Putting Benchmarking
into Pharmaceutical Practice
New Benchmarking models are not necessarily the way to superior performance
Jörg Krütten*
There is certainly no lack of Benchmarking approaches and models. However, the first euphoric wave created by this highly-praised management tool in the early 1990s seems to have been replaced by a period of disillusionment. The pharmaceutical industry also picked up on this efficacy - and efficiency - raising approach - but not much has been heard yet of any sweeping and decisive success stories. Despite the comprehensive literature produced on the subject and the wealth of training programmes and consulting offered, it seems that a lack of Benchmarking know - how(1) continues to persist. This knowledge gap is certainly not the result of insufficient information on or a lack of understanding for the various Benchmarking sequence models, but rather has its roots in deficits found in the fields of project organisation, survey design and, above all, methodological incompetence in respect of the processing and analysis of Benchmarking information. The way to "best practices" involves the identification of relevant success factors and cannot pursue a solely qualitative path.
The Benchmarking Concept
Let us leave the usual policy discussions regarding Benchmarking philosophies on one side for the time being. The answer to the question as to whether or not Marco Polo or Michelangelo(2) were already in search of "best practices" will not contribute much to an understanding of this concept. Credit for the milestone which in 1979 took us from industrial "copying or plagiarism" to the systematic search for best performances and their underlying success factors must undoubtedly go to office machine manufacturer Xerox(3).
Based on the initial process focus, methodology has meanwhile evolved and can today really only be seen in an extended context with other modern management tools, such as Zero Base Budgeting, Target Costing, Re-engineering, and Make-or-Buy-Analysis. Within this context, Benchmarking serves as an independent, performance-raising approach, or also as a firm component or external trigger for other efficacy- and efficiency-raising projects.
In any case, there are very strong links between Benchmarking concept, competitive analysis and customer satisfaction measurements. Benchmarking also serves to safeguard competitiveness by continuously gauging performance and focusing on the satisfaction of internal and external customer needs. The attempt to compact all these Benchmarking aspects into a single definition provides us with our current understanding of this tool and is represented in Chart 1.
The spectrum of potential examination objects extends beyond business processes and includes
- all initial, intermediate and final results of the corporate value chain,
- all corporate activities inside and outside the organisational environment,
- all structural and procedural organisational components of a company, including personnel structures,
- all elements related to the company's assets, and
- the whole spectrum of qualitative and quantitative indicators involved in evaluating corporate performance.
Chart 1: Our understanding of Benchmarking
Benchmarking surveys can, therefore, indeed be conducted along the whole pharmaceutical value chain. On account of the ongoing and continuing process of concentration being experienced within this industry, there is a greater need than ever before for permanent performance-raising measures or respectively for a systematic search for competitive advantages. Next to the major players, only the best will be able to survive.
In the end, Benchmarking will also provide a systematic tool for the industry giants who are evolving as a result of the merger and acquisition wave and whose resources generally lie dormant over much too long a period. By using this tool, they will be able to quickly and ideally (re-)allocate or co-ordinate their new pool of resources.
In the following, we intend - in accordance with our understanding of the methodology - to present a number of aspects which will primarily contribute towards securing the success of a Benchmarking project. In this respect, project success means identification of the success factors for "best practices" as a starting point for the optimal reconfiguration of corporate activities. Failure equals a waste of financial and human resources on non-critical and very often non-implementable copies of practices found in other organisations.
Analytical Benchmarking
The fundamental procedural steps involved in analytical Benchmarking are presented in Chart 2.
The triggers for corresponding projects may be of a multi-layered, complex nature. Apart from generating trigger information
- declining profits and/or market shares,
- the allocation of new or existing resources,
- the entry of new competitors into the market,
- the search for innovative products and services,
- the processing of new markets, as well as
- continuous improvement processes
may all initiate Benchmarking surveys.
Chart 2: The process of analytical Benchmarking
Depending on the relevant problem's aggregation level, which can range from corporate strategy aspects right through to specifically-defined survey objects, for example, the marketing mix of an innovative active agent in a new indication field, the first, elementary Benchmarking step will consist of a more or less comprehensive analysis of the situation and the object.
Situation and Object Analysis
On the one hand, this involves defining the project framework or context on the basis of financial and human resources, establishing a schedule and deciding on the appointment of external consultants to accompany the project. Responsibilities of the latter may include know-how transfer, coaching, analysis and a clearing function. On the other hand, the Benchmarking object has to be defined, or respectively, identified during this project step. Within this context, it is especially important to include experts from inside the company in the process itself, both at an early stage and as comprehensively as possible. The Benchmarking process reacts very sensitively to the general framework conditions under which it is operating. Omissions in the conceptual phase, for example, failure to obtain expert know-how, can have a lasting, negative effect on the project success and in all too many cases can no longer be rectified.
