In this article we discuss the very practical challenges of applying benchmarking and the need to stress-test each recommendation in a “live” setting. This was Terance’s first benchmarking study.
Benchmarking is a powerful tool used by Bain. An effective set of benchmarks can quickly tell us how far away a company is from reaching parity with its competitors.
Benchmarking provides a rough magnitude of the scope of change possible and is critical to developing a top-down business-case. The problem with benchmarks is that unless you apply common sense you can arrive at some fairly ridiculous conclusions. I have seen this all too often in my career.
Benchmarking results may lead to ridiculous conclusions
The low-cost carrier project provides some especially illuminating examples. On this project the client had invited a specialist aviation benchmarking firm to benchmark a few processes within the operations and provide a blueprint for improvement on some of the core processes. Bain would use these as input into their analyses.
Very quickly into the process, and much to our dismay given the tight timelines, we realized the benchmarking exercise resulted in benchmarks which were of little value.
The low cost airline had a major hub in South-East Asia and regional hubs in 12 other cities across Asia, Australia and one in the USA. If you have flown a low cost airline you know they cut out every single frill: onboard snacks, extra luggage, seat assignment, seating space and so on.
Basically the customer is paying a really low price in return for no extras. Another thing low cost airlines cut out are delays. Low-cost operators are brutal at cutting out any possible delays. The planes leave and arrive on time. Always.
A low cost airline whose planes do not move like clockwork is a bankrupt low cost airline.
The specialist aviation benchmarking firm was adamant that the client could reduce the turnaround time for all aircraft from 12 minutes to 5 minutes. The turnaround time is the time from when a plane lands to the time when it is ready to leave. The turnaround time includes unloading baggage, cleaning the plane and, if needed, reloading baggage.
The Asian hubs had an average turnaround time of 8 minutes while the US and Australian hubs were pushing 12 minutes and in some cases 14 minutes. The business case for more than halving turnaround time was compelling. It could mean effectively adding 15% more flights to the day.
It was a significant business case. If we could do that, the airline would no longer need to apply for additional landing rights, would not need to seek a new terminal and likely could serve more routes. It was too good to be true.
The one thing about Bain is that the firm is very practical. Just because Bain produces top-notch analyses does not mean they do not have a feeling for how things work in the field. In fact, that gut feel for operational impact is exactly why the firm is so good. The firm has a rule of providing advice which can be implemented on Monday morning at 8 am. If advice cannot be implemented this way then what is the point of the client paying for it?
Therefore, it’s not surprising that the Bain senior partner said that since so much of the revenue improvement came from this idea, and we did not do the benchmarking analyses, we needed to test it. We were all given stop-watches and told to find the best crew in each hub and conduct a DILO (day-in-the-life-of) study to see if this was even possible. So we did it and the findings surprised us quite a bit and taught me the importance of applying common-sense:
• The Asian hubs hired younger, slimmer and nimbler women. They were quick and able to dart between the seats and clean up everything in no time. Even so they barely managed a 6 minute turnaround.
• US and Australian hubs hired older and not as slim women to work the turnaround teams. They just could not move as fast. They were also suffering to maintain the momentum throughout the day. It was the equivalent of repeatedly running a 100m sprint with too short intervals to rest.
When we brought this to the attention of the specialist aviation benchmarking firm, they mentioned that the solution was to hire younger and more nimble women. That’s pretty bad advice since it did not take into consideration the extra costs of hiring them. Younger women with more options just would not do such work for the same salary. This does not even begin to solve the problem of issuing employment adverts in the US which categorically discriminated against male hires or older employees.
Since the client was unable to lower costs by achieving economies of scale in the smaller hubs, the specialist aviation benchmarking firm decided to import the idea of cross-utilization. In this concept, an employee is trained to do more than one task. This eliminates the need to hire more people, increases utilization via their usage across multiple tasks and, the ultimate prize, lowered costs. Japanese auto manufacturers made this concept famous when they used it to fix defects and improve quality on their production lines.
