December 04, 2007
Professional Services Study Highlights Challenges for Building Value
By Susan J. Campbell, TMCnet Contributing Editor
Organizations that offer professional services as an addition to their hardware or software solutions often deal with internal controversy over the cost of providing those professional services to customers. This controversy is generally a result of the conflict between the sales and professional services departments in regards to the actual and perceived value of the services provided.
To gather valuable information regarding this phenomenon, the Technology Professional Services Association (TPSA) has announced key findings from the “PS Market Rates: TPSA Multi-Member Benchmarking Study”. This research draws upon participating member companies who provided actual company data on list and realized hourly rates for six PS delivery positions in 15 countries.
The study also captured rate data for three position levels and for onsite and solution center resources. The results provide a previously unavailable level of peer insight for executives with PS responsibilities in hardware and software products, system integration, on-demand hosted applications, and value-added solutions, as well as the technology partners and vendors who support them.
To gather valuable information regarding this phenomenon, the Technology Professional Services Association (TPSA) has announced key findings from the “PS Market Rates: TPSA Multi-Member Benchmarking Study”. This research draws upon participating member companies who provided actual company data on list and realized hourly rates for six PS delivery positions in 15 countries.
The study also captured rate data for three position levels and for onsite and solution center resources. The results provide a previously unavailable level of peer insight for executives with PS responsibilities in hardware and software products, system integration, on-demand hosted applications, and value-added solutions, as well as the technology partners and vendors who support them.
"The study yielded an unprecedented view of PS market rates in general and a particularly rich understanding of discounting tendencies,” said Bo Di Muccio, Ph.D., Senior Director of Research and Advisory Services for TPSA, in a Tuesday statement.
“Of great interest to us is the almost inherent conflict between PS sales and the PS business around rates. Sales, more often than not, will tell PS that PS prices are too high. On top of that, they will often push for huge discounts on PS because they typically are more interested in selling product than PS and consider PS to be a loss leader."
"Our new study demonstrates that PS rates can actually be lower than the market will bear and further that huge discounting of PS to get product business is increasingly a thing of the past due in part to vendor-specific objective evidence and financial reporting guidelines, but also due to the fact that discounting appears to follow some organic patterns regardless of whether VSOE is present or not," Di Muccio explained.
Key findings of this study highlight that conventional time and materials pricing remains the most common structure for PS engagements; establishing vendor-specific objective evidence for PS hourly rates continues to be a huge challenge; geography is by far the most meaningful driver of differences in market rates; and on a country-by-country basis, discounting patterns adhere by and large to VSOE guidelines.
“Of great interest to us is the almost inherent conflict between PS sales and the PS business around rates. Sales, more often than not, will tell PS that PS prices are too high. On top of that, they will often push for huge discounts on PS because they typically are more interested in selling product than PS and consider PS to be a loss leader."
"Our new study demonstrates that PS rates can actually be lower than the market will bear and further that huge discounting of PS to get product business is increasingly a thing of the past due in part to vendor-specific objective evidence and financial reporting guidelines, but also due to the fact that discounting appears to follow some organic patterns regardless of whether VSOE is present or not," Di Muccio explained.
Key findings of this study highlight that conventional time and materials pricing remains the most common structure for PS engagements; establishing vendor-specific objective evidence for PS hourly rates continues to be a huge challenge; geography is by far the most meaningful driver of differences in market rates; and on a country-by-country basis, discounting patterns adhere by and large to VSOE guidelines.
"The TPSA PS Market Rates study represents an especially poignant illustration of how incredibly valuable industry benchmark data can be for TPS organizations,” said Thomas Lah, TPSA's Executive Director, in Tuesday’s statement.
”Setting rates without a clear idea of what the market will bear directly affects the top line when rates are too high and needlessly steals from the bottom line when they are too low. Clearly, the issue of market rates is central to any discussion of PS financial performance and having solid industry data on market rates is an indispensable element in any effort to examine and optimize TPSO financial performance."
Susan J. Campbell is a contributing editor for TMC (News - Alert) and has also written for eastbiz.com. To see more of her articles, please visit Susan J. Campbell’s columnist page.
