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Does benchmarking help firms grow?

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Benchmarking – measuring and comparing performance across and within firms – is a key element of many business support services. It allows firms to see how they compare against competitors or a set of best practices. Benchmarking helps assess a firm’s relative position in the market and identify areas for improvement. The theory is that by doing so, firm performance should improve.

As the What Works Centre for Local Economic Growth (What Works Growth) is interested in understanding ‘what works’ in business support, we decided to explore the evidence on the impact of benchmarking. The results were disappointing. For such a popular approach, so amenable to impact evaluation, it’s surprising how little we know about the impact on firm outcomes.

What evidence is available?

We identified a number of studies on benchmarking. None of these involved a suitable comparison group so we could properly assess whether benchmarking changed outcomes for firms relative to what would have happened if they hadn’t gone through the exercise. Some studies provided an overview, focussing on definitions, advantages, challenges and ethical considerations. Many studies developed benchmarking tools, or amended an existing tool, which was then applied to a case study or a group of firms. When these studies did use comparison groups they were so different to the benchmarked firms that we had no confidence in the results. This means policymakers that are seeking to use benchmarking to support businesses to increase their turnover, productivity, employment or wages cannot know whether it will make a difference.

Why is there limited evidence available?

Evaluating the impact of benchmarking does present some practical challenges. For example, it might be important to know when a firm started using benchmarking so we can properly assess its performance before and after implementing. In most settings, benchmarking is combined with business advice or support, making it difficult to disentangle the effect of the benchmarking tool from the business advice or support received. These barriers would be quite simple to overcome if providers were willing to provide benchmarking to some firms and not others (for example, as part of a random control trial). Given the popularity of benchmarking, and the ease with which effectiveness could be tested, it’s surprising that we haven’t seen more done – although this is true of a number of other areas of business support as discussed in our evidence review and toolkits.

An example

We are currently working on an evaluation that will demonstrate that this kind of approach can be implemented in practice. The Growth Vouchers Programme (GVP) was designed and implemented by the UK Department for Business, Energy and Industrial Strategy (BEIS) and the Behavioural Insights Team (BIT) and provided firms with a diagnostic to identify the type of business advice they would benefit from most. All firms (treated and control) received a diagnostic that included benchmarking to identify areas of improvement support. As firms were randomly allocated to either a face-to-face diagnostic or an online diagnostic the evaluation will be able to compare the impact of these two benchmarking alternatives. We are currently in the last stages of the evaluation and are hoping to publish the results at some point in 2021. 

If you have any questions or are a local authority interested in developing partnerships to support high-quality evaluations, please get in touch through