Access to corporate data and internal expert know-how alone will generally not suffice as a basis for first elaborating a detailed analysis of weak points and subsequently delimiting the survey object. Rather, the goal must be initially to collect and process the available input in a systematic and structured manner. To illustrate this, let us consider the results of a BENCHSTRAT-Workshop as presented in Charts 3.1 through to 3.3.
Chart 3.1: Evaluation of the market position
In this case, the project was commissioned by a research-oriented pharmaceuticals company whose globalisation efforts in a highly interesting international pharmaceuticals market had so far failed to produce any sweeping successes. Even the additional resources and competence gained two years earlier as the result of an acquisition had not yet served to increase performance. A systematic identification of the weak points has not yet occurred. The objective of the BENCHSTRAT-Approach therefore involves beginning with a systematic analysis of the company's market situation and its competition and competence in this market.
The portfolio in Chart 3.1 clearly shows that the company - in terms of its competitive situation - only occupies a strong market position in one indication area. However, this area represents a very established market. Its attractiveness is low, above all, in respect of future growth and profitability potential. On the other hand, the company has so far only played a subordinate role in the two most attractive indication areas.
Charts 3.2.a and 3.2.b illustrate the company's competitive situation at product level in these two markets by using matrices of competitive advantages. These matrices evaluate the competitive situation by plotting the importance ratings of the relevant product characteristics against the company’s products relative performance compared with the best competitor. Competitive advantages therefore appear in the upper right-hand square of the matrix, while serious performance deficits show in the upper left-hand square. The depicted band widths represent a consistent performance profile, with superior performance in the relevant product characteristics and the avoidance of over-engineering in the less important factors. In the case at hand, the company only seems to have product level weaknesses in the considered indication areas in terms of "type of available evidentiary basis" and "expert opinion", which can, however, be rectified relatively simply. By contrast, the company also has competitive advantages in both markets, for example, in respect of the efficacy or safety of its agents. These have so far only been insufficiently communicated.
Chart 3.2a: Matrix of competitive advantages Chart 3.2b: Matrix of competitive advantages
for Indication Area I for Indication Area II
A corresponding matrix in Chart 3.3 illuminates this market from the company's competence side. The competence matrix as well as the use of weighted sums to condense this information into competence indices indicate where performance deficits are to be found - in this case, above all, on the sales force side.
Chart 3.3: Competence matrix in country X
On the basis of this analysis and of the performance-raising potential which the experts involved see in the local sales force organisation, the Benchmarking object is identified.
Definition of the survey design
The subsequent definition of the survey design must make the sales force performance measurable and comparable. This calls for input and result parameters to be specified which cover the whole performance spectrum of the Benchmarking object. Here, too, an optimum mix of internal and, as necessary, external competence is of particular importance in terms of project success. In addition to knowledge promoters, it is essential that power promoters are also integrated into the process in order to achieve and secure a high degree of co-operation readiness during the internal information collection and subsequent result implementation phase.
In the example at hand, Chart 4, which has been produced using an Ishikawa Diagram, shows the configuration of the sales force process, specified with the help of sales executives. It forms the foundation for the further Benchmarking steps.
Chart 4: The sales force process in its Benchmarking start-up configuration
Apart from the process input presented here under the various input categories, such as, the education profile in the personnel section, price autonomy in the controlling section as well as the frequency of customer visits in the visit structure category, a series of additional measurable or observable attributes are considered in this survey.
The next step in the design definition process involves specification of the Benchmarking method as well as identification of the Benchmarking partners. Both aspects are decisively influenced by the objective which the survey pursues, which therefore needs to be again clearly and precisely specified beforehand. For example, if the primary objective is to raise the performance level to "best-in-company" standard as quickly as possible, then, and especially so in large, strongly diversified organisations, an internal Benchmarking procedure with direct interaction between the Benchmarking partners would suggest itself. However, if the goal is the long-term creation of lasting competitive advantages it is essential that the sights extend beyond the confines of the company itself. In this case, the partner organisations, depending on the survey objective and the required degree of comparability of performance criteria, can be recruited from the direct competitive environment or alternatively from other industries. External surveys of this kind generally call for anonymity to be maintained between Benchmarking partners as well as for caution and restraint in how critical corporate information is made available, meaning that a clearing function must definitely be established at the interface, for example, in the form of external consultants. Over and above this, external consultants provide the advantage of having a pool of industry-internal and -external Benchmarking data already available as well as existing contacts with potential partner companies at their disposal.
