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The Shortfalls of Benchmarking

We’re a competitive society… ‘Best city to live in’, ‘Best place to work’, ‘Top colleges and universities’, ‘World’s richest person’ – we are literally surrounded with rankings and comparisons and whether bad or good, we’ve all been conditioned to ask the question – how do I measure up?

The business world is no exception, where the multi-$Billion benchmarking industry capitalizes on our collective desire to answer that very question:  Where do we stand in comparison to peer group?

To be sure, self-assessment in search of self-improvement is both admirable and necessary.  In fact, I would argue the need to self-assess is more important now than ever, as old methods and procedures are rapidly being replaced with new ‘digitized’ approaches.

So, when we talk about benchmarking as a general concept, it’s not the “what” I take issue with – it’s the “how”.

First, here’s a quick level set on what I mean by benchmarking, specifically the approach that falls short of offering optimal value for the enterprise:

  • A high-level analysis of general ledger level info for headcount, depreciation, capital investment and third-party expenses broken across various IT infrastructure categories
  • Comparisons to a “peer group”, most likely defined by industry and top line revenue
  • A report that calls out areas for improvement but lacks a truly actionable plan to close the identified gaps and lacks alignment with key business and technical drivers

Using the approach outlined above, a best-case outcome highlights areas for improvement, but lacks the detailed plan required to remediate issues.  Even worse is the result where a firm receives “Best in Class” honors, indicating no improvement is required, despite underlying opportunity for both cost reduction and performance improvement. Unfortunately, we see this quite often in the market, and most often the lost opportunity is counted in tens of millions of dollars.

Although the circumstances have varied across different clients, the results are generally the same – paid benchmarking exercises like the one described above fail to identify hidden savings opportunity across most infrastructure categories hosting, network, and UC services.

In one case, our Fortune 50 client hired a well-known benchmarking company to conduct an IT-wide benchmarking study.  The resulting report covered several hundred pages and was presented in a thick leather binder.  The network tower was ranked “Best in Class”.  After our review, however, Strongbow identified and captured $30M in annual savings from network services alone.

Another client hired a different firm to conduct a benchmarking study specifically for network services.  In this case, the benchmarking firm identified roughly $1.5M in annual savings based on some key rate categories.  Months later, Strongbow had achieved more than 10x that amount – or $10M+ in annual savings for network services, using our unique approach.

There are several pitfalls with benchmarking that lead to sub-optimal results:

  1. Market conditions are shifting faster than ever.  And yet benchmarking is a process that relies on historical information that is, at best, several months old, and in some cases, years old.  In a dynamic, ever-changing world, that’s a problem.
  2. The devil is in the details, and benchmarking studies often over-simplify the story, ignoring important factors like service level, performance requirements, geography, and quantity.  Consider that last point – perhaps you’re paying a competitive rate for a particular service element, but you’re also buying something you don’t need – benchmarking doesn’t address the issue of over-subscription.
  3. Benchmarking is not prescriptive. In most cases, there is no detailed plan for gap closure.  So, if your maintenance costs are 25% above market – how exactly do you reduce those costs when you have just signed a 3-year renewal of your maintenance agreement?

Yet I would suggest there’s an even more important element missing from the classic benchmarking approach: they lack any point of view on how modernized infrastructure can improve performance, reduce operating costs or how transformed solutions can offer improved business processes.  By definition, these studies look back at history, ignoring the financial and technical benefits associated with what many now call ‘Digital Transformation’.

At Strongbow, we offer a better approach.  We gather and analyze real-time information relevant to our client’s specific needs. We customize our approach to analyze metrics others overlook. Yes, we help our clients understand how they compare to other similar enterprises, but in addition to highlighting technical risk and savings opportunity, we create a detailed, actionable roadmap to help achieve both cost reduction and performance improvement. In this way, we leverage a thoughtful commercial strategy that supports a detailed plan for infrastructure modernization.  In doing so, we unlock significant short term savings to help fund the required investment in technology enablement that is ultimately needed to digitally transform your business.