CIO — For outsourcing customers, benchmarking is billed as the great equalizer. Whether an IT leader is thinking about outsourcing, insourcing IT work performed by a external provider or renegotiating an existing contract, a third-party benchmark can provide pricing data that purports to put the buyer on a level playing field with the giants of the outsourcing industry. In fact, most outsourcing contracts contain a benchmarking clause that grants customers the right to benchmark their deals under certain conditions.

The drawback to third-party benchmarking is that it's expensive and time-consuming: It can take several months and cost some outsourcing customers hundreds of thousands or even millions of dollars.

Outsourcing consultancy Alsbridge wants to change the pricing model for benchmarking. CEO Ben Trowbridge says historically, only the biggest outsourcing customers performed benchmarking because it was so expensive. "We think if you radically change the price, customers will do it more often," he says.

To that end, Alsbridge is pushing its ProBenchmark service, which it says can provide an accurate pricing analysis of IT services in two to three weeks at a price that's 70 percent lower than the traditional, labor-intensive benchmarking provided by its competitors. At the heart of the offering is Alsbridge's ProBenchmark software, which it acquired when it bought boutique benchmarking provider Nautilus Advisors in 2008.

The ProBenchmark tool works by taking input on the outsourcing customer's IT environment (its service level requirements, number of seats, whether offshore outsourcing is permitted, for example), and analyzes it using proprietary algorithms. The software then computes an average market price.

ProBenchmark vs. Traditional Benchmarking Services

Alsbridge's approach represents a shift in the way the handful of vendors, such as Gartner (IT) and Compass Management Consulting, that dominate the $400 million IT services benchmarking industry, do business. (See also Benchmark Your Outsourcing Provider Without the Hassle.)

"Typically the benchmarking guys will collect as much data from the customer as they can. The thinking is that if we collect everything there will be something in there that we need," says Howard Davies, who joined Alsbridge as director of benchmarking operations in 2009 from Compass.

In reality, notes Davies, benchmarkers only need 20 percent of the data they collect. The problem is that they don't know which 20 percent. So they take all of the data they collected and model it manually in spreadsheets.

"We've turned that [process] upside-down," adds Davies. "We start with only the data that we need—the things that really drive pricing. And the modeling is transparent so customers can have confidence in the answer."

Most custom benchmarking calculations are done behind the scenes. Providers rarely reveal their methods. "I suspect that is because a lot of what the public buys as 'normalization' [of pricing data] is actually 'fabrication,'" says Phil Fersht, founder of outsourcing analyst firm Horses for Sources.

While Alsbridge executives describe their tool as transparent—the user can see how adjustments to input affect output—their back-end algorithms, for which they're attempting to secure a patent, are just as secret as a traditional methods.

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