stringent time and other constraints (Narasimhan and Das, 1999). The test results in this study indicate that flexibility demonstrates a positive impact on the effectiveness of benchmarking practices. The influence here refers to the influence by effectiveness in benchmarking. Skinner (1969) has proved that flexibility is one of four manufacturing objectives, with other objectives comprising production costs, delivery, and quality. Besides, that, recent research has also considered flexibility as a competitive priority that must be considered alongside other such priorities, specifically production and distribution costs, quality, delivery dependability, and delivery speed (Davies and Kochhar, 2002; Dangayach and Desmukh, 2001; Cox, 1989; Schroeder et al., 1989; Gerwin, 1987; Wheelwright, 1984; Schmenner, 1982). Top management commitment is one of the most important factors for any management practice and many researchers have undoubtedly recognized this factor (Agus, 2001; Sureshchandar et al., 2001; Sharma and Gadenne, 2001; Antony et al., 2002; Sohail and Teo, 2003). Further, Magd (2008) supported that top management commitment was found to be an important influential factor for effective benchmarking. Among

the researchers are Kasul and Motwani (1995) who proposed a set of organizational requirements for TQM implementation, stating that top management commitment, is one of the main requirements. It is believed that top management could support the implementation of benchmarking by allocating budgets and resources, monitoring progress and planning for change (Kasul and Motwani, 1995). The test results of the hypothesis clearly indicate that top management commitment has a positive impact on the effectiveness of benchmarking. Based on the findings, it is noticeable that top management commitment might be among the prerequisite factors for benchmarking effectiveness as top management significantly influences the three types of benchmarking effectiveness. The significant results in this study also reflect the findings of a previous research done by Ruggieri and Merli (1998) that proved that top management commitment appears to constitute the fundamental element for the successful application of TQM. Customer satisfaction orientation is the amount of attention a company has put into the achievement of customer satisfaction. The primary objective of implementing TQM and many strategic tools is to satisfy the customers. The test results indicate that customer satisfaction orientation demonstrates a positive impact on the effectiveness of benchmarking practices. This result also means that the effectiveness of benchmarking practices could lead to the enhancement of customer satisfaction. The results were proven by a survey conducted by Sinclair and Zairi (1995) showing that customer satisfaction was the most important area that drove the organization to improve. Therefore, customer satisfaction has a strong impact on benchmarking in order to improve product quality, features, and delivery (Agus, 2001). This is also consistent with the findings from a study by Agus (2001) showing that customer satisfaction is focused on the customers’ needs and this factor is related to process and performance. The innovativeness of employees has been highlighted in many literature reviews on benchmarking. Arthur (1994) highlighted that an organization with a committed human resources system, which increased employees’ innovativeness at work would obtain better organizational performance. In addition, considerable improvement in morale and performance are also possible if employees are allowed to decide on the performance measures, which drive and direct their own continuous improvement activities (Daniels and Burns, 1997). Therefore, effective employees’ innovativeness could bring along attainable employees’ satisfaction, quality improvement, and product enhancement in manufacturing enterprises (Pun et al., 2001). The findings of this study support this assumption as it discovered that employees’ innovativeness could significantly influence the effectiveness of benchmarking. It is because employees’ innovativeness is about how to improve their ability to generate ideas, service, and work process in the production and in terms of the manufacturing process. Government intervention benchmarking is one of the proposed tools of government reforms to assist in the monitoring and control of productivity and quality with a focus on internal and external stakeholders in mind (Ogden and Wilson, 2000; Ball et al., 2000). The government has therefore encouraged public-sector organizations to use benchmarking as a useful management tool to achieve best value (Ball et al., 2000). Besides, that, firms are constantly under pressure from external forces such as competition, changing customer needs, government regulation, changing technologies, etc. (Banker and Khosla, 1995; Nadler et al., 1995; Carr et al., 1996; Kallio et al., 2000). Based on the findings of this study, government interventions have demonstrated a positive impact on the effectiveness of benchmarking. These findings


