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David Strang is professor of sociology at Cornell University.

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"The best book I have read on benchmarking. A penetrating account of why firms benchmark, how they construct reference groups, and how they learn and unlearn from examples."--Hayagreeva Rao, Stanford University Graduate School of Business and author ofMarket Rebels

"Learning by Example provides a nuanced view of the individual, social, organizational, and institutional roots of innovation diffusion and organizational change. This book will have impact. It belongs on the scholar's desk as well in the practitioner's office."--Michael Tushman, Harvard Business School

"There is now a huge literature on the spread of management techniques across organizations. However, there is an extreme paucity of work that examines exactly what happens in firms when they adopt such innovations. Qualitative in its approach, this important and original book breathes fresh air in an area that is often too dominated by quantitative studies of the phenomenon."--Eric Abrahamson, Columbia University

"Learning by Example tells the fascinating story of the benchmarking initiative at one of the world's largest banks. The author's access to bank employees and bank records is unparalleled. Based on rigorous research, the book shows that status and the experiences of current workers in other firms shape what programs get copied. This study will revolutionize thinking about organizational learning and innovation."--Frank Dobbin, Harvard University

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"The best book I have read on benchmarking. A penetrating account of why firms benchmark, how they construct reference groups, and how they learn and unlearn from examples."--Hayagreeva Rao, Stanford University Graduate School of Business and author ofMarket Rebels

"Learning by Example provides a nuanced view of the individual, social, organizational, and institutional roots of innovation diffusion and organizational change. This book will have impact. It belongs on the scholar's desk as well in the practitioner's office."--Michael Tushman, Harvard Business School

"There is now a huge literature on the spread of management techniques across organizations. However, there is an extreme paucity of work that examines exactly what happens in firms when they adopt such innovations. Qualitative in its approach, this important and original book breathes fresh air in an area that is often too dominated by quantitative studies of the phenomenon."--Eric Abrahamson, Columbia University

"Learning by Example tells the fascinating story of the benchmarking initiative at one of the world's largest banks. The author's access to bank employees and bank records is unparalleled. Based on rigorous research, the book shows that status and the experiences of current workers in other firms shape what programs get copied. This study will revolutionize thinking about organizational learning and innovation."--Frank Dobbin, Harvard University

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Learning by Example

PRINCETON UNIVERSITY PRESS

Contents

Preface................................................................................ixIntroduction...........................................................................1Section One: Setting the Scene: Benchmarking and a Bank................................25Chapter 1 Benchmarking as a Management Technique......................................27Chapter 2 Global Financial and Team Challenge.........................................55Section Two: The Process of Benchmarking: How and Who?.................................79Chapter 3 Practical Reasoning and the Case for Change.................................81Chapter 4 The Construction of a Reference Group.......................................109Chapter 5 Interorganizational Influence...............................................142Section Three: The Results of Benchmarking: Proposals and Programs.....................171Chapter 6 Common Moves in Organizational Reform.......................................173Chapter 7 Personal and Programmatic Impact............................................194Chapter 8 Global Financial's Corporate Quality Initiative.............................215Chapter 9 Some Lessons from the Search for Best Practice..............................247Bibliography...........................................................................265Index..................................................................................281

Chapter One

Benchmarking is the continuous process of measuring products, services, and practices against our toughest competitors or those companies renowned as leaders. Our goal is superiority in all areas—quality, reliability, and cost. —David T. Kearns (quoted in Kearns and Nadler 1992, 122–23) Benchmarking is the search for industry best practices that lead to superior performance. —Robert C. Camp (1989, 12) Benchmarking is a process companies use to methodically track down business practices and approaches judged to be among the best in the world. The essence of benchmarking is to seek out, learn, and incorporate new operational approaches by exchanging information with top-performing noncompetitors. —David Altany, 1991, 12 Benchmarking is the art of finding out, in a legal and aboveboard way, how others do something better so it can be imitated and perhaps improved upon. —Jeremy Main, 1992, 102 Benchmarking: A continuous, systematic process for evaluating the products, services, and work processes of organizations that are recognized as representing best practices for the purpose of organizational improvement. —Michael J. Spendolini, 1992, 9 At Hewlett-Packard, benchmarking is defined as comparing your business processes to perceived best-in-class processes within other organizations in an effort to make significant improvements in performance. —Prior-Smith and Perrin, 1996,7

This chapter provides an overview of benchmarking as a management technique. I begin by sketching its underlying logic and typical elements. Xerox's study of warehousing practices at L. L. Bean provides a concrete illustration. The second section of the chapter traces the emergence and diffusion of benchmarking within the business community.

Conceptual Foundations

The terms "benchmark" and "benchmarking" are used in many ways. Honda benchmarks the Toyota Prius; compensation consultants benchmark CEO pay; organizations in receivership fail to meet certain benchmarks; an airline benchmarks an Indianapolis pit crew to learn about fast turnaround. The noun "benchmark" is used to describe almost any kind of standard or comparison point, while "benchmarking" is variously regarded as a high-brow term for corporate theft, a low-brow term for organizational research, and another quality program. Even when we specify that we are interested in "best practice benchmarking," much diversity remains.

While language cannot be corralled, definitions like those quoted above establish a conceptual core. They also help us interrogate benchmarking as a social construct, and alert us to some of the assumptions and silences that surround it. The degree to which practitioners, executives, and commentators share a common perspective is of interest, as are the differences between them.

The term originated in land surveying, where it has a tangible referent. The surveyor places a benchmark in a rock or similar material to indicate a point whose vertical elevation has been fixed. (Early surveyors cut a horizontal line on which an angle iron could be placed to "bench" a leveling rod; contemporary surveyors implant metal disks.) Benchmarks are then used to calculate the elevation of nearby points, so a thoroughly surveyed area has a network of benchmarks that extends back to sea level.

The term is also commonly employed in computer science, where the performance of hardware is assessed through benchmark tests. For example, Dhrystone and Whetstone are programs that calibrate the speed of a CPU's integer and floating-point operations. The operations involved in these tests are not necessarily representative—they are more computationally intensive than most typical uses, with the possible exception of video gaming. But they furnish broad, well-defined metrics that facilitate comparison.

Benchmarking in the corporate world centers on the idea of standardizing comparisons, and in this way it overlaps metaphorically with usage in land surveying and the computer world. In best practice benchmarking, however, the standard is provided by an exemplary case instead of a measurement system. And rather than the investigator standing outside the system (as the land surveyor stands outside the network of benchmarks, and computer analysts stand outside the CPU), the investigator in corporate benchmarking is another organization interested in its own improvement.

The logic of corporate benchmarking is that of learning from others: specifically, from the sources of best practice. If a firm looks within its own industry, it should focus on its toughest competitors or industry leaders. If it looks outside, it should study top performers or "best in world" organizations. While social scientists generally seek to draw inferences from representative samples, and some industries have routines for learning from failure, the benchmarking strategy is to learn from excellence.

As noted in the introduction, the idea of learning from best practice has little resonance in organizational sociology and management research. Academic students of organizations emphasize contingencies in the relationship between organizational practices (read broadly as structure, routines, and strategy) and outcomes. Faith that one best way exists somewhere is seen as wrongheaded, if touching. Nor does the plan of focusing attention on success stories appeal to those schooled in the logic of statistical inference—most academics would reject out of hand any sampling scheme that selects so flagrantly on the dependent variable. Next!

But the ubiquity...