Are you benchmarking yourself into oblivion?
When you are revising your strategy or launching a new product, it pays to benchmark – right? Surely following proved best practices will help you to gain superior results?
True enough, clever and creative benchmarking can be a powerful strategic tool. But too often we see benchmarking exercises that are executed mechanically – or worse still, considered as snake oil to all strategic ailments. So, before you start your next benchmarking project, check out these best practices for savvier benchmarking (pardon the pun).
Second best, at best
The first drawback of benchmarking is that it is very effective in capping your innovation potential. The entire set-up in which you compare yourself to others and try to imitate their strengths is a recipe for catching up, not for taking the lead.
And since your role model has the benefit of time, it is very likely that they have moved on by the time that you have managed to replicate their best practices.
So, if you benchmark, accept that it is a catching-up exercise and that something more is needed to win the game.
Avoid industry group-think
Even though the methodology of benchmarking is not limited to studying the leading organisations in your own industry (in fact, the opposite is often promoted in textbooks) many companies opt to compare themselves to almost identical players: same industry, comparable size, same geographical area.
The good news is that the best practices from such “look-alike” companies are usually relatively easy to implement. The flip side, however, is that this is a very effective way of cementing old beliefs and ways of working.
Almost all game-changing innovations come from outside the industry boundaries or from start-ups. Virgin prides itself with disrupting any industry that is not paying enough attention to the customer experience. Über and Airbnb didn’t emerge from the traditional taxi or hospitality companies – and too few incumbents bothered to benchmark them before it was too late.
So, if you benchmark, consider benchmarking other industries – and then invest the time and brain power to figure out what these findings mean to your sector.
Focus on the forest – not the trees
Finally, benchmarking focuses too often on individual best practices or processes: who has the most efficient supply chain, who has the coolest brand and who aces social media.
However, successful business models are more than sums of their parts – what matters is how these parts come together.
For example, Zara and H&M are both global fashion retailers, both widely successful. However, the business models of these two companies couldn’t be more different.
Zara, with roots in manufacturing, operates a vertically integrated model, owning virtually every step of their value chain from design and manufacturing to logistics and retail outlets.
H&M, on the other hand, is true to its retail heritage and operates a disintegrated model, outsourcing almost everything except the management of their brand and the customer interface.
So, if you benchmark, understand that you cannot cherry-pick best practices from business models that are fundamentally different from yours.
Instead, focus your efforts in understanding how these world-class companies create and manage business models in which everything fits together seamlessly.
Column in New Zealand Management