CIOs must make sure they are leveraging the right IT benchmarking data to balance fiscal responsibility, technology-enabled efficiency, and innovation-driven growth. How much IT spend is too much, leading to waste? Too little, leading to business risk? Or just right, delivering the value your business expects from technology investments
Gabrielle Francesco Product Marketer at Apptio sat down with the Apptio team and gave answers to the questions most often heard when organizations are considering adopting a benchmarking process.
Hi Gabrielle. We hear the same questions around IT benchmarking. We’d like your take on answering them. I'll read you the question and you give us your best response.
Ok. Here we go. How do I know which IT benchmarking data (e.g., industry, IT OpEx, infrastructure) is best for me?
The right answer flows from the outcome you are looking for. It’s easy to start with some of the top metrics overall for the industry—like total IT spend—and then go into fine-grained detail. However, as you get into more granularity, it’s harder to align spend to those benchmarks.
The key is to have a program in place to align to actuals. When you look at the overall metrics, it’s hard to quickly see the impact of changes—particularly when compared with more granular metrics like financial OpEx, or even unit cost. Identify improvement areas there and replace it with quick time to value where you can take immediate action.
Honestly, any of the three could be a good starting point, but generally, people start at the industry level and work down to higher fidelity, granular benchmarks.
How should I choose my peer group and industry?
I’ll answer a question with a question. Who does the stakeholder consider to be a key peer? That’s the key point. A lot of time, when we are talking about these high-level top-down measures, industry is very important. We want to look at the key competitors aligning with similar businesses, or similar industries to make sure we've got that captured.
There may be meaning in selecting a different peer group. Lots of times companies want a comparison with the significantly technologically enabled companies like the Amazons and JP Morgan Chases of the world. With the knowledge that if you are in, say, manufacturing you wouldn’t expect to have the same level of spend. Knowing that, it doesn’t make a lot of sense expecting to achieve similar economies of scale, but it doesn't mean there isn’t any insight.
Who you select as a peer depends on the measures and what your goals are. That must be guiding principle.
What if the benchmarks show me as average compared to my peers, what insight can be derived from that?
A benchmark should not be viewed as a target, but rather an additional context around what your organization is doing. If you're showing up as average, a lot of firms conclude they are on-target and do not need to change anything.
In fact, a stay-the-course meme may do more harm than good. A digital transformation initiative needs significant investment. An organization with long-term goals should have short-term spend spikes in spend. In those cases, staying close to the mean is the canary in the coal mine indicating failure.
It seems that IT benchmarking data doesn't move all that much, how often does it make sense to benchmark?
The key is to ask who wants data, how much they need and do they need it on an ongoing basis. Context is the most important thing in how you're evolving and measuring which stuff is important. A benchmark is there to help you understand how you're evolving versus the industry. Be proactive about how you're evolving and how the business is evolving. Anticipate changes on the horizon that you want to respond to. Drill down on areas of spend by continuously asking what’s happening with the business and how it impacts IT.
What is the value of this benchmarking if we don't know whether a high or low number is better?
Alignment to a good peer group, representative of your business strategy, provides a good reference point. These comparisons inform whether your comparison is good or bad. You derive a suitable comparison by combining the context of your overall strategy and the value technology provides in your organization.
When you might need additional help, it can be useful to engage with a third party advisory consultative engagement to help drive some of that clarity.
I haven't done benchmarking yet, but should I start with a third-party consultancy or consider an on-demand benchmarking solution as a first step?
The two can be partnered up nicely. Our recommendation is that it can be useful to start with an on-demand benchmarking because it helps you go through the process of aligning your spend in a reputable way to make the comparison to benchmarks easier. And so, you know, if you already do engage with other third-party benchmarks, whether it's consultative engagements or buying data packs from other vendors, the two can be partnered up nicely. But when you get to wanting to be able to compare your actuals, that's where the on-demand can be useful in helping you do that, as well as being able to explore broader sets of data and make an additional comparison to more peer groups.
I typically engage in a consulting engagement with an outside party, can I use an on-demand benchmark? Can it enhance this work, or does it replace it?
The consultative engagements can be nice for deeper dive, higher fidelity industry or specific completion benchmarks where you get finer detail. On-demand gives you the ability to do things like scenario planning and look more broadly across multiple geos, sizes, and industries. The two are complementary and a lot of organizations use both.