Source: EURLEX
Language: en
Format: md

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 16.04.1997
COM(97) 153 final

COMMUNICATION FROM THE COMMISSION

TO THE COUNCIL, THE EUROPEAN PARLIAMENI

THE ECONOMIC AND SOCIAL COMMITTEE

AND THE COMMITTEE OF THE REGIONS

## **BENCHMARKING**

**IMPLEMENTATION OF AN INSTRUMENT**

**AVAILABLE TO**

**ECONOMIC ACTORS AND** **PUBLIC AUTHORITIES**

### **Table of Contents**

**1.** **BENCHMARKING: AN INSTRUMENT TO PROMOTE CHANGE AND CONTINUOUS**

**IMPROVEMENT OF** **EUROPE'S** **COMPETITIVE PERFORMANCE** **2**

**2.** **THREE LEVELS OF BENCHMARKING** **4**

3. A COMMUNITY **FRAMEWORK** 7

**ANNEXE ELIGIBLE THEMES FOR PILOT PROJECTS ON BENCHMARKING** **9**

**1.** **BENCHMARKING: AN INSTRUMENT TO PROMOTE CHANGE AND**

**CONTINUOUS** **IMPROVEMENT** **OF EUROPE'S** **COMPETITIVE PER-**

**FORMANCE**

Internal market integration within the Community, the perspective of Economic and
Monetary Union as well as globalisation present European industry with the challenge to continuously improve its competitiveness.

**In its Communication on** _**"Benchmarking the competitiveness**_ _**of**_ _**European**_ _**industry"**_
COM (96) 463 of 9 October 1996, the Commission identified certain deficiencies in
the performance of the European economy, in particular low growth of total factor
productivity, insufficient adaptation of economic structures towards new markets and
new technologies and massive underutilization of the population of working age;

These handicaps for the European economy are particularly difficult to bear because
of the ever faster rate of change in the world economy, under the combined impulse
of globalisation and the introduction of new technologies, in particular information
and communication technologies.

In order to reply to this challenge and restore rapid growth in employment and productivity, Europe needs to address systematically and with determination factors
which limit its growth potential.

The Commission proposed in order to assist this process to use **benchmarking** in
the economy and society to compare performance in the different key areas and factors that determine economic success, including, in addition to the initiatives outlined
below, the development and use of benchmarking in support of the European employment strategy.

**-2**

**A request from industry**

On several occasions, industry has proposed that the Commission and Member
States use benchmarking as an instrument to optimise policies affecting competitive
ness.

The Competitiveness Advisory Group recommended extensive recourse to benchmarking of framework conditions, in particular those relating to public infrastructure,
the labour market and internationalisation of the European economy.

In its report on _"Benchmarking_ _for policy-makers_ - _Tne way to_ _competitiveness,_
_growth_ _and_ _job creation"_ (October 1996). the Round Table of European Industrialists (ERT) drew the Council and Commission's attention to the potential contribution of benchmarking for pursuing growth and emp!o}'ment. The ERT invited more
particularly public authorities to examine priorities for, the objectivss and methods of
benchmarking, as well as the means of transposing results into their policies.

An invitation **from he Council**

In its conclusions on benchmarking (14 November 1996), the Council of Ministers
invited the Commission to present proposals on developing use cf this instrument as
a means for improving the competitiveness of European industry. The European
Council at its meeting in Dublin on 13 and 14 December, 1996 also considered that
_e_ _there should be regular monitoring and evaluation of the_ _Union's_ _competitiveness_
_against_ _world_ _best practice'*._

An instrument for competitiveness

As noted in the Commission's Communication to the Dublin European Council on
the mutually beneficial effects of greater co-ordination of economic and structural
policies (Europe as an economic entity) CSE(96)8 final. "Competitiveness in the EU
and the competitiveness of different regions, sectors, companies or even individuals
can only be increased on a lasting basis by raising the productivity of companies and
the people who work in them. Competition is not between countries but between
companies - within and across borders." Benchmarking is an important tool in
working towards these improvements in competitiveness, and is based on two elements:"

- the comparison of societal behaviour, commercial practice, market structures and
public institutions across countries, regions, sectors and enterprises in order to
identify best practice;

- applying reference to best practice as an instrument to identify changes required
and to mobilise all actors of the economy and society to evolve in this direction.

