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Fixed price, hourly rate or salaried IT staff: What is best for you?

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When you are thinking about running an IT project or regular maintenance of your IT systems do you think about the number of hours of work involved or the dollar cost of the services?

The IT industry struggles with how to charge for its services at all levels in business from the micro business of one or two people through to the enterprise with thousands of employees. People shift from in-house staffing to contractors to outsourced to offshore and back again trying to find the right balance between available skills, price and quality of service.

Why is it so hard to get the model right?

  • IT is complex and requires a variety of capabilities to make up the solutions team
  • Technology keeps changing so yesterday's expert becomes the person holding back development tomorrow
  • Changing IT systems means changing business process, which in turn requires change management often requiring external input
  • Resources (people) in this area are expensive and so keeping the team together after a migration or implementation is often pointless
  • Keeping the right people as a project team is disbanded is difficult to do; hence often essential skills are lost soon after implementation is completed
  • Getting a quick response when something breaks is vital to keep the business operational

Of course there are many more reasons why getting your IT team right is difficult. I see the key as being to assess the business needs now and over the next three years carefully and then making a balanced decision about which skills to have in-house and which ones to have on tap.

Suggestions for mid-market companies with 20 to 200 staff using computers

Invariably, paying for services by the hour is going to give poor results as you will not command the attention of your providers, who will favour the requests from their fixed price clients who value them all the time, not just when they need a quick fix.

Strategy is best done by consultants who spend some time in the business figuring out what the longer term requirements are, working closely with the staff and leadership teams to gain an insight to the issues and the vision, and gain an understanding of the immediate technology shortfalls and longer term objectives. These people can call on a broad pool of cross-industry experience to provide new solutions to your business quickly and efficiently.

Project teams should be pulled together from a matrix of skill sets as required by the project and should be disbanded on completion of the exercise. Contracting or outsourcing for some of the skills is likely to get the best result here in all but the largest of companies where sufficiently broad skills are available in house.

Maintenance is a complex issue and cost-effectiveness of different solutions needs to be carefully considered at different business sizes. At 20 people it is clear that outsourcing to a team of people becomes important. No one-man-band can really provide the quality of service required while in-house employees are too expensive.

Once we get over 50 employees it is tempting to have a highly tactical person on the floor full-time to speed up the quick fix. The risk here is that IT management becomes very tactical rather than strategic and the quality of the system is eroded.

Taking a dynamic approach

So from experience it is better to resist the temptation to place full-time staff on site until there are closer to 100 staff, as then a combination approach can be used where some of the work is outsourced and some is done in-house. This gives you a mix of tactical services and strategic thinking. It will also spread the knowledge across two or more organisations and many people so the loss of one individual does not mean the loss of all of your systems knowledge. It will give you the best capacity to respond to improvements in technology dynamically.

This dynamic approach to IT will also ensure your in-house team is not given the opportunity to become complacent as the external providers will introduce new technology at appropriate intervals, forcing your internal resources to train up to remain valid. The outcome you want to avoid is having your in-house team become isolated from the evolution of new solutions, as they then become part of the legacy systems within the business and will say no to requests for improved functionality.

If your IT staffing solution is not maintaining the right systems for your business then it is time to call for strategic input to ensure your business development and growth is not impeded.

David Markus is the founder of Combo. If your IT environment is slowing you down, contact Combo on 1300 726 626 to organise a complimentary consultation with David.

Comments

  • Jon Manning
    Jon Manning Tuesday, 26 March 2013

    David,
    Your "hourly rate" headline caught my attention. As in so many other industries (Legal, Accounting, etc.) the reason service providers resort to charging by the hour (and leaving money on the table in the process!) is because they don't know how to scope a project, a case, a piece of work.
    Get that scoping right, charge for value-delivered (not inputs provided) and you'll be much more profitable!
    Jon

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