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indicate that the sources of effectiveness of benchmarking also come from government intervention. It is reasonable to assume that the more a company feels pressure in its operating environment, the more likely it will be for the company to adopt a best practice. Customer feedback as proposed by Griffin and Hauser (1992) comprises a customer feedback system that can be set-up and frequent meetings with customers should be conducted for better understandings. It is important for organizations to understand as well as to respond to their customer’s needs. Based on the findings in this study, the results indicate that customer feedback has a significant impact on the effectiveness of benchmarking. The findings of the study fully support the assumption that customer feedback itself is the way for manufacturing companies to retain their customers’ loyalty and as a way to indicate their companies’ performance. Besides, that, through benchmarking, companies that simply wait for customers’ feedback prevent themselves from improving customer service. One way in which commitment can be obtained is by aligning both individual and corporate performance measures with the strategic goals of the company. The significant results of this study are also reflected by the results from Asian Productivity Organizations (2007), which stated that the more proactive way is to actively solicit feedback, since numerous problems are left unexpressed by customers as evident in the process of benchmarking. 6. Conclusions From the discussions earlier, it is found that there is a significant correlation between the manufacturing process, and organizational and environmental factors on the effectiveness of best practice of benchmarking. Hence, this information can be utilized to promote the acceptance and implementation of benchmarking. A government body such as a benchmarking department (BPIS) can therefore focus on these factors for further development of benchmarking. BPIS Indonesia can organize more training and seminars for smaller manufacturing companies. From an organizational point of view, attention should be given to improving compatibility, employee innovativeness, and government intervention so that the best practices of benchmarking can be used proactively as a strategic tool. This finding has triggered that there may be a possibility that the real driver of the benchmarking adoption is due to employee innovativeness and government intervention rather than the customer itself, although the final aim of improvement is to increase profitability through customer satisfaction (Lee et al., 2006). In the benchmarking process, a company may have to provide resources in searching for best practices, data and information collection, and assessment of its own and benchmark partner’s processes. Thus, this has been a viable reason for a company not to carry out benchmarking. The analysis of the results of this study shows that some benchmarking practices, e.g. manufacturing process, and organizational and environmental factors do significantly influence the effectiveness of benchmarking. This may be due to the general understanding that benchmarking could be implemented in any area at different scales. The findings of the study are broadly consistent with those of other studies on quality and the effects are all in the predicted directions. Further work needs to done to identify other best practices of benchmarking. A further limitation of the study is that the survey items and independent variables are based on the literature review. Some quantitative measures of the best practices and of the performance of benchmarking would enhance the rigor of the analysis. Furthermore, due to time constraints, there are limited respondents from a broader discipline. A larger

sample would include respondents from the machinery, textiles and apparels, food and beverages, pharmaceutical and chemical industries under type of manufacturing, logistic and purchasing department under department attached, and production operator level under position hold. From the earlier part of the discussion, it is noticeable that the age of the company has a positive relationship with benchmarking effectiveness. At a glance, this may seem consistent with the significance of benchmarking contribution. However, one should be reminded that the age of the company might also comprise other factors. For instance, the longer the company has been established means that it may have longer strategic plans, and a more established complexity of the product and innovative employees. The findings of this study have shown that there is a significant relationship between the manufacturing process, organizational and environmental factors, and benchmarking effectiveness. Therefore, it is recommended that the framework be extended to include more various industries such as in the service, construction, and public sectors. Similarly, the scope of the study should also be extended as the industry covered by this study is clustered in certain geographical areas. As consequence, companies’ characteristics and practices might vary owing to business environment differences. Benchmarking requires feedback and participation from all levels of an organization. Managers implement the process and train employees to know and understand the process. In order to benchmark effectively, a company needs a strong strategic focus and some flexibility to achieve the goals set forth by management. Perhaps, the most important aspects of effective implementation are adequate planning, training, and interdepartmental communication. Thus, future research can look into these areas. From the findings of this study, in order for the benchmarking process to be successful, an organization needs these general requirements: top management commitment and support: a solid understanding of the manufacturing operations and requirements for improvement: willingness to share information with benchmarking partners; and dedication to ongoing benchmarking efforts. Benchmarking is an excellent tool because it involves everyone, including managers and workers. The kind of benchmark used depends on the company’s characteristics and circumstances. Top management decides whether to focus on diverse internal functions, competitors, industry performance, or “best-in-class” targets. Any type of benchmarking management chooses will benefit the company if applied correctly. Benchmarking is the seed of organizational and cultural changes that must occur if a company is to survive and to achieve competitive excellence. The overall goal of benchmarking is to help companies achieve excellent competitive capabilities. References Agus, A. (2001), “A linear structural modeling of total quality management practices in manufacturing companies in Malaysia”, Total Quality Management, Vol. 12, pp. 1-14. Agus, A., Krishnan, S.K. and Kadir, S.L.S.A. (2000), “The structural impact of total quality management on financial performance relative to competitors through customer satisfaction: a study of Malaysian manufacturing companies”, Total Quality Management, Vol. 11 No. 4, pp. 808-20. Ahmad, S. and Schroeder, R.G. (2001), “The impact of electronic data interchange on delivery performance”, Production and Operations Management, Vol. 10, pp. 16-31.


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