After exposing flaws in the turnaround time recommendations, the senior partner wanted to test this important cost reduction opportunity as well. Armed with a few stop-watches and clipboards, we again marched off to do our DILO studies. Although this was not anywhere within my work scope, I still decided to assist since it was very interesting to do. The fact that the client flew us first-class to each hub did not hurt as well.
This is what we found. Arriving at a smaller hub, there was only one person manning the check-in counter. This employee would manage all check-ins and close the counter. Thereafter, she would go to the runway and guide the aircraft as it docked in. She would then unpack the luggage, pack in the new luggage and go back upstairs to manage check-ins for the next flight. She did this anywhere from 5 to 10 times a day, depending on the hub and day, and needed to complete each cycle in 45 minutes. This is tough work!
The distance between the check-in counter, which is upstairs, and the docking airline, which is downstairs, is about 1,300m on average. Every hub, except US hub, will have average summer temperatures of 39 degrees and average winter temperatures of 28 degrees. Imagine running around, hauling heavy bags and keeping up the company’s image in this heat. This was not an easy task.
Again the specialist aviation benchmarking firm had no solution. Their view was that given the limitations of not hiring more staff, only cross-utilization would work. So we flipped the idea around.
Rather than increasing the number of staff, what if we reduced the amount of work done by the staff. The major bother for us was the difference between above-ground and ground-level activities. They were very different and doing one well (managing heavy baggage) automatically meant employees suffered when it came to engaging with customers. Who wants to work with sweaty and smelly employees?
Eventually we recommended this client form alliances with other low-cost carriers. This was at the time an unusual move but is now common. Therefore, the client would manage the above-ground activity for an alliance member and that member would manage the ground level work. In different hubs there were variations but in all, there was a splitting of work. This allowed the employees to focus on one activity and do it well. It also allowed the airlines to do everything as usual without adding more staff.
On an aside note, this idea off outsourcing selected functions worked so well that the client was able to reduce a sizable chunk of its workforce without impacting performance at all. In fact, delays decreased and customer satisfaction improved.
This goes to show the importance of critically evaluating constraints in a business problem.
Benchmarking study’s idea that could cause significant damage
The external benchmarking firm also provided one piece of analyses which would have a profound effect on the client if it were implemented. The analyses showed that the client was unlikely to receive berths at the major airports if it went ahead and bought the largest Airbuses available. The provider was recommending that the client bought smaller planes since they stood a greater chance of getting berths at the older terminals at the major hubs.
Doing this would have a profound impact on the client’s economics. Larger planes have much greater fuel economy. Giving this up would dramatically impact the clients financial strategy. Not to mention wreak havoc with all the planning for the larger planes. There were also no guarantees that the client would be granted the berths in the older terminals.
The higher taxes and landing fees in the larger airport would lead to higher final ticket prices. In other words, why would anyone choose a low-cost airline which was not very low-cost, flew smaller planes, charged more for fuel and forced them to check-in at major cramped airports?
Bain’s solution was not all that original, but it did save the client. We recommended that the client stick to the larger planes, plough the savings into lower ticket prices and fly in and out via less congested airports in the suburbs. We reasoned that customers really wanted the lower fares and would not mind the inconvenience of using a smaller airport. The upsides were lower taxes, less delays and less congestion. Ryanair had done this successfully in Europe so it was conceivable the same model would work here. It did.
Things to remember when benchmarking
This experience crystallized some important lessons worth remembering when benchmarking:
• Does the benchmark work given the practical issues facing the company? Some benchmarks look wonderful on paper but can never be applied without paralyzing operations.
• Has anyone actually seen this solution work?
• Does achieving the benchmarks leads to financial and quantifiable savings or financial and non-quantifiable losses?
• Are there constraints which need to be examined in greater detail?
• Have the regional differences been identified in the global benchmarks?
• For this solution to work, do the employees have to be robots?
• Have you asked the employees who will be affected by the change for their advice?
• Do you know how your employees will feel after you have implemented this “solution”?
That’s one of the reasons why I always feel good inside when I complete a project. Bain is so different in the way they operate. Solutions must be analytically sound. However, that’s not enough. They need to work in practical terms. Someone from Bain is always thinking about how much value there is in implementing the idea.
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