Benchmarking is often seen as a smart way to improve performance. The idea sounds sensible: compare your company’s performance against competitors or industry leaders, identify the gaps, and then close them.
Many organisations benchmark everything from costs and productivity to customer satisfaction and employee engagement. For accountants and business leaders, benchmarking appears to provide objective evidence of how well a business is performing.
But there’s a problem.
Benchmarking can be surprisingly misleading. If used uncritically, it can push businesses toward the wrong decisions, the wrong strategies, and sometimes even the wrong behaviours.
Benchmarking Only Shows What Others Are Doing
Benchmarking assumes that competitors are doing things the “right” way. But that’s not always true.
Just because many companies follow a particular practice doesn’t mean it is effective. Entire industries sometimes adopt flawed strategies that only become obvious years later.
For example, before the global financial crisis of 2008, many banks benchmarked their leverage ratios against competitors. If rivals were taking on more risk, there was pressure to do the same to maintain returns.
Instead of acting as a warning signal, benchmarking reinforced risky behaviour across the entire industry.
Sometimes the crowd gets it wrong.
Different Businesses Have Different Strategies
A second problem is that benchmarking often ignores strategic differences.
Two companies in the same industry may pursue completely different strategies. One might focus on premium quality and customer service, while another competes primarily on price.
If the premium business benchmarks its costs against the low-cost competitor, it may conclude that its operations are inefficient. In reality, higher costs may simply reflect a deliberate strategy to provide better service or superior products.
Benchmarking without understanding strategy can therefore lead to damaging conclusions.
You end up trying to be someone else’s business.
The Data May Not Be Comparable
Benchmarking also relies on the assumption that the data being compared is truly comparable.
In practice, it often isn’t.
Companies may measure performance differently, use different accounting policies, or operate under different regulatory conditions. Even subtle differences in definitions can distort comparisons.
For example, one company’s “customer acquisition cost” may include marketing, sales staff salaries and onboarding costs. Another company may only include advertising expenses.
On paper, the first company may appear inefficient even though the numbers are not measuring the same thing.
Benchmarking can therefore create the illusion of precision where none actually exists.
It Encourages Following Rather Than Leading
Benchmarking tends to focus on catching up with competitors rather than innovating beyond them.
If the goal is simply to match industry averages, businesses risk limiting their ambitions.
Many of the world’s most successful companies succeeded precisely because they ignored industry benchmarks.
When Amazon introduced one-click ordering and rapid delivery, it wasn’t benchmarking other retailers. It was redefining customer expectations.
Similarly, when Apple redesigned the smartphone market, it didn’t benchmark competitors’ products, it reimagined the entire user experience.
Benchmarking can therefore anchor thinking in the past rather than encouraging creative innovation.
It Can Drive the Wrong Behaviour
Like many performance measurement tools, benchmarking can influence behaviour, sometimes in unintended ways.
If managers are judged on how their department compares with industry averages, they may prioritise improving the metric rather than improving the business.
For example, if a call centre benchmarks average call time against competitors, employees may rush customers off the phone to keep numbers low. Customer satisfaction may suffer as a result.
This is a classic management problem: when a metric becomes a target, people start managing the metric rather than the underlying performance.
Benchmarking can therefore distort priorities.
A Tool. Not a Strategy
None of this means benchmarking is useless. It can still be a valuable tool for identifying potential improvement areas or spotting unusual performance patterns.
However, benchmarking should be used carefully and thoughtfully.
Managers should always ask:
- Are we comparing truly similar businesses?
- Do the numbers measure the same thing?
- Does the comparison fit our strategy?
- Are we learning from others or simply copying them?
Used well, benchmarking can provide useful insight. Used poorly, it can lead organisations in exactly the wrong direction.
The Real Lesson for Business Students
For business students studying accounting or strategy, benchmarking illustrates an important principle.
Data never speaks for itself.
Numbers only become meaningful when interpreted in context with an understanding of strategy, behaviour and the limitations of measurement.
Benchmarking can provide helpful clues, but it rarely provides the full answer.
In business, the most successful organisations do not simply match the competition.
They change the benchmark entirely.
