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Are American Companies Benchmarking Their Way to Mediocrity?

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, coauthors of the forthcoming book The Essential Advantage: How to Win with a Capabilities-Driven Strategy, believe that 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, revenue 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. 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 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 seeding 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 speed on activities, such as cutting the cost of invoicing, 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. Copies of such companies just internalizes their strategic weaknesses.

Benchmarking ties up valuable resources. These initiatives generate a huge amount of activity and develops lives of their own inside of companies. A more productive use of those resources would be to develop 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,” says 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.”