The Erst step requires that all the actors concerned accept to question existing practices. Benchmarking can succeed only if exposes weaknesses and inefficiencies. This
is why the process can provoke resistance and increase opposition to change initially.
Its benefits can nevertheless be substantial: better services for the individual and for
enterprises, less costs, more user friendly administration, better economic performance, more work, improved health and safety, and wealth creation. It can also con

tribute to economic convergence within the Union by closing gaps in productivity
and reducing economic inequality.

The comparison of commercial practices and of market structures requires the development of reference indicators. To be supportive of the competitiveness of European
industry, this exercise cannot be associated with anti-competitive practices such as
exchanging between companies specific information on their prices, quantities produced, quantities sold, market shares, capacities and investments. Any exercise of
benchmarking leading to the production of statistical reference indicators must be
managed so that the companies do not have access to the individual data concerning
the activity of their competitors.

The second step requires a commitment to undertake the changes required from all
the actors involved. This implies not only that they be willing to adopt best practice
but that the unceasing search for best practice becomes a permanent characteristic of
the decision making process for enterprises, institutions and public administrations.

2. THREE LEVELS OF BENCHMARKING

Benchmarking can be implemented by enterprises, at the level of sectors and that of
framework conditions for economy and society. Whichever the level of implementation, this tool serves the competitiveness of European industry. It serves to improve
the competitive performance of enterprises, of industrial sectors as well as that of the
environment in which people work, enterprises operate and society functions.

at enterprise level

Benchmarking at enterprise level is mainly a "quality" tool for continuous improvement of industrial processes and management. For those enterprises that have integrated quality as a determining element for strengthening competitiveness, it is an
element of global strategy. It is identified as such in the framework of the European
Quality Policy.

Establish the processes to be analysed, identify world-wide best practice for these
processes, evaluate the gap in performance compared with this and understand _tho_
reasons behind the gap are the steps which should lead the enterprise in question to
perform better, improve competitiveness and thereby surpass the competition.

Benchmarking at enterprise level is above all the responsibility of industry itself.
Public authorities can usefully contribute to its promotion amongst a wide audience,
in particular to small and medium sized enterprises which do not have the resources
or the necessary experience to do it alone. The Commission proposes to examine
with all the parties concerned the possibility of creating a European network for enterprise benchmarking. Such a network should ensure that coherent, trustworthy and
equivalent services are available, in particular for SMEs, throughout the Union. To
this effect, two initiatives are in the process of being sponsored by the Commission
(see the following box).

**-4**

Examples of enterprise benchmarking

The Commission sponsors two initiatives in this area:

- a pilot project from Forbairt (Ireland) to identify experience, services and methodologies developed at the current time in Europe, and to prepare an action plan
for the creation of a European Network of enterprise benchmarking;

- a project from Eurochambres to use the existing network of European Chambers
of Commerce and Industry to promote awareness programmes about quality to
SMEs v to encourage them to apply benchmarking through pilot projects and to
improve the conditions for SMEs access to the European network mentioned
above.

The UK Department of Trade and Industry (DTI) sponsors a national benchmarking
system which provides for the exchange of statistical information and the identification of best practice on a national level.

- this system was built on an initiative of the London Business School which created a panel of industrial enterprises, including many small and medium sized
ones, and developed a benchmarking model with them for key aspects linked to
business management and organisation;

- after demonstrating its value and faced with increasing interest from participants,
including enterprises from overseas, the experiment received the backing of the
Confederation of British Industries;

- the DTI then decided to approve and support the experiment through public
statements and through the creation of a national network of outlets where enterprises could access the panel. With the increase in the size of the panel, its representativity as a reference tool also increased.

Some Member States and private bodies have also launched programmes for the
diffusion of best environmental practice (for mstsnce the UK Environmental Technology Best Practice programme).

at sectoral _level_

Sectoral benchmarking concentrates on specific factors for the sector concerned: in
this way certain environmental regulations affect almost exclusively certain sectors
(automobile emissions, dangerous substances, etc.).

Examples of sectoral benchmarking

Pilot programmes - managed jointly by the Commission and MITI - for consumer
electronics and automobile parts and component suppliers are intended to improve
the competitive performance of European industry compared with Japanese best
practice.

Other initiatives are being launched by the chemicals and automobile industries.!
Benchmarking the European chemicals industry comprises the permanent review of
improvements made to competitiveness, a comparison of the European competitive j

**- 5 -**

situation against world-wide best practice and the implementation of actions to help
convergence towards this best practice.

A joint Commission/industry working group was created in July 1996 to undertake
this benchmarking. The working group decided to concentrate at first on the chemicals industry as a whole and subsequently on the different sectors of which it is made
up, for example petrochemicals.

