It's always good to know what others are paying for their IT services, particularly when your business is buying the same services and is of a similar size and nature. It's also satisfying to know if you have a good deal or not, that you are not paying over the odds, and that your supplier is treating you well.
Perhaps most importantly of all, benchmarking IT services can identify if, when and where you are over-paying and help to outline opportunities for reducing costs. During several recent benchmarking assignments Xantus has seen more than one large company (with £500m+ turnover) paying up to seven times more for specific services than the amount paid by some £10m turnover companies. In the current market where the ethos is to get best value service and reduce costs, it's clear there are still big savings to be made.
Investigations into particular examples showed that the highest rates were due to ageing contracts which had never been thoroughly reviewed - the most attractive rates are often obtained through regular challenges to suppliers to maintain their competitiveness. In cases such as this, impressive savings may be achieved with relatively little effort - i.e. negotiating with the supplier with factual comparisons to hand, to gain a better deal. It is also worth noting that a lot of large companies with high-value contracts tend to manage their IT costs in a top-heavy fashion, whilst smaller companies can have more of an eye for detail and are better at watching the pennies.
A further consideration is that high-value service contracts tend to be negotiated for longer terms, which can be necessary to compensate for the high costs associated with selecting a new service provider and the resulting transition and transformation programme. At the start of such a contract, the supplier selection process is likely to find the best value charge available, but as time goes on it's likely that this advantage will be eroded as competitor rates fall, or newer, more cost-effective alternative options become available. For this reason, large organisations should insist on having a benchmarking clause written-in to the contract in order to allow the charges to be challenged on a formal basis. This doesn't mean to say that the same exercise won't benefit a smaller organisation; don't underestimate how much weight is added to any argument for lower charges when it's backed-up with first-hand, accurate, and well presented current-market intelligence.
Overall, benchmarking can be a great way for a business to gain a better understanding about where cost savings can be made and sometimes, savings can be achieved without necessarily having to make any significant changes to your services or supplier contracts. Problems can come in knowing that you are gaining a reliable picture of information in order to base a decision on. It's important to remember:
• A benchmark should highlight whether the cost of your IT services is comparatively low, reasonable, or too high in the current market.
• It should provide a fast-track to understanding the tariffs, rates and deals currently available and take the guess-work out of assessing whether your services are value for money.
• Where services are packaged, it should identify those elements which are good value and those which are not.
• Well presented cost and charges analysis with like-for-like comparators provides strong negotiating collateral when reviewing service pricing with suppliers.
• Confidence is gained by knowing that your target price reductions are realistic and based on genuine deals occurring in the marketplace.
The information resulting from a benchmark can also be used to assess new offers from your existing suppliers, or proposals from new ones in a competitive bid. Fundamentally, the more information and knowledge you have regarding the cost of services relevant to you, the more empowered you are to make the right negotiation and purchasing decisions.
The value in selecting an independent external consultancy to assist in your benchmarking process can't be underestimated.
What consultants are able to bring is a detailed knowledge of the underlying IT services, a completely independent approach to the process as a whole, and most importantly, access to current marketplace information, specifically in relation to the contracts that are being signed by other like organisations. This is clearly the key; being able to undertake benchmarking in ‘real time' this knowledge base creates the opportunity for clear cost comparative analysis to take place.
With cost saving upper most in everyone's mind, benchmarking is clearly a business tool that CIO's cannot overlook.
About the author
Greg Leyland is a Senior Consultant with Xantus. He has a breadth and depth of knowledge gained through 30 years experience in IT, working with businesses across a range of industry sectors. Greg's specialist expertise in the business and commercial aspects of IT, enable him to advise leading corporations on optimum and appropriate charges and levels of service available in the current market place.