Best practice. It may be the most readily recognized and widely used of all business management tools. And why shouldn’t it be? To executives, modeling a company’s performance on its best-in-class competitor is an ambitious but attainable aspiration. To investors, the strategy is a guarantee of the soundness of any company that embraces it. And to consultants, it is the tide that lifts every client’s boat.
So why is it killing your margins? Everyone who follows business has seen the fat margins of growing young companies attract scores of new entrants, which eventually crowd the field and drive those very margins down. Why would top executives convert this regrettable fact of business life into a creed, especially when doing so simply hastens the endgame for everyone—first mover and Johnny-come-lately alike?
Margins tumble as more and more incumbent companies compete for smaller and smaller segments of customers and industry resources
They act as they do because they don’t understand that benchmarking is simply an operational tool. Instead, they all want to occupy the point on the strategic landscape that their most successful competitor has staked out.1 Soon other competitors can be seen herding, lemminglike, around that best-practice company’s product,...