Benchmarking is an important tool for companies seeking to align themselves with their competitors and avoid falling behind the pack when it comes to industry best practice and market positioning.
However, it is the diffusion of best practice by emulation and benchmarking that also leads to market homogenisation and the erosion of competitive advantage over the longer term.
In performing similar activities and adopting the same techniques as their ‘best in class’ rivals, companies cluster together in a similar market space, competing for a smaller segment of customers and resources1.
For a market or industry leader to maintain a sustainable competitive advantage, it must combine a strategy of differentiation with continuous improvements in operational efficiency. Due to the inevitable diffusion of best practice down the market, operational advantage is not sustainable2.
The advisors, consultancies and outsourcing firms, perpetuate market homogenisation by advising on the latest techniques, improvements and generic practices which lead to greater “operational effectiveness” and profitability in the short term but ultimately, result in a loss of margin and market positioning in the longer term.
So a key question is can we, as Turnaround professionals, help clients to improve their operational efficiency, productivity and earnings in the short term whilst also helping them to develop or maintain a strategy that leads to competitive advantage?
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Thanks to Chris Pay for this post.
Notes and further reading:
1. Nattermann, P. (May 2000) “Best practice does not equal best strategy”. Mckinsey Quarterly.
2. Porter, M. (November 1996) “What is Strategy?”. Harvard Business Review, Volume 4, Number 6, p.61-78.