Although this benchmarking does not concern enterprises directly, a distinction can
be made according to enterprise size. In this way, specific problems posed for large
firms or SMEs can be examined separately.

In the same way, although benchmarking of Community policies is not the objective
of the exercise in itself, operational proposals concerning framework conditions can
still be formulated.

The working group is evaluating a limited number of indicators relating to the factors
of competitiveness the most pertinent for the chemicals industry. Preference has been
given to those indicators for which comparable data exists. Collection of data is difficult because of statistical confidentiality, differing definitions of various parameters
and lack of data on third countries.

The Netherlands also undertook to evaluate the competitiveness of the European
information and communications technology industry by benchmarking its principal
competitors.

at the level of framework conditions

Benchmarking framework conditions - in particular factor costs, infrastructures,
skills, innovation, the environment - enables the efficiency of public policies which
affect competitiveness to be evaluated and to identify the steps required to improve
them. Its main object should be the evaluation of those framework conditions which
directly affect the competitiveness of European industry.

Benchmarking framework conditions relies on a full evaluation of industry's competitive situation and a diagnostic of the principal areas to be examined. In a second
stage, it becomes the tool to address the areas of weakness identified.

If macro-economic indicators which enable the tracking of the development of competitiveness of the economy as a whole are readily available, the same does not go
for more detailed indicators on framework conditions which affect competitiveness.
Methodological difficulties and the lack of accurate and comparable statistical indicators are prevalent for certain indicators which relate to areas that either have a direct
quantifiable impact on competitiveness or that have an effect on the long term.

To benchmark framework conditions is a very complex exercise because it can be
difficult to isolate the effect of a specific policy from the effect of other policies. To
implement it with success, a number of principles can be applied such as:

 - benchmark the outcomes and the inputs (for example the share in sales of products introduced over the previous three years and expenditure on R&D);

**- 6 -**

**benchmark the causes not the symptoms (for example the situation in the labour**
**market not the rate of unemployment);**

**benchmark the process as well as the performance (for example the capacity of** **a**
**training system to deliver skills as well as the level of skills attained).**

**Examples of benchmarking framework conditions**

**The Commission has undertaken to inventory Member States' experience with**
**benchmarking** **framework** **conditions.** **It has also launched a benchmarking exercise**
**with the Member States in the** **framework** **of the Employment and Labour Market**
**Committee**

**The Dutch Ministry of Economic Affairs recently published a report on**
_**"Benchmarking**_ _**the**_ _**Netherlands:**_ _**Test of Dutch**_ _**competitiveness",**_ **which examined**
**different approaches tc benchmarking framework conditions. The analysis covered**
**such areas as labour, capital, taxation, education and infrastructure. The results**
**identified strengths of** **the** **Dutch economy, but also handicaps which prevented it to**
**exploit its full potential. On this basis, the Dutch government has undertaken reforms**
**to correct these handicaps. These corrections will be continued in** **1997** **on the basis**
**of** **an** **update of the benchmarking exercise.**

**j** **The** **OECD Industry Committee has set up a working group to develop criteria for**
**benchmarking** **framework** **conditions. It has identified eight significant parameters for**
**I** **industrial competitiveness covering: R&D infrastructure, education and labour force,**
**j** **corporate** **governance, labour market** **regulation,** **labour costs, corporate taxation,**
**(** **energy costs, telecommunications costs and infrastructures.**

**3.** **A** **COMMUNITY** **FRAMEWORK**

**If** **the** **initiative on benchmarking lies with all the actors of economic life, the value**
**added of the Community dimension is to ensure access to expertise with the capacity**
**to develop and apply the most sophisticated** **methodologies,** **to make use of experi-**
**ence and to pool knowledge held by the different national systems, whilst still playing**
**a stimulating rôle with regard to Member States.**

**It is what the Commission intends to do in the field of framework conditions'**
**benchmarking by the implementation of pilot projects.**

**These pilot projects should permit a limited number of Member States to try out** **co-**
**operation on specific areas which are of** **common** **interest tot he Community and to**
**put in place mechanisms for co-operation and transparency along with the networks**
**of know-how which will be required for future actions:**

**-**
**each Member State may not be equally interested in a benchmarking exercise.**
**However, this should not be detrimental either to those Member States** **who** **are**
**interested in such an exercise or to the efficiency of** **the** **business environment for**
**European enterprises as a whole. This implies that the expertise and capacity for**
**dialogue at Community level are made available to all those that are willing to un-**
**dertake such an exercise;**

**-7**

- in the same way, each Member State does not necessarily have sufficient capacity
for the requisite analysis and research to execute benchmarking in a way that it
provides the appropriate elements of comparison and their interpretation to guide
the necessary political choices to improve framework conditions for enterprises.

