Why Benchmarking is Unproductive

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It is a common practice for a company to compare its performance with the industry’s performance. It sounds logical in that a company can find out where it stands. A big gap could imply significant improvement opportunities.

It is unproductive to look at benchmark results because there are simply way too many idiosyncrasies around how the benchmark results are compiled. Here are a few:

  • Variation in the types of companies included and their business operations, e.g., the cost structures could be very different for a company that does everything in-house vs. another company that outsources many functions
  • Differences in what is actually accounted for in the data
  • Differences in the portfolio of product and service offerings

The list can go on and on. Compiling benchmark data is an averaging exercise. In order to do a proper comparison, you need to do a lot of work to normalize the data, making adjustments to accommodate the known differences. The time spent is unproductive. If you must look at benchmark data, use them as a crude reference only.

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