Chapter 4

Identifying and evaluating firms strength and weaknesses in the function areas of business
includes;
Management, marketing, finance/accounting, production/operations, research &
development, and management information systems.
Internal audit is described.
Strategic implications of important functional area concept are examined.
The Resource-Based View (RBV) of strategic management is introduced as is the Value Chain
Analysis (VCA) concept.

The Nature of an Internal Audit

All organization have strength and weakness in the functional areas of business. Internal
auditrole is to provide independent assurance that an organization's risk management,
governance andinternalcontrol processes are operating effectively. Internal
strength/weaknesses, coupled with external opportunities/threats and a clear statement of
mission, provide the basis for establishing objectives and strategies.
Objectives and strategies are established with the intention of capitalizing upon the
internal strengths and overcoming weaknesses. An appraisal implies a critical evaluation and
assessment of the existing controls and operations of the business enterprise. The internal
auditor should appraise them on the basis of appropriate criteria.
The internal auditor should work independently. The word independent implies that the
audit work should be free from any sort of restrictions that may have a significant impact on
the scope and effectiveness of the review process and on the reporting of the findings and
conclusions. Therefore, the internal audit work is detached from regular day-to-day
operations of the organization.
Benchmarking is a way of discovering what is the best performance being achieved whether in a particular
company, by a competitor or by an entirely different industry. This information can then be used to identify gaps in an
organizations processes in order to achieve a competitive advantage. Thus it is important for Six Sigma practitioners
to:
Understand fully the purpose and use of benchmarking.

Understand the difference between benchmarking and competitor research.
Gain insight to ensure that benchmarking is in alignment with the companys management objectives.
Although there are many forms of benchmarking, they can be classified into three categories internal, competitive
and strategic.
Internal benchmarking is used when a company already has established and proven best practices and they
simply need to share them. Again, depending on the size of the company, it may be large enough to represent a broad
range of performance (i.e., cycle time for opening new accounts in branches coast to coast). Internal benchmarking
also may be necessary if comparable industries are not readily available.
Competitive benchmarkingis used when a company wants to evaluate its position within its industry. In addition,
competitive benchmarking is used when a company needs to identify industry leadership performance targets.
Strategic benchmarkingis used when identifying and analyzing world-class performance. This form of benchmarking
is used most when a company needs to go outside of its own industry. Six Sigma often uses Hoshin to ensure that all
employees are knowledgeable about the strategic direction for the company. Within a companys Hoshin plan, goals are
established relative to benchmarks set by world-class organizations. Often, these benchmarks are obtained from outside
industries.
StepsInvolved in Benchmarking
It is important that Six Sigma practitioners have a thorough understanding of their own companys guidelines before
undertaking a benchmarking opportunity. The following is a list of the vital few steps involved in benchmarking. These
steps should be tailored based on company policies, resource availability and the project or process one is dealing with:
Understand the companys current process performance gaps.This will help decide what needs benchmarking.
Obtain support and approval from the executive leadership team.That approval and support will assist with
eliminating roadblocks, providing adequate resources and expediting the benchmark-gathering process.
Document benchmarking objectives and scope.This is a necessity for any project.
Document the current process.Without up-to-date knowledge of the current process:

Time and resources can be wasted collecting process documentation and data that already exists.
The project may lack focus, purpose and/or depth.
Benchmarking visits may appear to be random exercises in information-gathering.
The team could select a partner whose performance is actually worse than that of its own organization.
Collected benchmarking data will be difficult to compare apples to apples in terms of process requirements.
Agree on the primary metrics.Benchmarking measurements are used as the basis of many comparisons:
a.To determine the gap between current performance and that of partner organizations.
b. To track progress from the present (with the current process) into the future.
c. To track partners progress toward their goals.
d. To determine superior performance with process improvements.
e. To use a measurement systems analysis (MSA):
i. These comparisons will be valid only if everyone participating in the study measures performance in exactly
the same way every time.
ii. It is important to make sure metrics are being established that potential benchmarking partners are probably
already tracking or that can be easily derived from existing
The metrics should be put in writing.In particular:
a. What is being measured
b. How the units of measure will be classified.
c. What should be included in the measurement.
d. What should not be included.
e. How to make any necessary calculations.
f. Examples of typical measurements.
Agree on what to benchmark.Everyone must be in agreement on what to benchmark prior to any benchmark gathering
initiative in order to:
Understand gaps of low performers.
b. Understand impact to customers, associates and shareholders.
c. Prioritize and select one to three metrics to benchmark.
Develop a data collection plan.
Identify research sources and initiate data gathering.
Design a screening survey to assist with partner selection.Characteristics of the survey are important:
a. Crisp focus on indicators of excellence

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Chapter 4

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Identifying and evaluating firms strength and weaknesses in the function areas of business

Understand fully the purpose and use of benchmarking.

Document benchmarking objectives and scope.This is a necessity for any project.

Document the current process.Without up-to-date knowledge of the current process:

Identify research sources and initiate data gathering.

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