In practice, the available internal Benchmarking potential is all too often thoughtlessly neglected, or in other cases, the sights are not set to look beyond the confines of one's own industry. We therefore generally recommend a "multi-sourcing approach" in which focuses are set internally as well as in the direct competitive environment or, as the case may be, in the industry-external corporate surroundings, depending, of course, on what the objective is.
In the sales force example at hand, the primary objective is to achieve the efficacy and efficiency level of the direct competitors. Hence, the majority of Benchmarking partners will stem from the direct competitive environment. Deduction of short-term enhancement measures results from an analysis of the sales force within the company itself. Furthermore, a number of interviews will be held with experts from the capital goods industry with the aim of identifying foreseeable trends and innovations.
Two important requirements must be met by all involved organisations. They must have
1. a performance level lead over the performance of the company itself, at least within one partial aspect of the Benchmarking object, and
2. comparable framework conditions, at least within certain bounds.
In the case at hand, criteria such as the origin of the company, how long it has been in this market, the general competitive situation at product level, and the distribution density must be considered.
The selection of Benchmarking partners is then made by employing a series of corporate-internal and -external information sources as well as by specifying knockout-criteria. As far as our sales force example is concerned, the quality of the Benchmarking results should additionally be optimised by using a representative number of observation values. To this end, the group of Benchmarking partners will be extended beyond national borders. The identification of comparable sales force organisations is based, among other factors, on a cross-national market cluster analysis which takes account of economic and demographic market characteristics whose results are presented in Chart 5 by way of example.
Selection and examination of the readiness to co-operate on the part of the identified potential Benchmarking partners, who, in the case at hand, all operate in Cluster II markets, should be followed by a feasibility check to establish whether the specified survey objective can be achieved with the present design. Where necessary, the survey design and/or objective have to be modified. At the very worst, the non-achievement of ambitious goals can already be foreseen at this stage, making the discontinuation of the project better than wasting more valuable corporate resources on the project.
Chart 5: International pharmaceutical market cluster analysis
Information Collection
If the project management, including the experts involved, agree that the potential for success is sufficiently given, then the next two Benchmarking phases involve the collection and analysis of the Benchmarking information. During this phase, the process strongly resembles market research activities. In Benchmarking, too, corresponding know-how and methodological competence have a lasting influence on the validity and reliability of the information, and therefore, in the final analysis, on the quality of the results.
Here, too, a differentiation between primary and secondary data sources is advisable. A selection of important secondary sources for the generation of Benchmarking data has been summarised in Table 1.
Such information resources are above all characterised by the fact that their use involves relatively low costs. Very often, however, the processing of and access to the appropriate data can involve substantial effort and expense, or respectively, require the sights to be lowered as far as objectivity and relevance of the information is concerned. Secondary sources from within the company, for example, competitive analyses or sales force reports, should be included, whatever the case may be - at the very least as supplementary material. Primary information generally distinguishes itself as a result of its substantially higher data quality.
In respect of the forms of collection and media, generally the whole range of market research instruments can be called upon, with the above-mentioned focus on expert interviews. Problems with the collection of Benchmarking data are often caused by a lacking readiness on the part of Benchmarking partners to co-operate, especially in surveys within their direct competitive environment. Apart from providing all the participating organisations with the processed and prepared Benchmarking survey results, this area often requires a bi-directional flow of information. The art consists in creating a win-win situation for all participating organisations.
Table 1: Examples of important secondary data sources for Benchmarking
Information Analysis
In order the ensure the quality of results, we recommend that the Benchmarking data stock is subjected to a thorough examination with respect to contradictions, inconsistencies and information gaps before the analysis as such begins. Furthermore, certain data should, as necessary, be transformed appropriately, in order to secure the comparability of results beyond the individual situations of the Benchmarking partners.
A first and decisive step consists in the identification and visualisation of performance gaps. Apart from the qualitative presentation forms, such as process diagrams (flow charts) or performance matrices, this sector has the whole spectrum of data processing tools of descriptive statistics at its disposal and will not be further treated here. BENCHSTRAT-matrices (see Charts 3.1-3.3 above) are particularly suitable tools for visualising one's own performance deficits in contrast to those of the respectively "best in class" organisations.
All too often, though, Benchmarking surveys are considered finished in practice once performance gaps in one's own company have been identified and presented. This attitude fully ignores the basic philosophy of the Benchmarking approach and provides nothing new or more than conventional competitive analyses. The data processing and visualisation of performance gaps merely provide the basic conditions in Benchmarking for the decisive, next step, namely the identification of success factors for best practices.
Insofar as this step is completed in practice, it will generally be qualitative in nature, a consequence of the result interpretation undertaken by the experts involved in the survey. Hence, the quality of the results will correlate very closely with the expertise and competence of those involved, whereby the interpretation of performance deficits is nevertheless very often made on the basis of subjective impressions without consideration of possible areas of interaction and correlation. Based on our goal of achieving greater validity and reliability of the Benchmarking results, we therefore prefer, wherever possible, a methodologically-based identification of the best-practice success factors on the basis of a representative number of observation values as practised in the sales force example at hand.
