Benchmarking the IT department
Whatever the reason for benchmarking the IT department, the process can play a vital role in maintaining a company?s competitiveness. Nicholas King looks at one firm which is using benchmarking to keep its outsourcing deal commercially focused and another which is using it as part of its drive to build a leaner enterprise. Not only are they finding out the strengths and weaknesses of their present systems, they?re discovering how to set the pace for their peers.IT benchmarking grew out of comparisons of mainframe performance in an attempt to establish a computer system?s value for money. It is now also used to measure costs of distributed computing and application development. It is increasingly being seen as a basis for improving parts of the business on which IT has an impact; benchmarking is leaving the data centre and becoming a management tool.
The approach is to compare your performance against other companies on the issues that really matter to your business ? days to delivery, accounts opened, orders taken, customer service ? whatever the key drivers of your business are. The special feature of benchmarking is that you are not just trying to improve, you are trying to achieve an improvement related to best practice, in your own sector or perhaps on a global scale. That?s what gives benchmarking its power and potentially revolutionary impact.
The benefits can be huge. Traditional benchmarking studies have revealed variations of up to 300 per cent in the IT costs of companies with similar operations. If there?s one message from these studies it?s this: when it comes to value for money you don?t get what you deserve, you don?t even get what your corporate muscle might entitle you to, you get what you negotiate!
And the secret to good negotiation is information ? knowing what your peers are spending on IT systems gives you a good idea of what your IT people should be aiming at and what deals your IT suppliers should be able to offer when pushed to the line.
Increasingly, data from independent benchmarking studies is being used to police outsourcing contracts. Companies like Compass and the Gartner Group help clients collect their own data on the costs of their IT systems, analyse it and report back on how they compare with a defined peer group of companies. The peer group is usually in their own sector, but some companies want to compare themselves against a cross-sector group of companies they think is experiencing the same business drivers.
The data is used to fine-tune the contract price at periodic reviews. This allows the customer to monitor value for money, but it can also help the service supplier defend his profit margin ? and keep investing in the latest technology.
CASE STUDY 1: Asda
To maintain a commercial focus on its recently outsourced IT operation
Supermarket group Asda has just outsourced its entire IT operation to IBM and, with help from Compass, is using benchmarking to keep the new business relationship focused commercially.
?We?ve done the contract on the basis of outsmarting rather than outsourcing,? says John Lister, Asda?s IT partnership director. His overall objective, he adds, is to make sure the deal keeps ASDA ahead of the game.
?It?s not like it was before,? says Lister. ?Outsourcing is not just to save cost ? businesses should be doing that anyway. What we?re looking for is the best economic return.? He points out that benchmarking helps identify which part of the IT cost to focus on.
?If the benchmark shows you are already at best practice in one area, then there is no point in trying to make that area cheaper,? he says. ?Focus on areas where you are nowhere near best practice. In our case, we aim to get better leverage on our systems development by using IBM?s people instead of contractors from lots of different sources.?
Lister is looking for lots of added value from IBM. ?What we?ve built into the deal,? he says, ?is guaranteed access to IBM?s retail experts. We are after their thought leadership on technology and the marketplace.? However, he recognises he will get that kind of partnership only if IBM has the right incentive. ?In the past we dealt with many different IT suppliers,? reasons Lister. ?With IBM, we expect the scale of what we do together will bring benefits to them as well as us.? Benchmarking, he believes, will firm up the commercial side of this relationship.
?Benchmarking is a means of removing the distrust,? says Lister. ?If there is a contractual right to benchmark within the deal, you?re never likely to actually need it. Just because it is there, it means you are more likely to get a real partnership with shared risk and cost. Whatever happens during the lifetime of the contract, it?s never going to get really cosy. It?s always going to be rigorously commercial.? In a word, he says, benchmarking keeps the relationship with the outsource service provider ?robust?.
He adds: ?We intend to keep Compass in the picture. As new things come along, we want to reference them to the marketplace. We?ve negotiated a sound contract, now we?re using benchmarking to keep the contract focused on the business.?
CASE STUDY 2: Unipart
Vehicle parts manufacturer
To build a leaner enterprise
The Unipart group of companies ? the former British Leyland parts concern, has a corporate goal to build the world?s best lean enterprise.
?We have no choice but to be the most efficient producers on earth, creating a virtuous circle of continuous waste elimination,? says John Neill, group chief executive.
And, according to Duncan Mountjoy, manager of computer service delivery, IT is an important part of this activity. ?We aim to exploit technology to improve the effectiveness of the business,? he says.
