Benchmarking is comparing one’s business processes and performance metrics to industry bests and best practices from other companies (Wikipedia)
The goal is to measure how well one is doing compared to the industry’s best, to discover why they are the best, and to copy. But in here lies the problem. When you copy a competitors processes, practices, or products, the best you can achieve is to become as good as them – if at all. That does not mean that you should never consider what your competitors do, but instead of aiming to be like them, consider if exploiting their processes and products is the best strategy for you.
David Lazer and Allen Friedman (Harvard University) conducted a simulation to find out how the structure of communication networks influence performance. Communication networks can have different structures. Two extreme communication structures are the linear connected network and the completely connected network. In the first case, individuals are only talking to very few individuals, for example, those sitting on the left and right to them in the office. On the other hand, in a completely connected network, everybody is talking with everybody else.
Comparing these two extreme types of communication structure they state that a completely connected network is only beneficial in the short run. In other words, a communication structure in which everybody talks with everybody is very good if solutions to problems have to be found quickly. In these communication structures, the practices and solutions of the highest performing person (or company) spread very quickly. Other people will then stop looking for a solution, because this rock star person has already (or seemed to have already) found the best possible solution to the problem. What happens is that individuals will exploit this “best” solution. Exploration of solutions will stop. If time is of the essence this is – hopefully – not a reason for concerns. This seemingly best solution might be the best solution, yielding the highest level of performance. But chances are that it only seems to be the best solution. In that case the solution is a ‘local optimal solution’. Through further work a better solution can be found.
How can you go from a local optimal solution to the best solution given your problem? By having the problem solvers not talk with each other, or by not benchmarking. A lack of communication, or a very slow line of communication, hinders individuals to quickly hear about a solution that works great but is not the best. In these network structures, individuals keep on exploring how to solve the problem, potentially creating an even better solution in the long run. Now this goes against often heard advice on generating creative solution. Normally it is considered good to talk with others, exchange ideas, use colleagues and friends as sounding board. Normally it is considered important to get others involved in your decision making process. The trick to combine these two empirical results is straight forward: If you explore different solutions to a problem, discuss your potential solutions with individuals who are not well connected to your connections. Don’t talk about your solutions with your colleague with whom you share an office, but rather ask your old room mate who moved abroad and now works on a farm in Switzerland. Chances are you will be getting a new perspective.
However, bringing in information from a completely different source carries other risks, most notably, how credible is the feedback you received? Gino Cattani (NYU), Simone Ferriani, and Mariachiara Colucci (Universita’ di Bologna) propose the optimal network structuration as a source for creativity.The source of creativity lies in the interaction between core and peripheral members of a network. In a nutshell, members at the core of a collaboration network engage in interaction with members at peripheral positions. The core and peripheral member have key roles to develop a creative solution when adopting this strategy:
Peripheral member: Individuals at the periphery are less well connected, thus ‘best solution’ developed by members of the network takes a long time to reach them. Their peripheral position also means they are exposed to other information (e.g., information widely accepted and used in other networks). This means that because of their position, they could provide creative input in the problem-solving process by introducing new, external information. However, because of their position nobody is taking their input seriously. They are lacking the credibility to spread a solution.
Core member: Individuals at the core are well connected with members of the network. Hence, they are well aware of all the solutions developed by the network. At the same time, solutions developed by them spread easily across the network. However, they are not often exposed to new information. By interacting with peripheral members they can get access to new information. Their core position gives them credibility to spread new solutions.
Next time when you consider to benchmark your business processes , products, or services and aiming to emulate the best company in your industry, consider whether exploitation or exploration is the best strategy. If you decided to further explore solutions, why not interact with start-ups, or companies in different markets or industries?
Check first Facebook, LinkedIn, Twitter, Instagram etc. to see the position of your information source in your network: Will asking that person lead to an exploitation of or will it stimulate exploration?
Cattani, G., Ferriani, S., & Colucci, M. (2012). Creativity, Legitimacy, and Social Structure: A Core-Periphery Perspective. In C. Jones, M. Lazersen, & J. Sapsed (Eds.), The OXford Handbook of the Creative Industries. Oxford: Oxford University Press.
Lazer, D., & Friedman, A. (2007). The Network Structure of Exploration and Exploitation. Administrative Science Quarterly, 52(4), 667–694. http://doi.org/10.2189/asqu.52.4.667