Benchmarking Your Core Competencies?

Benchmarking Your Core Competencies?
By Bernard Marr

In the 1980s companies such as the Xerox Corporation, LL Bean, Texas Instruments, and AT&T were the first who pioneered benchmarking projects. Organizations started collecting data and measures regarding markets, sales, products, production costs, or processes of competitors. Companies then moved on to look for best practice examples outside of their industry; so that maybe FedEx would copy the delivery processes from Pizza Hut – or vice versa, all in the search for best practice.

With an advance in the strategy theory the emphasis has shifted from the ever increasing need to improve efficiency -- driven by the need to respond to market demands, to a richer understanding of an organization's core competencies and key value drivers. In today's transparent and truly global business context, best practice is easily observed and communicated. This means that any competitive advantage or superior performance gained from applying best practice is in fact transient, as it can be realized by all competitors in the same way.

This new view of strategy complements the external view of the firm -- one in which organizations (often viewed as a black box) respond to any changes in the demand, to a better awareness of what the firm is actually good at. This new view is supported by the resource-based theory and the competence-based view of the firm. Its proponents argue that firms can only gain a sustained competitive advantage from increasing those assets, resources, or competencies that are inimitable, not substitutable, tacit in nature, and synergistic. Companies such as 3M or Hewlett Packard have demonstrated the ability to focus on their core competencies to create a diverse range of products for different markets.

Taking this resource-based perspective many people now argues against benchmarking. The question often raised is: Why would firms want to benchmark their core competencies with competitors? Opponents of benchmarking might argue that firstly, it will expose companies to the risk of giving away their competitive advantage. And a second and more substantial claim is that firms can only gain sustained competitive advantage from increasing those resources or competencies that are indeed difficult to imitate, hard to substitute, and synergistic in nature. It therefore may be questionable as to the benefits accrued from benchmarking core competencies. This argument is made even stronger witch comments such as "if core competencies are no longer unique, then organizations lose their right to exist and merge into the crowd, where profits are minimal at the best".

Does this mean benchmarking as no place in today's business context? Not quite, the strategic benchmarking of core competencies has its place, but companies have to be aware of the pitfalls and maybe need to be a bit more careful when trying to benchmark core competencies. In order to execute any benchmarked processes and practices, organizations need to understand them on an operational level. However, the knowledge of existing and successful processes or practices is often embedded in complex realities and inherently difficult to transfer. Often even experts fail to fully understand why some practices do work in the first place and others don't. For this reason any attempt to benchmark core competencies or even best practice needs to be understood in its context. If this is done, practices must be replicated as exactly as possible in order to be successful.

For anything considered essential to deliver a competitive advantage it is the embeddedness and idiosyncrasy which delivers this advantage. It is therefore crucial to recognize this embeddedness, the interaction with other competencies, and the context, in order to understand the core competencies. It is this knowledge of context and embeddedness that makes it difficult to externalize why processes and practices are successful, and even more difficult to transfer from one context to another.

In various research projects carried out by the Centre for Business Performance we were able to prove these dynamic interactions between processes, practices, resources, and context. Unless we use tools and techniques to understand the dynamics of business performance, and understand the limitations this context puts on transferability of knowledge, it is difficult -- if not impossible -- to benchmark.