SOURCE: Booz & Company

Booz & Company

September 21, 2010 09:24 ET

Are American Companies Benchmarking Their Way to Mediocrity?

Experts at Booz & Company Argue That Much Benchmarking Activity Is Destructive to Strategic Focus and Competitive Advantage

Companies Obsessed With Benchmarking Focus Too Much on Doing What Competitors Are Doing, Not Enough on Their Own Distinct Capabilities

NEW YORK, NY--(Marketwire - September 21, 2010) - Benchmarking features high on the priority list of many corporate decision makers. But experts at Booz & Company argue that benchmarking is often misused, and is actually quite destructive to many 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, are available to elaborate on why they believe many current approaches to corporate benchmarking are flawed and destructive, including...

  • Benchmarking is often evidence of the absence of strategy. It establishes targets for spending, revenues, investment, and other decisions, but mostly without context. There is no strategic objective guiding the company's leadership, only a herd mentality that industry or functional norms are worth mimicking.

  • 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 -- i.e., there should be no competitor that does what you do, as well as you do it. 

  • Benchmarking can discourage differentiation. Most companies struggle to find a differentiated way to add value in the market -- and very few achieve it. Benchmarking 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. A more productive use of those resources would be developing a differentiated strategy that makes a company less like its competitors, and more able to create unique value in the marketplace, based largely on its own capabilities. 

"Of course, benchmarking can be very helpful with table stakes factors, like the cost of a process. But 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." 

"If only these companies had a strategy, if only they made choices based on their own priorities and differentiating capabilities, they wouldn't have to rely on benchmarking studies," said Leinwand. He added, "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."

About the experts
Paul Leinwand (paul.leinwand@booz.com) is a partner in Booz & Company's global consumer, media, and retail practice. Based in Chicago, he serves as chair of the firm's Marketing Advisory Council. He supports clients undertaking significant strategic opportunities and building capabilities systems in marketing, innovation, and customer management.

Cesare R. Mainardi (cesare.mainardi@booz.com) is managing director of Booz & Company's North American business and is a member of the firm's Executive Committee. Based in Cleveland, he works with Fortune Global 500 companies to help them achieve major business transformations. He has served as global leader of Booz & Company's functional practices and has led the firm's global consumer products and health practices.

About Booz & Company
Booz & Company is a leading global management consulting firm, helping the world's top businesses, governments, and organizations.

Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914.

Today, with more than 3,300 people in 61 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage.

For our management magazine strategy+business, visit www.strategy-business.com.

Visit www.booz.com to learn more about Booz & Company.

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