Don't Mess with Texas

Keeping benchmarking alive was top of mind for leaders at the Texas Department of Information Resources (DIR) before they signed a seven-year, $US863 million data centre services contract with IBM in November 2006. "Benchmarking was a hot issue for us. Our belief was that it would allow us to have the best insight into how our deal compares to market pricing," explains Kim Weatherford, director of state-wide technology operations. "Over time, technology [improvements are] going to drive down rates for various [services], and we want those rate reductions," he adds.

During the state-mandated bidding process, Weatherford noticed that all the vendors seemed allergic to the concept. Indeed, while most issues were resolved before final negotiations with the winner, IBM, benchmarking was not resolved until the final days of negotiations. "IBM had experienced problems with [benchmarking]," says Weatherford, "but we worked hard to get language in there that allows us to do it regularly."

Initially, Texas went old school on the clause, seeking automatic rate reductions for charges that did not fall in the lowest 10 percent of market pricing. IBM pushed back and raised it to the lowest quartile. IBM also demanded a cap on annual pricing adjustments: no more than 5 percent in discounts in years two through four and no more than 7 percent in years five through seven. The clause allows the state to benchmark annually and even includes language that compels IBM to waive its ban on data reuse.

Weatherford admits that the dollar value of the state's contract went a long way toward getting a more balanced benchmarking clause. But any determined customer can and should secure similar benchmarking rights, he insists. "You really have to know what you want and what outcomes you're willing to live with, and put that on the table," says Weatherford. "The outsourcer will figure out a way to give it to you; it's just a matter of money."

An Annual Affirmation

Campbell Soup senior vice president and CIO Doreen Wright brings in benchmarkers once a year to benchmark specific services and technologies that have been outsourced in her 10-year deal with IBM. "In some cases, we find we're paying too much and in others too little," she says.

The important thing, Wright says, is that Campbell spent a full year on the latest contract renegotiations with IBM (the original deal dates back to 1995) to get initial pricing right, determine which services should remain with IBM rather than come back in-house, and ensure benchmarking rights for the length of the deal.

Ironically, Wright says she insists on benchmarking because she has a good relationship with IBM. "They're an extension of our own team, and we can lose objectivity," she explains. "So we need to bring in an objective third party who bases their assessment on facts."

The issue of data reuse is trickier. There's certain data IBM will not allow the customer to share with the benchmarker, says Andy Croft, Campbell's vice president of global services. "We're not crazy about sharing corporate data either," says Croft. "But we realize the whole industry needs to benchmark." And the process itself is arduous. In fact, Wright had to skip benchmarking one year because Campbell was rolling out a new SAP system in Canada. Still, "just having [the benchmarking clause] in there is healthy for the relationship", says Croft. "It makes a lot of implicit things explicit. And it eliminates the vendor's entitlement mentality."