Cost containment has always been a driving force for IT outsourcing, but in recent years, buyers have begun to focus more on value-added activities like digital enablement. Now, the economic impact of the COVID-19 pandemic is driving some organizations to pursue both digital enablement and cost containment at the same time. As a result, many enterprises today are taking a hard look at how competitive their IT services contracts are.
Essential to this, of course, is benchmarking.
The good news is that, as the IT services market has evolved to smaller, shorter transactions, benchmarking has morphed into a more cost-effective and useful tool.
Advances in automation and analytics allow enterprises to benchmark their transactions in real time, each time an invoice is received. This not only provides greater visibility to price competitiveness, it also allows enterprises to use benchmarking more frequently and for other purposes.
Enterprises now have available to them a wide range of benchmarking services. Traditional tripartite benchmarks, which are designed to support benchmarking clauses found in most outsourcing agreements today, are certainly important for gaining insights into market price trends and making more informed buying decisions. But other benchmark services, including both higher-level, project-based market assessments as well as real-time subscription price monitoring services, can also help a company contain costs.
When Is the Right Time to Benchmark?
In the past, enterprises could only benchmark at most once every 12 to 18 months, and they spent time and energy making sure they conducted one at just the right time. For a typical outsourcing buyer, conducting a benchmark too soon might not reveal savings but waiting too long could cost millions of dollars in value leakage.
Today, benchmarks can be done more frequently, with little effort on the part of the enterprise. With lower-cost benchmarking services, enterprises can benchmark each and every invoice they get from their service provider. The sooner a company sees a price change and notices its transaction is out of market, the sooner it can start saving money.
How to Leverage Benchmarking
With the advent of more cost-effective benchmarking, enterprises can leverage results to confirm whether their contract is price competitive and accomplish a host of other objectives. Benchmark results help leaders:
- Understand whether contract pricing is aligned with the market at any point in its lifecycle
- Provide price-level justification to internal stakeholders
- Track market price movement without an RFP or RFI
- Perform trend analysis for budget planning and take early corrective action
- Determine timing and strategy for more formal project benchmarks, contract renewal, renegotiation or recompete
- Determine price competitiveness for new in-scope services
- Perform what-if analysis to understand the impacts of service configuration changes (increased volumes, service level changes).
All of this means enterprises must shift their thinking about benchmarking. It is no longer simply a discrete once-every-year-and-a-half effort that requires the help of a provider. Today, companies should think of benchmarking as an ongoing subscription that allows an enterprise to simply log in and run reports when they need them. Having market price data at your fingertips allows enterprises to more quickly respond to changes in market prices and make more strategic decisions regarding their IT services.
ISG provides a variety of price benchmarking services to meet enterprise needs, from tripartite benchmarks designed to reset price under the benchmarking clause, to ongoing price monitoring services designed to quickly and regularly identify price movements.
Join our ISG Smartalks Budget and Buy Smart with On-demand Market Price Intelligence to learn more about how benchmarking is changing to put market price data at your fingertips.
About the author
Chris Pattacini is a Managing Director at ISG, with more than 30 years of industry experience. As an experienced IT outsourcing and benchmarking consultant, Chris is a recognized industry leader who utilizes state of the art benchmarking tools for project-based support of outsourcing transactions for large corporate clients. Chris’s expertise includes market price intelligence for various business and IT services. He currently manages the ProBenchmark platform.