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

• Author: Jeho Lee,Sangyoon Yi,Hart E. Posen
• Published date: 01 February 2020
• Date: 01 February 2020
• DOI: http://doi.org/10.1002/smj.3101

RESEARCH ARTICLE

A contingency perspective on imitation strategies:

When is “benchmarking”ineffective?

Hart E. Posen

1

| Sangyoon Yi

2

| Jeho Lee

3

1

University of Wisconsin-Madison, Madison, Wisconsin

2

Korea Advanced Institute of Science and Technology, Daejeon, South Korea

3

Seoul National University, Seoul, South Korea

Correspondence

Hart E. Posen, University of Wisconsin-

Madison, Madison, WI.

Email: hposen@wisc.edu

Abstract

Research Summary:Imitation is ubiquitous, yet the com-

parative efficacy of imitation strategies is poorly under-

stood. 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 heteroge-

neous 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, popu-

larly known as benchmarking, is believed to be an effec-

tive 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 sub-

market) are also good for firms in another. The efficacy of

benchmarking is likely to be undermined by fads, fashions,

Received: 4 May 2018 Revised: 19 August 2019 Accepted: 20 August 2019 Published on: 6 December 2019

DOI: 10.1002/smj.3101

198 © 2019 John Wiley & Sons, Ltd. Strat Mgmt J. 2020;41:198–221.wileyonlinelibrary.com/journal/smj

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.

KEYWORDS

benchmarking, computational model, firm performance, imitation

1|INTRODUCTION

The strategy literature has devoted substantial attention to imitation not only because imitation deter-

rence is central to competitive advantage (Caves & Porter, 1977; Lippman & Rumelt, 1982; Rumelt,

Schendel, & Teece, 1991), but also because imitation is a frequently used approach to learning and a

“prevalent road to business growth and profits”(Levitt, 1966, p. 63). Alchian (1950) and Nelson and

Winter (1982) conceptualize imitation as a purposeful adaptive behavior in which successful firms

are assumed to engage in practices that are superior to those of others, and other firms imitate them

as a pathway to success. While a large body of research has examined why firms imitate each other

(see Lieberman & Asaba, 2006 for a review), as Ethiraj and Zhu (2008) note, the performance impli-

cations of imitation have received less attention. Recently, strategy scholars have begun to address

the efficacy of imitation (e.g., Csaszar & Siggelkow, 2010; Lenox, Rockart, & Lewin, 2006; Posen,

Lee, & Yi, 2013; Posen & Martignoni, 2018; Rivkin, 2000), employing assumptions of bounded

rationality and uncertainty. In this paper, we build on this burgeoning stream of research to examine

the comparative efficacy of alternative imitation strategies.

Alchian (1950, p. 218) famously characterized one common imitation strategy as follows: “When-

ever successful enterprises are observed, the elements common to those observable successes will be

associated with success and copied by others in pursuit of profits or success.”We call this the “mix-

and-match”imitation strategy—a firm seeks to identify the practices and knowledge that are com-

mon to leading firms, then mixes and matches these practices as a means of enhancing its own per-

formance. This imitation strategy, popularly called “benchmarking,”may have first been formalized

as an imitation strategy at Xerox in the late 1970s. In responding to the rapid emergence of rivals'

new, low-cost alternatives to its copy machines, Xerox mixed and matched the practices of Canon,

Fuji, and other Japanese rivals to improve firm performance. A plethora of books and articles in the

practitioner literature have argued for the merits of the mix-and-match imitation strategy. While

benchmarking is, among practitioners, generally believed to be an effective imitation strategy, there

is little systematic research that underpins this belief.

In contrast, the strategy research literature has focused extensively on another type of imitation

strategy, which we call “copy-the-best”imitation. It works as follows. An imitator identifies the best-

performing firm among those directly observable and then copies a subset of the target firm's prac-

tices (e.g., Csaszar & Siggelkow, 2010; Ethiraj, Levinthal, & Roy, 2008; Lenox et al., 2006; Nel-

son & Winter, 1982; Posen et al., 2013; Posen & Martignoni, 2018; Rivkin, 2000). Although copy-

the-best imitation is well established in the strategy literature, in reality, an imitator faces a large

number of dimensions from which to choose, such as whom to observe, what practices and knowl-

edge to evaluate, how to evaluate them, and so on. There are many potential strategies that a firm can

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