“The process of comparing one’s business processes and performance metrics to industry bests or best practice from other companies”
Sounds good on paper – and it’s hugely popular, but does it do any good? Mostly it does positive harm.
Viewed from the customer perspective (the source of all your firm’s cash flow and profits), benchmarking makes no sense at all.
First, the concept of ‘industry’ means nothing to your customers. Industries are created by organisations who make similar products and services. Customers will inevitably compare your offering to the ‘next best alternative’ and only the customer knows what that might be. For easyJet it might be Skype, For Volkswagen it might mean a family holiday. What are you benchmarking?
Second, industry ‘best practices’ rarely deliver superior customer value, focusing, as they tend to, on internal costs and efficiency rather than customer benefits.
Finally, as Michael Porter remarked in 1996, “As a result of benchmarking, companies imitate one another in a type of herd behaviour in quest for productivity, quality and speed. Driven by desire to ‘grow’, this creates unnecessary ‘hyper-competition’. Operational effectiveness is necessary, but it is not sufficient to win and it is not strategy.. Competitive strategy is about being different.”
The good news is that it doesn’t have to be this way. If you can’t stop benchmarking – it has become a ritual for many – you can start using the data correctly.
- Stop looking for costs that can be cut and search instead for differences (that the customer values) and invest in these instead.
- As others in the industry unthinkingly match costs and approach commoditisation, look for opportunities to add value that customers are seeking
- Broaden the benchmarking, like ‘open innovation’ into other industries that are competing for your customers.
- Benchmark how well you are performing in your customers’ eyes. That is Real Benchmarking.