A contingency perspective on imitation strategies: When is "benchmarking" ineffective?

Abstract

Research Summary Imitation is ubiquitous, yet the comparative efficacy of imitation strategies is poorly understood. A popular imitation strategy, sometimes called benchmarking, "mixes-and-matches" practices common to leading firms. Using computational models, we compare benchmarking with the "copy-the-best" imitation strategy of copying a subset of the best-performing firm's practices. We find that benchmarking is more effective in heterogeneous environments, where practices that are good for firms in one group (e.g., geographic submarket) may be bad for firms in another. Firms using mix-and-match tend to imitate practices of rivals within their group, less likely copying inappropriate practices from other groups. In homogeneous environments, however, the "copy-the-best" strategy is superior because firms are more likely to go beyond their group and copy novel good practices from rivals in other groups. Managerial Summary Mix-and-match imitation, popularly known as benchmarking, is believed to be an effective means of enhancing firm performance. The popular press is replete with how-to books for managers. However, our results suggest that this belief may be wrong under some industry conditions, in particular, where practices that are good for firms in one group (e.g., geographic submarket) are also good for firms in another. The efficacy of benchmarking is likely to be undermined by fads, fashions, and bandwagons that overemphasize practices common to leading firms. Our study highlights the possibility that, under these conditions, imitating common practices is prone to propagate bad practices and widespread practices may not always be good practices.