The Commission will implement a number of pilot projects, selected in particular
among the themes in annexe, where possible with a financial contribution within the
limits of current budgetary resources. This implementation will be conducted in such
a way that a working procedure is developed ensuring transparency, dialogue and
expertise. Other benchmarking exercises could then be undertaken on the basis of
this procedure, in particular in the fields of the weight of regulation on SMEs, protection of intellectual property and innovation. ;

- to the extent that this action is intended to improve the competitive performance
of the economic environment, all actors should be allowed to participate in setting
out the guidelines and priorities for benchmarking. For this reason, the Commission will put in place a **High Level Group on Benchmarking** composed of industrialists, representatives of Chambers of Commerce, trade unions, consumers
and the civil society. The Commission will ensure that the composition of this
group will reflect the different aspects of society, and in particular small and medium sized enterprises, which suffer the most from rigidities in the regulatory
framework. This group will help the Commission to fix priorities for benchmarking, organise the participation of industry in its implementation, cooperate with
the Commission for the interpretation of results with a Community-wide impact
and transmit to industry those results which are its responsibility;

- **Directors General for Industry** will follow all work and ensure coherence in the
political approach taken. They will establish case by case the degree to which
Member States participate in the individual projects identified by the High Level
Group. They will also assist the Commission in exploiting the results obtained
from the different benchmarking exercises;

- finally, on the basis of the inventory of experience of benchmarking in Member
States, the Commission will invite those public and private research institutes with
expertise in this field to form a **network of expertise** in order to assist the implementation of benchmarking. Respecting the rules on public procurement, this
network will be invited to undertake benchmarking on the basis of terms of reference drawn up by the participants in and co-financiers of a project. As the implementation of pilot projects progresses, this network of expertise will be strengthened by establishing its visibility, credibility and therefore its autonomy.

Results will be communicated to all Member States, Community institutions and
other interested parties. They will provide input to regular discussions on industrial
competitiveness. In these debates, the Commission will make known its own position
and the lessons that it will draw for itself from these results.

This working method should also allow continuity of the action. Experience will
show whether continuity of the action can be based on annual budgeting or whether
a pluri-annual programme is required.

**ANNEXE**

**ELIGIBLE THEMES FOR PILOT PROJECTS ON BENCHMARKING**

**New technological and organisational paradigm**

**The new technological and organisational paradigm driven by globalisation and the**
**introduction of new technologies poses a number of challenges for European indus-**
**try. In this context, benchmarking will cover mainly the diffusion and use of new in-**
**formation and communication technologies by enterprises. This exercise will be**
**based either on existing data or on that of a new sample** **sun/ey** **of enterprises.**

**Financing of** **innovation,** **in** **particular** **that of** **tnteUecfiscti** **property**

**Financing of innovation is of critical importance because it enables the results of**
**R.&D** **to be translated into goods and services. Benchmarking in this area** **will** **be un-**
**dertaken in close co-operation with** **indusiry** **and other economic actors. To begin**
**with,** **benchmarking should be based** **on** **a few major indicators such as access to risk**
**capital, its cost, quality, the cost of** **filing** **patents etc..**

**Logistics and transport**

**Bearing in mind the rôle of the European Union in world trade and the peripheral**
**situation of certain Member States, logistics, which concerns the management of**
**flows of** **raw** **materials, information and products between suppliers and clients, rep-**
**resents an essential factor for European competitiveness. The vast nature of** **this** **area**
**means that it is be difficult to adopt a focused approach, which instead should be de-**
**veloped step by step.**

**Development of human resources**

**In the area of vocational training, benchmarking of qualifications can contribute to**
**the analysis of training systems and thereby improve training policy and business**
**management. The pilot project will permit the evaluation of the approach adopted by**
**certain systems of vocational training in industry, including both implementation of**
**training in the enterprise and the forecasting of needs in the light of economic and**
**technological change . The pilot project will concentrate on vocational training in**
**SMES.**

**• 9 -**

##### ISSN 0254-1475

### COM(97) 153 final

# DOCUMENTS

#### EN 15 Catalogue number : CB-CO-97-158-EN-C ISBN 92-78-18715-1

Office for Official Publications of the European Communities

L-2985 Luxembourg

#### **_10_**