External Benchmarking and Comparison Costs: Insights from a Process of Bringing the Market inside the Firm

Research output: Contribution to conferencePaperResearch

Abstract

Academics and consultants have for decades advocated for the use of market information inside organizations to increase motivation by exposing employees to the competition from the market. Only scant empirical research, however, investigates the comparison problems that arise when internal performance is compared with market performance (external benchmarking). This paper examines the comparison problems that occurred in a tender process in a Danish manufacturing company. We illustrate how distorted belief mechanisms in terms of ‘wishful thinking’ and the ‘grass is always greener fallacy’ (Elster, 2007; 2010), which work without much knowledge of how suppliers calculated the prices, to a large extent were co-constructors of the comparison problems. The paper contributes by providing more insight to the construction of comparison problems in practice. Furthermore, this insight adds to extant research on social comparison, which argues that proximity, interaction and information sharing increase comparison costs. Finally, we illustrate that the comparison problems were embedded in ‘harder’ elements such as accounting regulation, formal contracts and the choice of supplier strategy. Extant research focuses on ‘soft’ relations such as sociality and identity in understanding comparison costs.
Original languageEnglish
Publication date2019
Number of pages43
Publication statusPublished - 2019
Event12th Workshop on Management Accounting as Social and Organizational Practice. MASOP 2019 - University of Bristol, Bristol, United Kingdom
Duration: 25 Apr 201926 Apr 2019
Conference number: 12

Workshop

Workshop12th Workshop on Management Accounting as Social and Organizational Practice. MASOP 2019
Number12
LocationUniversity of Bristol
CountryUnited Kingdom
CityBristol
Period25/04/201926/04/2019

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Keywords

  • Relative performance measures
  • External benchmarking
  • Comparison costs
  • Market prices
  • Transaction costs economics
  • Social comparison

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