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IT benchmarking defines a strategic management method which compares the performance of one IT service provider with the IT services of other companies. Performance means both efficiency- and effectiveness criteria. The comparison can be carried out within one branch, but also on a cross-industry basis.
The objective of IT benchmarking is to identify optimisation potentials and extrapolate recommendations how performance could be improved. The benchmark is the so-called “best practice”; this means that the company (or its processes provided by the IT service in question) which largely meets the defined efficiency- and effectiveness criteria, is the best.
- Identifying efficiency- and effectiveness criteria which serve as comparative factors. The most crucial question is, how IT services within an operative process should be changing („Benefit of IT“ or “Business value of IT“)
- Finding (internal) benchmarking partners and (external) partners/donors, in order to set up a comparative platform. Important: Each partner has to be prepared to share the necessary information
- Setting up a key data system by taking the comparability into account. It is most important to ensure a clear and definition-based boundary, in order to ensure a fair comparative platform
- Analysing the database and identifying the best-practice participants. Definition of the so-called “target benchmark”
- Identifying optimisation potentials and guidelines by comparison with the best practice
- Calculating theoretical savings potentials (gap to benchmark)
- Extrapolating objectives in order to close the gap to best practice
- Setting up an implementation plan
- Controlling results and improvements.
The comparability plays an important role within IT benchmarking. As standard IT services do not exist on an inter-corporate basis, generic IT functions that exist in every company and therefore enable a direct comparison, have to be defined.
Splitting up the overall IT-costs in a useful way is the precondition for a holistic overview.
In general, IT costs are divided according to function and cost category, e.g.:
IT costs per IT functions
- Application development – new functions
- Application maintenance
- IT physical infrastructure – Mainframe/Server, Network, End user access device
- Other IT costs.
Type of IT costs
Following cost categories are usually relevant when rendering IT services and are therefore closely checked within IT benchmarking
- Costs for IT staff (including personnel-related costs)
- Costs for external IT consultants
- Costs for hardware
- Costs for software
- Costs for IT outsourcing
- Costs for data communication
- Other IT costs.
Benchmarking basic types
From a practical point of view, it has been very useful to divide benchmarking into different basic types. The classification is based upon the characteristics of the benchmarking partners. These can be found in the own or in a different branch and they either belong to the own or to a different organisation.
Advantages of IT Benchmarking
From an economic point of view, IT benchmarking replaces the market which is often subjected to an obligation to conclude a contract or does not exist due to lack of comparable services. Benchmarking therefore supports pricing and improves the efficiency of services which is not directly subjected to market mechanisms.
Disadvantages of IT Benchmarking
In many cases, a significant amount of costs (overhead) is allocated to individual IT services by using a special key. If the applied key is not in accordance with the cause of cost, the applied service-costs are faulty and lead to a poor comparability. A comparison is only valid when the scope of the individual IT service has clear boundaries and is respected by all parties correspondingly. Most benchmarking initiatives only focus on "best practice" on the basis of efficiency criteria; the benefit of the IT service for the customer is underrated.