Organizations use benchmarking to try to achieve a number of goals. Lots seem to make sense. It seems sensible to find out how you are performing against competitors. You will find out where you are outperforming your competitors and will find where they have the jump on you. A number of companies provide this service and do a great job of collecting and presenting data. The trouble is managers, lacking a coherent strategy, will use benchmarking as their strategy.
This is prevalent in commodity industries where the strategy for many companies is to be the low-cost supplier in their industry. Others, when they see who the top performing companies are, will try to emulate them. In some cases, they will try to poach key managers in the hope that the new talent will transfer the success of the front-runners to the company. The best this strategy will accomplish is to slow down the demise of a company. It won’t turn around a struggling company and it surely won’t propel a company to the top. Why do companies use benchmarking? Mainly because benchmarking:
- Is simple. Benchmarking reports give the impression of companies as being neat, easily quantified players in a game with established rules.
- Feels safe. With the rules laid out, managers believe that they can improve their business by improving on the measures in the report.
- Looks like strategic planning. When people are gathering data, doing analyses and presenting findings, it looks like they are developing a strategy. If it walks like a duck and quacks like a duck….
Here’s the problem. Benchmarking can shed some light on how you measured up against your competition in the past, but it can’t guide you to success. Some reasons are:
- Business isn’t as simple as benchmarking implies. Companies constantly change and are improving all the time. By the time you match the best in class, they have already passed that point.
- Benchmarking strategy assumes that improving the parts will improve the whole. This is almost never the case.
- Benchmarking concentrates on easy to measure variables. Most of the time, that means cost. Just like cost accounting, it gets managers to concentrate on the least important variable for success: expenses.
- Benchmarking strategy really means trying to copy the best. If you can copy the best, what’s to say that your competitors couldn’t copy you? Any competitive advantages will dry up almost as quickly as they appear.
- Benchmarking can allow managers not smart or brave enough to implement bold new directions to buy time. This hurts the company in two ways: it delays real progress and muddies the situation.
- Benchmarking distracts from the important strategic issues. Things like finding new markets and building products or services to meet them. Also, finding out how increase throughput through assets. How about unlocking the potential of employees through pay and retention systems.
- If you outsource benchmarking and use it as your strategy, you are essentially outsourcing your strategy. This is the kiss of death for any business.
I could go on and on about the evils of benchmarking as strategy, but Tom Peters sums it up quite nicely in this youtube clip.
Finally, I’m not saying that benchmarking is bad. It can be useful if you are comparing companies you wish to buy and not manage. Just don’t let it be your basis for strategy.