Companies across the globe are embracing digital transformation to enable innovation and growth. That is why making the right decision on your IT investments has become so important to success. When staffing IT initiatives, companies need to consider three key questions to optimize IT staffing spend:
Are we getting market competitive rates for our IT staffing?
What factors affect IT rates?
What strategies should we use to manage our IT staffing rates and roles, including managing “niche skills” and using competitive tension?
Increasingly, enterprises are seeing the benefits of IT staffing benchmarks that ensure roles and rates are aligned with market pricing. This process quantifies market gaps between the rates they are paying for specific roles and other vendors’ rates using key parameters, such as geographic location, years of experience and specific technologies. Savvy companies looking at cost-reduction strategies use IT benchmarking data to answer the following questions:
- Which locations provide highly skilled labor at competitive rates?
- Which vendors in our third-party IT supplier portfolio are providing the most competitive rates?
- What roles and locations warrant a regular renegotiation of rates based on market gaps and utilization?
- How does global supply and demand for “niche skills” affect rates?
- How does the complexity of our staffing portfolio affect rates?
According to data from ISG, IT staffing rates increase or decrease year over year based on geopolitical, economic and workforce trends. Supply and demand for roles and experience in each country are in constant flux. Demand for emerging technology roles like security consultant and lead security consultant, for example, is growing rapidly and driving the U.S. rate gaps higher than in many other countries. At the same time, while U.S. unemployment rates are driving increased wages and higher rate-card pricing for certain roles, rates for common roles for which there are many available resources – including software engineers of all levels, business analysts and project coordinators – are trending lower.
As countries around the world train their workforces and increase supply of the required roles, skilled resource availability goes up and wages and rates go down. In Ukraine, for example, service providers have matured their technology workforces and are cutting margins to win business. This is becoming the trend in Eastern European countries where the IT staffing market continues to mature.
Managing IT Staffing Rates and Roles When It Comes to “Niche Skills”
Enterprises need to regularly renegotiate rates on an annual or semi-annual basis as allowed by their contracts. Exceptions for special requirements may require a more frequent cadence. This is especially true for niche skills that deal with new or unique technology in the market. Often niche skills become routine commodity skills within 18-24 months. Exceptions to this rule include skillsets that are in high demand and have a shortage of resources.
Even roles that may no longer be considered niche may garner higher rates if they require an immediate start date, proficiency in a particular language, work in a certain location, extra years of experience, or industry or regulatory expertise.
ISG does not consider it best practice to identify niche skills as part of a long-term contracting arrangement. Rather, we recommend focusing more on identifying core IT needs and using automation and cloud computing to increase productivity and speed to market. The truth is, the market is constantly changing and evolving, and today’s niche skills will often become tomorrow’s commodity skills. In other words, the exact set of skills a programmer has today will be more common two years from now, so filling demand for niche skills should always be a short-term strategy.
Managing IT Staffing Rates and Roles When It Comes to Employing Competitive Tension
Companies that have multiple suppliers in their portfolios are generally more successful in getting “best value” from their staffing providers. Having multiple vendors bid on new and existing projects often results in better overall pricing. Using in-house vendors often is less risky to the overall service quality of a given project since you know their history of quality, productivity and cost firsthand. Benchmarking the supplier’s standard rates to the market gives you the peace of mind that you are selecting the best provider for your needs.
Managing the staffing of your digital transformation projects can be complex, but targeted analysis of your IT staffing strategy and spend can help you make smart decisions and cut through the confusion. ISG helps companies conduct a variety of IT cost optimization programs, with IT rates benchmarks as a specific way to focus on staffing rates for niche and standard roles. Contact us to find out how we can help your organization.