The foundation for this is provided by approaches such as
- value- to-(internal/external) customer - measurements,
- performance mappings,
- cause-effect analyses, as well as
- significant performance driver analyses.
Chart 6 illustrates an example of results derived from a significant performance driver analysis and very clearly shows how the relevant input factor-characteristic values differ in respect of those successful (performers) and of those less successful (non-performers) in terms of market share development.
Chart 6: Results of a significant performance driver analysis on sales force Benchmarking
Benchmarking results achieved by analytical means also require interpretation by the participating experts, although this time on an optimised decision-making basis. In addition to the consideration of possible interaction and correlation, a particular focus should then be directed toward the identification of all those involved with the results. Where doubts arise or when performance gaps can only be insufficiently explained, it is recommendable to support or revise the results by means of the (post-)collection of missing Benchmarking information and data. Under certain circumstances, objectives and/or design of the survey must be yet again modified at this point.
Reconfiguration, Implementation and Controlling
The identified best practice success factors provide the starting point for reconfiguration one's own processes or set-ups. Implementation and success controlling are the final and decisive step of Benchmarking surveys: "No implementation - no increase in performance" meaning "failure in achieving the objective"!
The definition of the realisable implementation targets is particularly important at this point, and should be undertaken in co-operation with the executives involved. These targets simultaneously guarantee an effective controlling structure for the implementation process. The uncritical acceptance and adoption of benchmarks set by external organisations operating under specific framework conditions as a basis for one's own implementation targets is very often too ambitious and unrealistic. A further prerequisite for an effective implementation of Benchmarking results is the acceptance of those results by all corporate units which they apply to and which itself is decisively influenced by the early involvement of internally respected power and knowledge promoters in the Benchmarking process, as mentioned earlier in this paper. Furthermore, information, coaching and possibly required training of the staff affected should represent a substantial component of the implementation project management.
Summary
As so often, modern management tools initially generate a wealth of literature as well as a comprehensive and extensive range of training opportunities. Nevertheless, there is often a great gap between the performance boosts offered in theory and the results experienced in practice. Benchmarking has not remained unaffected by this phenomenon either.
In spite of this all, we continue to see Benchmarking as having enormous potential for raising corporate performance in terms of efficacy and efficiency, among others in the field of resource (re-)allocation after mergers and acquisitions. However, the Benchmarking process calls for a great awareness on the part of those involved in it for the sensitivity of the process in response to its framework conditions. Practical experience has already provided several lessons for successful Benchmarking. A selection of the important factors has been summarised once again in Table 2.
Table 2: Examples of Benchmarking success factors
However, Benchmarking success above all means identification of the relevant success factors for best practices, and it is just these conditions which the analytical Benchmarking approach presented here aims to create and ensure. The foundation is provided by the systematics and by a well-founded methodological spectrum.
The pharmaceutical industry, in particular, which is still passing through a pronounced wave of concentration, exerts extreme pressure on the players involved to perform. Analytical Benchmarking can, above all in the field of pharmaceutical marketing, provide an outstanding basis for efficacy and efficiency raising. On the one hand, this applies to the classical and traditional elements and challenges of pharmaceutical marketing(4). On the other hand, Benchmarking certainly provides valuable input, especially in respect of modern and current pharmaceutical trends and marketing focuses(5), such as, for example, new product launch and positioning, profit - optimised pricing, minimised time-to-market, sales force and key account management or in the field of customer retention or direct-to-consumer marketing.
Literature
1. Kammerlohrer, Andrea; Müller, Michael C. (1997): Dynamisches Benchmarking, Pharmazeutische Industrie, Vol. 1997, No. 12, pp. 1016-1021
2. Zairi, Mohamed (1995): Effective Benchmarking - Learning from the best, Chapman & Hall, London
3. Camp, Robert C. (1989): Benchmarking - The search for industry best practices that lead to superior performance, ASQC Quality Press, Milwaukee, Wisconsin
4. Simon, Hermann; Kucher, Eckhard; Hilleke-Daniel, Klaus (1989): Wettbewerbsstrategien im Pharmamarkt, Schäfer Verlag, Stuttgart
5. Lonsert, Michael; Preuß, Klaus-Jürgen; Kucher, Eckhard (1995): Handbuch Pharma-Management, Gabler Verlag, Wiesbaden
* Jörg Krütten is a consultant with the Life Science Division of SIMON KUCHER & PARTNERS Strategy & Marketing Consultants with offices in Cambridge, Massachusetts and Bonn, Germany.
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