Methods & Tools
IT benchmarking - systematic analyses
by Frank Krauß
IT organisations use benchmark comparisons to assess their costs and prices, as well as for other purposes. How do the two approaches differ and what other valuable insights can be gained with an IT benchmark?
Why do companies use IT benchmarking?
IT organisations need to justify their spend and services to stakeholders. They do this by comparing themselves to the market with an IT benchmark. This benchmark, i.e. the yardstick for comparison is formed by key figures from similar IT organisations. The comparison shows how well IT management has performed and where there are deficits. Sensible optimisation measures can be derived and prioritised from the results.
What does an IT benchmarking service provider do?
Benchmark service providers support IT organisations in defining, collecting, validating and normalising their comparative data. In addition, the consultants also create a suitable peer group from their own data pool. This peer group does not necessarily have to contain companies only from the same industry - the selection is about similar organisational structures as well as quality, volumes and complexity of IT. For example, growth-driven organisations need different comparative data from cost-oriented companies. The IT benchmarking service provider ensures necessary up-to-date comparative data is available.
What is an IT cost benchmark?
An IT cost benchmark compares internal costs with the expenses of other organisations. For this purpose, internal IT costs are captured, for example, for hardware, software, personnel and other expenses, and compared with costs of other companies. The aim is to identify structures and deviations. From these, further clues can be gained as to where it is worthwhile to look deeper. As an example, if personnel costs are relatively low, this can first be a good sign, but also an indication there are too few staff and thus risks.
Is an IT benchmark always just about costs?
The roots of IT benchmarking lie in the analysis of technical specifications and costs. However, modern IT benchmarks offer much more: the comparison includes data on performance, quality and complexity of IT. Benchmarks are used to analyse outsourcing contracts, to query and rank the satisfaction of IT stakeholders, to control demand management and to support IT service catalogues and KPI systems. Another effect of IT benchmarks is best practices - how other companies have solved a task and what experience they have gained. This gives IT managers a solid basis for decision-making. In addition, there are strategic aspects such as the vertical integration of IT, the degree of cloud utilisation and the degree of automation in IT processes.
How does an IT market price benchmark work?
In an IT market price benchmark, externally procured (outsourced) services are put to the test and compared with the market level. One objective of a market price benchmark is to clarify the extent to which the provider fees agreed for a service are competitive in conjunction with the quality delivered. Therefore, most sourcing contracts today include benchmark clauses which define market comparisons.
Market price benchmarks are used for:
- the analysis of IT services and daily rates of consultants in new and follow-up contracts
- a standard market design of IT services
- optimisation of service level agreements (SLAs) between the client and the service provider
- change requests in day-to-day business
- make-or-buy analyses
- support in the tender phase
- the establishment of an adequate retained organisation in terms of size and skills
What are the results of IT benchmarks?
Benchmarks show how an organisation performs compared to the market level. If one is better, the result serves to demonstrate one's own performance to stakeholders and, if appropriate, to raise prices. If the IT benchmark is poor in one area, this is a clear signal to start negotiations with suppliers or one's own customers, for example. With an IT benchmark, the latter gain a better awareness of the correlation between effort, demand and costs of a service.
Are you looking for more information? See this page for project reports and our videos on IT benchmarking. You are also welcome to contact me directly.
Frank Krauss knows benchmarks in all their facets. Not only in market research, but also at a Tier 1 provider, he has analysed IT services and helped organisations to position themselves for the future.