Friday, January 04, 2008

On being average

Chris Koch, editor CIO magazine talks about the applicability of a traditional IT benchmark measure of cost/spending against revenue and what it means to be in the middle of the range for your industry. He speculates that if you are mid range you probably aren't spending effectively and that companies finding themselves close to their industry average in spending should be concerned. Noting that many IT benchmarks reflect only new spending and do not include the cost of maintaining what you already have, Koch says

"Average may simply mean you are managing neither piece well. Being in the middle shouldn’t be a comfort."

and to take the message home, he quotes a CSC study which found that

"companies that spend much less than the average [on IT] are three times more successful than those in the middle. And companies that spend much more than the average are six times more successful."

There are problems with external benchmarks, mostly related to knowing whether or not you are comparing apples and apples, and not all companies find value in using them. The currently popular Lean approach to process excellence, for example, ignores other industry benchmarks and measures only against itself.

Perhaps the lesson is not about benchmarking.

Highly effective organizations have strategies and plans which drive the resource allocations year over year. If companies spending more and less than average are achieving better results, could it possibly be that the average spenders are not targetting their budgets, IT and otherwise, towards specific goals? Could it be that they don't have clear objectives?

I suspect that all too often in "average" organizations, the budget is the plan.

If there's more, read it here...