Avoid Benchmarking Myopia in Organization Design

Benchmarking is the process of seeing how well your organization is doing compared to other organizations in your industry. Leaders can use a variety of parameters including operational processes, systems, structure, quality, etc. to gauge their organizations’ successes and identify areas needing improvement. Benchmarking is also used to develop a standardized set of metrics, establish a culture of ongoing improvement, set performance expectations, and manage change.

As our team engages with companies across the world, we often get asked about our views on benchmarking as it pertains to organization design. And we give our default consultant answer: It depends. When benchmarking is used at the right time and place in organization design, it is a very powerful and informative tool. However, some companies become so reliant on believing all solutions can be discovered in benchmarking that they end up disconnected from true strategic thinking, which prevents them from designing their organization in a way that enhances its differentiating capabilities to deliver the optimum results.

Imagine you are assigned to write a creative story in English class about a given topic. But before you begin the brainstorming process, the teacher shares their favorite ten stories from the previous semester. How would that impact your ability to come up with something completely creative on your own without being influenced by the stories the teacher shared? The same principle also applies to organization design if benchmarking is introduced too early in the design process or without discernment.

There are times when conducting strategic organization design that you may be tempted to bring in benchmarking early in the process. It’s natural to think: How is our competitor organized? What key roles do they have at their highest level? How does our competitor manage their global supply chain efforts? The danger in introducing benchmarking too early in the design process is that the focus continues to be on other competitors’ design instead of the organization’s own strategy. That can lead to concentrating only on the superficial aspects of another organization and not being mindful that what is good for one company, may be detrimental to another. It is a market fact that the more an organization resembles its competitors, the quicker competitive convergence emerges, resulting in decreased market share, decreased profits, and so on. At this point the organization is forced to compete on efficiency alone instead of a differentiated product or offering.

There is a time and a place where benchmarking is very important, but when undergoing a strategic organization design, benchmarking too early can cause leaders to unrealistically chase what larger, more complex organizations are doing.  As a simplistic example, if a regionally-based logistics company becomes overly focused on how Amazon manages their logistics, it will hinder the imitating company’s growth because it doesn’t have the infrastructure and economies of scale such as Amazon. It’s not comparing apples to apples.

Another factor to consider is the intrinsic, or soft, capabilities of an organization— culture, leadership skills, company values, company mission, etc.—and how they enhance its design. That is why one of the six elements to always consider in organization design is leadership and culture. (See our book, Mastering the Cube). Leadership and culture are very hard to replicate from one company to another and are factors that contribute significantly to the organization’s ability to execute its operating model. So even if an organization decides to closely replicate a competitor’s design, the results each company bears will be different because of the leadership and culture factors.

The key to successful benchmarking is to use it as a tool, not as a model or blueprint; a sort of checks and balances after the design effort. Here are four effective ways to use benchmarking to enhance and complement organization design.

  1. Identify the needs and organization gaps in your industry, and then develop a unique offering or method to fill those voids.
  2. Increase your understanding of the industry and the competition then strategize where points of differentiation can be found.
  3. Assess operational efficiency qualities in an organization compared to an industry or competitors. Do you have a robust or lean organization compared to your competitors and the industry? How does your supply chain compare to benchmarking results around speed and efficiency? Are you enhancing your product development vertical when another competitor is choosing not to? Are you using external sourcing when a majority of the industry chooses to keep these capabilities in house? Keep in mind; just because a competitor or a preponderance of the industry is doing something a certain way, does not mean that its the best answer. As organization design ideas are compared against benchmarking, a thorough risks-and-benefits analysis should be done in the areas of greatest divergence from the benchmarking baseline to ensure you are asking the right questions and understand the competitive marketplace more deeply.
  4. Create awareness in your organization. Many times when the industry is changing or market and customer trends and interests are pivoting, the organization itself is the last to pivot because it already has processes and systems in place to support the now antiquated, former marketplace. Getting employees and the leadership team on board is challenging, but critical. Benchmarking data is the evidence that pleads the case for change and will help foster and create a deeper understanding and awareness on why an organization needs to pivot.

Using benchmarking judiciously and at the right time during an organizational design will enhance the quality of the final design, bolster the organization’s strategic position, and drive operational efficiencies, ultimately resulting in delivering the company’s desired results.