?Mainframe services are good at what they do because they are stable and solid. But we now need to develop new systems and applications, by using Lotus Notes and other tools. This will enable us to deliver services that are much faster and so give our customers greater power at the desktop.?
Unipart originally benchmarked the costs of its mainframe operation. It has now submitted its client-server systems to similar scrutiny and has just done a pilot on application development costs. ?We found it very beneficial,? says Mountjoy. ?It showed how our costs came down as a result of people working in a different way.?
But he says it?s important not to allow benchmarking data to replace your business judgement. ?They say our staff costs are high because we spend a lot on training ? but that?s our policy. You must make your own business judgement,? he says.
Mountjoy uses the benchmarking data to back his own judgement on IT investment proposals and negotiations. ?If you know what the best quote is, you?ve got a solid base to negotiate from,? he says. ?It?s a very good negotiating tool. When we make an investment I always go back to Compass, tell them what I?ve negotiated and ask them ?how does this seem??. Then I write it in my investment proposal.?
?The Compass assessment is not so much a measure of cost as of cost efficiency,? he adds. ?It measures your effectiveness ? and it?s important that we can demonstrate to our customers that we are a cost-effective organisation.?
Mountjoy can point to considerable cost savings over the years ? amounting to ?hundreds of thousands of pounds?. He admits that it gets harder and harder to repeat the early spectacular savings from benchmarking studies, although he stresses that benchmarking is not just about saving money.
?Cost is very important,? concludes Mountjoy, ?but it must not be allowed to become a business inhibitor.?
CASE STUDY 3: BBC
Gartner Group?s Real Decisions
To identify areas of IT spend in a drive to cut costs
Benchmarking has become a key management tool at the BBC ever since the introduction of internal trading, part of director general John Birt?s drive to cut costs. Tony Ayres, head of system and technology assessment, says his group takes part in annual performance reviews where the DG?s sights are set on very specific targets. The BBC turned to consultants at the Garner Group?s Real Decisions to help with the benchmarking study.
Recently, says Ayres, the company has been targeting the cost of PC ownership: ?The big issue has been to cost our computing on a price-per-PC basis. We wanted to use a benchmark to compare ourselves against others.? As it turned out, though, the BBC?s PCs were costing significantly less than the comparison group.
?So we established that we could take this issue off the internal agenda,? says Ayres. ?We were able to identify where we stood in terms of price and, because it was benchmarked, we were able to demonstrate that we were comparing apples with apples.?
So far, benchmarking has been confined to IT run from the corporation?s London base. As well as the PCs, the BBC has subjected its mainframe operation, wide area network and helpdesk service to the benchmarking process.
This year, says Ayres, his group will lead an IT overview analysis, a much wider evaluation of IT throughout the regions as well as the corporate centre. He sees the first year as putting a stake in the ground and as a chance to clarify business objectives. ?This year we see how well we?ve achieved them and set next year?s targets,? he says.
Ayres? advice to other users is to benchmark only those activities that they can actually do something about when they get the results. ?We found the secret is to make sure it is something that is in the total control of the people sponsoring it,? he says. ?And make sure it?s not too complex ? otherwise you get overwhelmed by the data.?
He also suggests limiting the benchmark specialist?s report to the facts, rather than interpretation of the figures: ?We told them we didn?t want too much opinion, that we would debate the significance of the figures ourselves.?
Ayres adds: ?It has given us a management tool. It allows us to understand where we are spending money and what bang for our buck we?re getting, compared with our peers.? In effect, benchmarking has helped justify the case for IT investment.
?It has helped people think through exactly where we need to invest in our IT infrastructure,? says Ayres. ?It helped persuade people that we had significantly underestimated in the past. Now that we are coming up to a period of digital convergence, we have to catch up. We have to make the kind of investment you?d expect in a normal corporation, let alone one that was running 14 different businesses before the producer choice initiative.?
1 Helps you get value for money in your IT purchasing. Puts you in a position of knowing what to expect from your own IT staff and what to demand from suppliers.
2 As a preparation for an outsourcing contract, benchmarking can help to ensure your IT systems are ?fit to go?. If you know the position to start with, you can set realistic targets for an outsourcer.
3 Encourages your people to agree on the key measures for the company?s performance.
4 Keeps the organisation on its toes. It?s a continuing process ? keep an eye on best practice and use the best ideas.
5 Helps buying decisions in IT by providing a kind of retail price index.
Compass on 01483 506444
R Gartner Group?s Real Decisions on 01784 48854
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