Benchmarking can be an important part of your sourcing strategy. It can deliver insights into whether your service provider agreements are competitive with the market and how to strengthen the overall relationship between the parties. But, to get the most out of an IT benchmark and reach a fair result, a company’s involvement shouldn’t stop when a benchmark advisor is selected; both the enterprise client and the service provider should work to be prepared and active partners in every step of the process.
In my years helping companies benchmark their sourced services, I’ve seen a world of difference in the outcomes when benchmark participants follow best practices. To ensure your benchmark delivers the results you need, take time to understand the process and help it along, set goals early and identify opportunities. This can lead to improved service delivery, a shared set of expectations and greater value in the final results.
Frequently Asked Questions about IT Benchmarking
How can I ensure reliable and useful results from an IT contract benchmark?
The first step is selecting an experienced benchmark partner. At a basic level, a benchmark compares the terms, scope, service levels and other attributes of a contract with comparable services (and therefore prices) in the market. When choosing a benchmark partner, seek one with a proven, market-accepted methodology and deep data assets; both are critical to delivering a fair and accurate result.
Understand that, in studying the differences between your contract and the market, benchmarkers are seeking to understand more than just data; they want to understand the full contract, the services and volumes offered, how they are delivered, and at what level of quality. Benchmark specialists use these details to define the scope of the comparison and find comparable contracts in the market to base the benchmark comparisons and eventual results.
Consider what your thought process might be if you were looking to buy one of two houses. While price would be a major factor, you wouldn’t make your decision solely on which one was cheaper—to know the real value of the house, you would have to look deeper into how many rooms each one had, the quality of the building materials, if there were extra amenities, like a pool, or how close each was to a train or a good school. It’s the same when benchmarking contracts against one another: the devil, as they say, is in the details.
Companies can support benchmark exercises in several ways: first, share key documents, including the contract, addendums, pricing tables, responsibility matrixes and invoices. Being forthcoming and open makes a huge difference in terms of fair and balanced results. Actively participate in all workshops and meetings, say yes to interview requests and other productive investigations: the more a benchmarking firm understands about your contract, the better the results of the benchmark and, in the end, the more likely you are to see the results as valid.
Additionally, be open about why you decided to execute a benchmark and what your relationship is with your service provider. It may sound obvious, but hiding the reasons you decided to conduct a benchmark can elongate the process and ultimately hinder the results you are looking for.
What can I do to make a benchmark more effective?
Think clearly about your reasons for starting the benchmark exercise and what your expectations are for the results. Some common outcomes are:
- Reducing costs or gaining investment dollars
- Confirming access to new innovations
- Market testing prices ahead of an extension
- Revising terms and conditions or service-level agreements
- Realigning your relationship with your provider
Knowing your goals will also help you decide which kind of benchmarking is best. “Tripartite” benchmarks occur when the benchmark clause in a contract is executed and the advisor acts as a neutral fact finder on behalf of two business partners—the buyer and provider of services. In other instances, a benchmark might be conducted to review a contract without the provider’s input. This version can help inform the buyer before renegotiation or contract extension.
Keep in mind that knowing your goals is different from predicting your outcomes; having a preconceived idea of the outcomes can lead to disappointment.
Often, clients go into a benchmark exercise expecting to find a major misalignment with the market and, consequently, large savings. But it is just as likely to find that it is not the market but their own requirements that are constraining their provider’s service. Efficiency gains and pricing improvements are often a shared responsibility.
Work with your benchmark partner to review the overall relationship alignment with your provider and be open to opportunities for improvement by both you and your provider.
What can I expect to learn from a benchmark?
Benchmarking—done collaboratively and in an open manner—can create outcomes beyond measuring competitiveness. These opportunities include:
- How do you compare to your peers in terms of service and strategy?
- Where do you have strengths and opportunities to improve service delivery and value that aligns with the overall business and IT strategy?
- What major step changes in the overall operating model are available?
- What changes to the overall sourcing model will bring in the best partners for innovation and growth?
These opportunities tend to be areas that can lead to growth rather than describing problems that need to be solved. Although you may be surprised by how intertwined those two ideas may be.
I worked with one CIO who was surprised to learn how much agita was caused by some redundant systems left over from an acquisition. His provider team was busier than they needed to be, not bringing innovation to the table, and costs were high, but no senior staff had noticed because there were no problems in the day-to-day workflow. Nothing was “broken,” in other words, but the results we discovered about the larger context allowed him to improve efficiency, price and the relationship with the service provider.
How can a benchmark improve our service provider relationships?
A benchmark is a comparative process, but it doesn’t just provide the opportunity to compare the terms of an arrangement. It also gives parties an opportunity to compare the overall health of the business relationship.
I’ve seen benchmarks in which both parties are eager to participate in the process and are open to the results and the opportunity to improve their relationship. I’ve also seen cases where the two parties are in conflict and are using the benchmark as a hammer.
When it’s gotten to this point, you need to think beyond the benchmark to re-aligning the entire relationship and, in some instances, moving on to another provider. The thing to remember in either case is that, while a benchmarking team delivers results, what happens after the benchmark is up to you.
Are you looking to move forward with your service provider? Are you seeking to end a relationship and move on? There’s no right or wrong answer, but heading into benchmarking with that knowledge will help your company yield the most benefits from its results.
ISG benchmarking services help you track and meet your cost, performance and quality objectives. Our data is unmatched – it comes from detailed engagements with client organizations and providers rather than just from market research.