Saturday, July 27, 2013

IT Benchmarking - Love it or Hate it?

Benchmarks can be great but can be really misleading as well.

IT leaders like CIOs do their best to improve and present IT performance, IT benchmarking is such an approach. Although IT benchmarking data gets a controversial viewpoint, some love it, while others do not so buy-in. Metrics are great for comparing against peers in the industry but do they really tell you if you're at a competitive position?

Information in Benchmarking is helpful. The more details in benchmarks the better information can be used. It’s critical to understand to a certain degree where you stand. Obviously, any data is subject to interpretation when it comes to benchmarking, metrics, KPI's, etc. But as an IT executives, you must constantly be measuring where you stand internally and externally. Many times the external data validates the assumptions or predispositions you had prior to making a strategic or tactical decision. Other times the data causes you to ask questions that drive discussions leading to change or modification from a strategic perspective. Regardless, the numbers have to be looked at in order to solidify forward strategy and progress. The benchmarking data can be used to validate decisions already made, not just inform decisions you have yet to make. 

A set of standards to measure for similar types of businesses needs to be enforced at the CIO level in order for benchmarks to really work. This should include the rate of return to the company for the total amount spent on IT. Until benchmarks are standardized to encompass all of IT spending across the entire organization and made objectively, they will remain a tool for IT executives to get budgets approved. Overall, benchmark results are just the beginning. The real question is, why are you different from the average presented in the benchmark and is that okay, or should you do something different. Are the companies you are being compared to in exactly the same place? That is, have they been spending /investing at the same rate over time as your company. They could very well have invested far more or far less than your firm, meaning their current operating expense levels are based on a completely different baseline.

The key is the context. Benchmarks can be great but can be really misleading too. If an activity is required and important, benchmarks can assist in ensuring that the company maintains competitiveness / relevance. But it might be better to reduce the activities and streamline operations by thinking outside the proverbial box - something that would go unnoticed if the company is focused on benchmarks. Benchmarks are great if they are true not used to market specific company and give indications about the market and industry.

The benchmark is usually APPLE-to-APPLE comparison; same business model, same industry, and within same competition domain. The problem is no two companies are exactly alike in the same product/services/customer mix; they also vary in their investment cycle of growth and cost management. The thing about statistics is that they can work both ways for and against you in a meeting unless you explain how they are to be used and why. The broader industry metrics tend to be a guideline while the more granular they become opens it up to specific interpretations. Bottom Line: They are interesting to read and be conscious of.
Benchmarking can provide only a backwards-looking perspective because the data, necessarily, refers to how both the 'peer group' and your own organization has performed in the past. That often varies wildly from how the peer group is performing now, and from what your own organization wants or needs to do next. It is far more important to understand your own current state & strategic goals, to gather rapid feedback regarding current performance and progress made toward those goals, to analyze the root conditions & causes that apply, to investigate the various solution options, to decide, to act, and then to cycle around.   

High-maturity, high-performing organizations demonstrate a detailed interest in their own performance, may less concerned with what others are doing. Except to determine the current limits to performance ("What is the 'best' performance possible?" "How do others achieve THAT?", etc.). The problem with benchmarks is too often they are subjective and used as a tool to show how well IT is doing rather than showing where they stand in comparison to others. Even with companies in the same field, it is very difficult to measure how one is doing in relation to other when you factor in the criteria each IT division decides to include in their benchmarks. This is further complicated in areas where IT supposedly centralized, but you find business segments with their own internal IT staff. 
Companies have limited resources, it is important to first measure the right things, and then measure them right. Always keep the end - business in mind, the key is context. Therefore, understand pros and cons of benchmarking, and use them wisely.


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