As the pandemic continues to dominate headlines and every aspect of our lives, the technology industry continues to adapt. Similar to manufacturing supply chains, the global supply chain for technology professional services has been impacted. We now find ourselves amid a global talent shortage due to various factors like the Great Resignation and higher demand. Today, the industry is at an inflection point which is affecting how services are priced and – as a result – how they will be procured going forward.
What’s Driving Up Pricing for Technology Professional Services?
The changes afoot are more complicated than the soundbite explanations from tech trade media would have us believe. Traditional reservations about work from home have given way to a broader acceptance that work is an activity and not a destination – particularly for knowledge workers. The hybrid workforce is now here to stay. As employees spend more time working from home, work-life balance comes into clearer focus, and more employees are exercising the opportunity to seek job changes to better fit their new lifestyle and rebalanced priorities.
Good talent attracts great – and often multiple – job offers, which are shifting price points upwards and contributing to the increased cost. Employees have more options today in the hybrid environment, and employers have to work harder and pay more to attract and retain good talent.
Low-cost offshore destinations such as India have now seen, on average, well-documented pay increases of 20 to 35 percent across the board. For key roles and niche technology skills, the increases are much higher – as much as 100 percent in some cases. Cost increases have similarly hit other geographies such as Europe, nearshore destinations such as Mexico, and even state-side delivered services in the U.S. As a result, service providers are now coming back in droves to their customers to negotiate price increases to cover their rising labor costs.
Through this period of flux, one thing is clear. Both the supply side and the demand side of the global technology professional services market need to find a new balance. Service providers will require some pricing relief to manage operating margins and cost structures, and customers will need to demonstrate some pricing flexibility to avoid service disruptions or else settle for lower quality talent and outcomes. However, there is acceptable common ground to be found which builds synergy and avoids unrestrained cost explosion.
Tips to Help You Save on Your Next Technology Professional Services Agreement
NPI continues to perform price benchmark analysis and advise customers on how to achieve best-in-class professional services pricing through this period of change and readjustment. Our analysis and resulting insights help drive consultative price re-discovery across geographies. There are also smart strategies which are focused on helping the customer manage change to the total cost of ownership.
One example of a great strategy with targeted results and a narrow focus is advising customers to accept some – but not all – price increases. Agreeing to higher pricing for low availability niche skills where service providers really need the price relief is strategically a better option than okaying an across-the-board price hike that encompasses commodity vanilla skills.
Similarly, with inflation rates changing in key market geographies across onshore, nearshore and offshore, the cost-of-living adjustment needs to re-indexed based on new emerging benchmarks. NPI also advises customers on how short-term price increases can be offset by medium- and long-term service provider investments in the customer’s technology estate and things like volume discounts/rebates/service credits/innovation fund investments and other constructs which put true service provider skin in the customer game.
The rising costs of global technology professional services has re-emphasized the need for strong external counsel in two areas. The first is guidance on updated fair market price discovery – what does a fair price for specific skill sets look like given current market conditions and the customer’s unique requirements? The second is insight into how service providers, vendors and the industry are approaching cost and pricing rebalancing – what is the justification and strategy, and where are the opportunities to gain negotiation leverage?
Answering these two questions is key to eliminating the risk of overspending on technology professional services as customers – and the industry as a whole – navigates new territory.
Have a question about technology professional services pricing? NPI can help.
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- NPI Service: IT Price Benchmark Analysis & Negotiation Intel