For internal teams this information can be difficult to come by, with the additional challenge of knowing whether you're comparing ‘apples with apples' or ‘apples with pears'. Are you well equipped enough with relevant information to be able to predict how volumes impact on price? Will the duration of the contract have a bearing? Is the quality of the goods or services likely to have an effect, and if so, how? Such questions, and the anomalies which often surround them, means it can be difficult to make informed and accurate opinions and assessments.
It is important to bear in mind that what would appear to be the most significant factors do not always have the most influence on cost. In some cases companies are paying up to seven times more for specific services than the tariffs paid by others - in many cases this has been down to aging contracts which had never been thoroughly reviewed and lower rates sought out. In cases such as this, impressive savings may be achieved with relatively little effort - i.e. talk to the supplier's account manager with factual comparisons to hand, and negotiate a better deal.
Critically, high-value service contracts also tend to be negotiated for longer terms. This is 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 charges will undoubtedly be regarded internally as the best available - but as time goes on, it is likely that this advantage will be eroded as the competition's rates fall, or new more cost-effective alternative options become available. Although this may seem more relevant to large organisations, SME's should not underestimate how much weight is added to any argument for lower charges when it is 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. Furthermore, sometimes savings can be achieved without having to make any significant changes to your services or supplier contracts. Benchmarking will:
- Highlight whether each of your charges is comparatively low, reasonable, or too high in the current market
- 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, identify those elements which are good value and those which are not
- Provide cost and charges analysis with like-for-like comparators, which can prove to be strong negotiating collateral when reviewing service pricing with suppliers
- Give greater confidence by helping you to know 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 help with assessing 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.
Of course, not all services are as easily assessed, particularly when they have some aspect of uniqueness, or are completely bespoke. In these cases, different approaches are required which rely more on the benchmarking specialist's expertise - a mix of technical and commercial knowledge, business understanding and market experience; they also need visibility of similar deals recently obtained by other organisations in order to have accurate and reliable comparators. One aspect to consider here is to involve a process of 'normalising' comparator data to take account of differences such as service scope, technology scope, commercial conditions, business requirements geography and scale.
The important factors to take into account when looking to undertake benchmarking should include ensuring that a detailed knowledge of the underlying IT services is being applied, as well as a completely independent approach to the process as a whole when using external consultants. Most important is 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 not to be overlooked.
For more information please visit www.xantus.co.uk
