Sam Harris

09 April 2024
Topics in this article
  • Technology Sourcing

What role does Professional Services play in Technology?

Whilst a few firms still have a simple technology landscape, most have moved into a more complex mix of customer-facing apps, dynamic websites, labyrinth-like ERP architecture, and sophisticated sales software with a myriad of integrations. These organizations do this in search of more “value”. Perhaps they are chasing growth, perhaps they are driving efficiencies, or perhaps they are seeking agility and adaptability to evolve with consumer demand and market conditions. Or most likely, a combination of these and other factors that they value.

With that complexity, however, comes the need for people—people who design, oversee, develop, test, maintain, and project manage how the technology landscape maps and evolves with business and the environment and its requirements (and vice versa). Known collectively as Technology Professional Services (TPS), these people and the firms that supply them are the “orchestrators” and play a vital role in making technology sing to the company’s tune.

Like an organization itself, technology needs evolve and change over time, and therefore, so do the capabilities needed to work with the tech. For this reason, internal teams often turn to third-party providers to supply the expertise and agility needed. Doing so provides access to a scalable supply of appropriately skilled and experienced TPS resources with market-leading knowledge, supplied at pace and for defined durations.

Agility and adaptability are two of the key benefits of utilizing such suppliers (as are speed to value and ROI). However, we often see firms stick with the same configuration from the same supplier across multiple years. TPSs account for a significant proportion (often over 50%) of annual third-party spending for technology leaders. Such services come at a premium, and failure to optimize through adopting an agile contracting and service management approach will result in higher than-needed costs for a lower-value output. In short, what you buy drifts from what you need, and you overpay for the privilege.

Delivering Value over and over

Given the sums involved, it is important that TPS agreements are constantly aligned to where they can best deliver value, and that aged assumptions are challenged as well as the ongoing relevance of the supplier worked with. Most businesses have long-term incumbent providers or ‘partners’, and many technology leaders (CDTOs / CIOs) are reluctant to move away at risk of the lights going off a brain drain and or parts of the business grinding to a temporary halt.

In our experience, we see five ‘Rights’ that separate the leading TPS buyers from the rest.

1. Right Partner(s): Strategically building spend concentration

Consider the world of TPS relationships in three tiers:

While the largest vendors have broad capability across most, if not all, technologies, they may not all have the same depth. As such, implementing a panel of 2-4 strategic suppliers ensures broad coverage and competition. Building the right partner landscape ensures that you can leverage your volume and scale to amplify your voice (amongst strategic suppliers) and create competitive tension at a work-package level.

An effective sourcing process can get you to this point; however, to further optimize value from your suppliers, you require effective ‘demand management’ processes and controls—essentially, how you construct and bid specific work packages. This often requires some form of cultural and procedural change. Typically, we see more mature organizations working through the points below.

2. Right Shoring: Location optimization

An on-shore and on-site resource is still key for certain requirements. However, suppliers often overlook this fact when perhaps there are better-value multi-location strategies to consider for most projects. Let’s not forget that for Western-centric businesses, suppliers may make more money from on-shore resource mixes than any other configurations and may, therefore, be clear on how your requirements are best delivered.
So, what should the mix be? It does vary by organization or project, but optimum configurations tend to be in the range of 5%- 25% onshore, 5%- 25% nearshore, and 60%- 90% offshore.
As well as significant cost optimization, flexible multi-location strategies boost supply chain resilience. When done effectively, there is a prime opportunity to implement global workflow methodologies such as ‘follow-the-sun,’ where teams in various worldwide locations enable 18+ hour delivery daily, enabling key enhancements and driving products to market at an accelerated pace.
This offers added agility to deliver strategic objectives, even during peak trading periods. Locations can be specified based on your specific requirements, linked to language, business locations, or access to required skills and experience. A little market knowledge and supplier familiarity go a long way in architecting the optimum setup.

