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Sunday, March 1, 2009

While we are at it: What's Wrong with Benchmarking Competitors?

In recent conversations with CFO's the topic of benchmarking comes up. Of course the conventional wisdom is that this is a good idea. I've never (almost) done it and here is why.

First, who are your going to benchmark? If you are an airline, do you benchmark other airlines? That would be the straightforward answer. But what does this tell you? That your labor cost per flight mile is x v. y? What is actionable about that report? 9/10 it is not telling you something you didn't already know. Does the competing airline have the same strategy? If you are the premium service, global airline, would you compare yourself to the low cost, new entrant carrier?

All of this is generally beside the point, because your competitors are not other airlines. Perhaps it is other means of transportation (driving, trains, bus, etc). More interestingly, it is either someone completely not on your radar (Skype - free web-based video conferencing) or 'good enough'. "Good Enough" always seems to be competitor No. 1, but I've never seen that entity on a benchmarking report.

For an excellent analysis of your competitive dimensions, read and digest Clayton Christensen's "Innovator's Solution". Thinking through the Functionality, Reliability, Convenience and Price dimensions will change how you view your business. Understanding who may be a disruptor to you -- and to whom you may be a disruptor -- is an invaluable perspective. And makes benchmarking conventional competitors seem a little quaint.

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