Events

Professor Ivan Png
Distinguished Professor in Strategy & Policy, Economics
National University of Singapore

Miss Yun Hou
PhD Student in Department of Strategy & Policy
National University of Singapore

How do businesses respond to benchmarking information? Benchmarking — information about peers on relative performance and practices — is widely used but there is little scientific information on its effectiveness. Theoretically, benchmarking can help new entrepreneurs to resolve uncertainty about their own ability. Performance depends on the entrepreneur’s own ability, practices, and market-level uncertainty common to all entrepreneurs. By revealing the performance and practices of high performers, benchmarking enables subjects to infer the market-level uncertainty and deduce their own ability.

To investigate the causal impact of benchmarking, we carried out a randomized controlled experiment among owners of food stalls. 194 business owners operating food stalls at 17 hawker centres across Singapore were recruited into the study. Both the control and treatment owners were informed of their own performance. Additionally, treatment owners were told their relative performance and best practices. The experiment started in September 2019, and finished in December 2020.

Empirically, on the extensive margin, benchmarking affected exit. Compared to control owners, treatment owners who performed relatively poorly were more likely to exit and less likely otherwise. The treatment effects were more pronounced among those who were less informed about their ability. On the intensive margin, benchmarking increased the adoption of back-of-house management practices, both benchmarked and non-benchmarked, with the effects more pronounced among more educated owners and those with lower costs of adoption. Benchmarking also substantially increased performance, but the estimates were not statistically significant, perhaps due to the Covid-19 pandemic and small sample.

BIOGRAPHY

Yun Hou is a PhD student in the Department of Strategy & Policy, National University of Singapore. She received her bachelor’s degree in 2014 and Master’s in 2016, both from Peking University. She enjoys researching innovation and entrepreneurship.

 Ivan Png is a Distinguished Professor at the National University of Singapore. His research focuses on the economics of innovation and productivity.  He is the author of Managerial Economics, which has been published in multiple editions. He is the Principal Investigator of SPIRE, a S$4.75 million research project on service productivity. In free time, he exercises with his wife and plays tennis and the violin (both badly).