3. Right Model: From T&M to Outcome Based / Managed Services

Time and materials (T&M) is consistently the most popular delivery (and charging) model; however, in our experience, it is not always the most appropriate. T&M often drives poor value for money and/or lower quality outcomes as there is no vendor incentive to work more efficiently or effectively. To mitigate this, close and active management is required, often adding an additional and costly management and reporting layer to your TPS relationship.
But T&M does have its place, and smart buyers will choose the right model from the three most prevalent:

  1. Time & Materials are resource-based contracts stipulating a role and a day rate. Total charges are Price x Quantity. They are most effective for short-term and temporary requirements for a specific role/skillset to complement a wider team.
  2. Fixed Price / Outcome Based – specific outcomes are listed, normally in the form of milestone deliverables. Total charges are normally fixed, with payment for key milestone deliverables. It is most effectively used for delivery with clear requirements and where the full deliverable is outsourced to a single supplier.
  3. Managed Service—Traditional managed services involve outsourcing entire functions to third-party suppliers, typically in areas such as service desk, network support, and AMS. Charges are normally fixed, and extensive service credit regimes and 20 – 40% efficiency commitments are made in the first three years of operation.

The most mature organizations utilize Fixed-Price/Outcome-Based and Managed Service provisions as their primary delivery models, driving increased value for money and consistently higher-quality outcomes. In a small number of cases, mostly growth-focused, these may also feature an element of shared value.

To access greater value within your organization, consider these three questions:

  • Can you construct work packages detailing fixed outcomes rather than resource requirements?
  • Are your existing suppliers proactively suggesting where they can deliver work under an outcome-based contract? If not, why not?
  • Where your requirement is static and well-understood, can the supplier move it into a managed service structure and take on more delivery and financial risk for you?

4. Right Skills: Role Standardization

TPS resources are largely grouped into three standard classifications of role: Junior, Mid, and Senior. The definition of each and associated expectations varies between organizations – whereas the right balance to strike will vary by project. Often, organizations default or are led towards a senior, onshore resource, even for the delivery of straightforward requirements, due to the individual being an expert at what they do; they understand the nuances of the business, it’s safe, and you can see them. However, the consequence is paying above what is necessary for the role. There is a counterargument here in so far as appointing a less-experienced, remote, junior resource may take twice as long and, therefore, be more expensive overall – ‘buy cheap, buy twice’.
This misspecification of requirements is commonplace and is incredibly difficult to manage without having a standardized set of roles and a good understanding of how to build effective specifications. Defining roles and parameters of responsibilities across seniorities relevant to your organization will provide a tool to challenge TPS suppliers with, ensuring alignment between project requirements and the role deployed – and charged.

5. Right Performance: Performance Monitoring

You have secured the right partners, identified the right shoring strategy, chosen the most appropriate commercial model, and assigned the right skills to deliver. What else do you need? The right performance. After all that great work, how do you track performance to ensure your partner mix delivers high-quality outcomes and achieves great value for money?

An area that, in our experience, organizations often struggle to get right is performance monitoring – with businesses often stopping short of the activity that assures and maintains value delivery. Buyers that do it best ensure that monthly MI reporting requirements are implemented and adding value and that a comprehensive Service Level Agreement is in place with appropriate KPIs at both a framework level and within specific statements of work.

These KPIs should cover key areas such as innovation and automation (of course, to cover GenAI innovations right now), attrition rates, and CSAT scores, alongside several measures designed on a bespoke basis for your specific organizational requirements. The qualitative and quantitative benefits are only fully realized through robust performance management.

Embrace Change

We often find incumbent suppliers who have worked strategically to develop an exceptional application, deploying predominantly senior resources and working hand in hand with internal teams onsite. At this stage, the top Technology teams ask questions of themselves and their incumbent suppliers: does the same team need to be as heavily engaged post-go-live; does the future state need to work face-to-face and side-by-side, and does the same supplier have to provide support, or can a transition be made? Should we follow agile principles and continuously calibrate and recalibrate to needs and market value?

Trying to apply the same supplier, the same team, the same methodology, and the same location strategy feels like the safe option when, in reality, it is the option carrying the most risk, both operationally and commercially. Citing increased costs or lack of alternative options as reasons to avoid change is no longer accurate, to do so simply indicates a lack of appetite for change.  

At Proxima, we specialise in Technology Sourcing. Working alongside technology leadership and their teams we have a strong track record in driving material value from deals and relationships with technology mega-vendors. If you are interested to understand what you could do and what you could save, get in touch.


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