PS RATE PERFORMANCE
Setting hourly rates for professional services lies at the heart of the financial engine of the PS business. It is also a key structural component for PS organizations, at least on par in importance with compensation, organizational structure, business processes, metrics and skills. Because many TPS organizations deliver primarily highly specialized, on-site professional services without the benefit of large scale global labor arbitrage, the cost needle is difficult to move. For this reason, pricing should be a key profitability lever for the PS business.
This does not always translate into operational excellence in PS pricing, however. While many TPS organizations are only expected to carry their own water by design, most are or will be under increasing pressure to deliver more profits to the company.
A major obstacle to better financial performance in PS is the seemingly 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. At the same time, sales will often push for huge discounts on PS because they typically have significantly more incentive to sell product than PS and consider PS to be a loss-leader in this effort.
The pain associated with market rates is brought into sharp relief by this mismatch between the PS business’ interest in increasing profitability and the sales force’s incentives to focus on product. It also provides a poignant illustration of the critical importance of having solid industry market rates data.
What if, for example, a reputable industry study could demonstrate that PS rates for a given company are significantly lower than the market will bear? What if such a study could clearly show that PS discounting tends to fall within VSOE guidelines regardless of whether formal VSOE has been established? The potential power in successfully addressing these questions was a key driver in TSIA’s decision to create a multi-member study on PS market rates.
The 2010 edition of the TSIA PS Market Rates Survey is currently open for participation by TSIA PS members. For more information, please contact Bo Di Muccio at bo.dimuccio@tsia.com.
To read more about what TSIA has learned over the past three years about PS rate performance, explore the following links: