Are You the Smartest Kid in Summer School?

I've worked for several interesting companies in my life. One company, was a leader in it's industry - not the biggest, but definitely the most profitable. It had been around for over 100 years - a boast few companies can make.

We were victims of our own success - measuring ourselves solely against direct industry competition and feeling pretty good about ourselves.

The world's standards for process performance had long ago raised the bar, but in our industry, the bar was set very low. And we (as well as the stock analysts) only compared our performance within our industry.

The signs were all there... We took ten days to close our books at quarter end. World class performance is a two day close. We were unable to bill a customer for up to two weeks after an order had shipped, because we were busy doing job cost analysis (manually) to be certain we hadn't made any billing omissions. World class performance sends the bill the day the order ships. (Actually Dell gets paid before they even start your order!)

All that didn't matter. We were at the head of the class - just look at our income statement! So we had no sense of urgency when it came to improving our performance. My Dad would have described us as "fat, happy and stupid".

We never saw it coming. Less than 5 months after an unsolicited takeover bid, the company was swallowed up by a bigger competitor. It is no more. One hundred years of history erased. Hundreds of jobs lost.

Venture capitalists don't care that you're successful within your industry. They look for bargains - under performing businesses based on world class metrics, not necessarily your metrics.

As Thomas Friedman describes in his bestseller, "The World is Flat", whether you know it or not, you're competing against everyone, everywhere.

Successful companies, like Toyota, don't benchmark against their competition, they benchmark against perfection. And they seem to be doing pretty well.

If your company benchmarks it's performance solely against direct competitors, you may think yourself the brightest kid in class and never realize that you're in summer school.