Booz & Company is no fan of benchmarking, and two executives argue that it is actually destructive to companies that use it.
Booz & Company Partner Paul Leinwand and Managing Director Cesare Mainardi, co-authors of the recent Harvard Business Review article "The Coherence Premium," and the forthcoming book The Essential Advantage: How to Win with a Capabilities-Driven Strategy, say companies focus too much on doing what competitors are doing and not enough on their own unique and distinct capabilities.
"Too many companies use benchmarking as a crutch and rely on it as a competitive guide and a stand-in for real strategy," said Mainardi. "The way benchmarking is practiced at most companies provides no insight into what they need to do to actually break away from the pack."
Leinwand adds: "Successful companies don't worry about benchmarking themselves against competitors. They don't need to because they have invested their time figuring out what makes them better than the rest."
Booz & Company's major finding include:
• Benchmarking is often evidence of the absence of strategy. It establishes targets for spending, revenues, investment, and other decisions, but mostly without context.
• Benchmarking distorts the true nature of competitive advantage. Leading companies have a well-developed, differentiated approach to the market and will have no true peers to benchmark against.
• Benchmarking can discourage differentiation. Most companies struggle to find a differentiated way to add value in the market—and very few achieve it. It encourages companies to build capabilities similar to those of the competition, reducing the chance that they will actually distinguish themselves by setting new standards with new ideas, added value and a unique market position.
• Benchmarking can encourage complacency. While benchmarking can prompt companies to get up to snuff on activities—cutting the cost of invoicing, for example —it can encourage complacency among those on the far right side of the bell curve.
• Benchmarking copies bad examples. Many companies are not very good at strategy development. Copying such companies just internalizes their strategic weaknesses.
• Benchmarking ties up valuable resources. These initiatives generate a huge amount of activity and develop lives of their own inside of companies.
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