Why Competitive Benchmarking Stifles Innovation

In case you haven’t seen it; the protagonists in the Wizard of Oz undertook their epic odyssey in search of something they each thought was missing inside of them: a brain, a heart, courage, and a way home.

Poignant, eh?

Trouble is, the Wizard (having previously promised to deliver on their wishes) ultimately proved incapable of keeping his word. For when Toto pulled back the curtain, he was no wizard at all, but an ordinary old man of little value to the group. Unless you consider top-shelf metaphors to be in any way valuable.

In much the same way, competitor benchmarking will invariably lead to an ordinary old company of little value — the knowledge of which will almost certainly not result in any breakthrough improvements.

The problem with benchmarking

The modern practice of corporate benchmarking is thought to have begun around 1976, when Xerox noticed that Japanese copier companies were beating them badly in the marketplace by offering a better quality service at much lower prices. This realization spurred them to deeply study just how their competitors were doing it. They expanded and codified their research practices; quite literally writing the book on benchmarking in the process.

The photocopying and printing business, however, ultimately proved fruitless for Xerox.

Meanwhile, the practice of benchmarking took flight in the late eighties and early nineties, aided and abetted by the TQM movement and the likes of the Baldrige Quality Award; which under the guise of excellence actually promoted the idea of everybody pretty much doing the same tired, unimaginative things.

Uncovering the myth of best practice

At its core, benchmarking contained one particularly fatal flaw: the deadly notion of “best practice.” In their book Uncommon Sense, Common Nonsense: Why Some Organisations Consistently Outperform Others, Jules Goddard and Tony Eccles delineated the issue in the starkest of terms:

“The toxic nature of best practice derives from the fact that every competitor in the same market will define “best practice” in startlingly similar terms. So, to the extent that they all track it and chase it, they will effectively commoditise their business and thereby forfeit the opportunity to earn economic profit. The concept of best practice is perhaps the single most value-destructive idea to have come out of the business schools and management consultancies over the past 20 years. All they have achieved is to urge the laggards to catch up with the herd.”

The bottom line is this: a focus on best practice, and especially industry best practice, is inherently limiting.

What if a best practice is objectively mediocre and is only best practice because what everyone else does is even worse? And if all competitors adopt a given practice, it levels the playing field to the extent that competitive advantage is no longer a factor. Best practice is as corrosive to innovation as the bucket of water to the Wicked Witch of the West. An industry in that condition is ripe for disruption from an entrant not bound by any frivolous best practice.

How to find your competitive advantage

Instead of aping competitors, the Yellow Brick Road to economic success and sustainable competitive advantage lies in turning to one’s customers or clients and taking your cues directly from them.

Meeting and exceeding customer expectations is the route to prosperity. Understanding your performance in light of those expectations is more effective in driving actionable improvements than competitor comparisons. The first step on that journey is to discover what those expectations are objectively and comprehensively.

If you wish to discover how Promising Outcomes can help you achieve the same kind of results, contact us for more information.

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