Benchmarking: A ‘Sanity Check’ | Article

lady under pile of paperAnthem, Inc., a carrier of health insurance, was in the middle of an outsourcing contract when they decided to conduct a benchmark on price and service levels last spring. The reason for the company’s decision was simple. “We suspected that we were paying too much for our current service. That proved to be true,” said Caz Matthews, vice president administration, information technology.

Based on recommendations, Anthem chose COMPASS as their benchmarking company. COMPASS representatives visited Anthem, identified the company’s size and type of industry, and then selected similar companies for comparison. The process lasted about two months.

Based on the results of the benchmark, Anthem got out of the contract they were in and moved into an agreement with Affiliated Computer Services Inc. (ACS) . The benefits, however, went beyond that move, according to Matthews.

“We certainly gained a sanity check in terms of what we could expect to pay and what types of service we could expect to receive for those prices,” she said. “It also gave us a tool to assess opportunity for insourcing as well as continuing to outsource.”

Although Anthem decided not to insource any of the elements, Matthews said the benchmark results enabled the company to compare the costs of insourcing with what they could reasonably expect to pay for outsourcing. “It gave us a decent baseline to know whether we were in the ballpark or not, both for insourcing and then for outsourcing,” she said.

The five-year contract with ACS, which begins in January, is more favorably priced, according to Matthews. It also includes a provision for annual benchmarking, which will begin at least by early 2000.

“There are a lot of benefits associated with benchmarking,” said Matthews. “It will help us provide better services to our customers, and it will help justify spending because they ultimately pay the tab. It also will help us focus on areas of opportunity and what is happening in the market.”

Matthews said the benchmarking process enabled Anthem to understand the dynamics that customize each deal, and that understanding, in turn, provided insight into how to negotiate a new contract. Also helpful was the fact they had already been in a contract and that they had effective consulting support.

“All three of those things helped garner more intelligence, more ammunition to be able to negotiate an effective contract this time around,” said Matthews.

Her advice to any executive considering a benchmarking process is concise. Get a reputable firm and understand what it is you are benchmarking. Make sure that you’ve defined your parameters well and understand what makes your situation unique. Then any adjustments to the benchmarks can be made appropriately to accommodate any unusual investment or unique situation in your shop.”

As an example of a “unique situation,” Matthews cites the fact that Anthem operates two data centers in completely separate facilities, making them less efficient than one large one.

“We adjusted our results for that,” she said.

Matthews expects subsequent benchmarking processes to be even more productive. “The more you get into that type of thing, the more you learn and the more applicable it becomes,” she said.

Overall, she considers the experience to be a positive one. “We really thought it was worth the investment,” she said.

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