Getting role taxonomy right enables effective rate card negotiation e book

Helping Clients Leverage Global Services & Sourcing

Advisory | Supply Monitoring | Governance Support

www.NeoGroup.com | www.SupplyWisdom.com

www.NeoGroup.com | www.SupplyWisdom.com

Copyright © 2016 Neo Group, Inc. All Rights Reserved.

GETTING ROLE TAXONOMY RIGHT ENABLES

EFFECTIVE RATE-CARD NEGOTIATION

GETTING ROLE TAXONOMY RIGHT ENABLES EFFECTIVE RATE-CARD NEGOTIATION


INTRODUCTION

There are a variety of ways in which clients of outsourced IT Applications

Development Maintenance & Support (ADMS) services engage with their

suppliers. These may be broadly classified into: resource-based (e.g., Staff

Augmentation) and deliverable-based (e.g., Fixed Price, Managed Services).

The former is usually the preferred choice during the early stages of the

client’s outsourcing journey, since it replicates IT managers’ hiring of external

resources to augment the strength of their existing staff, without having to

significantly change the way work is done. This provides a degree of comfort

to client IT/ADMS managers having to deal with the impacts of transition from

an in-house to an outsourced workforce, while reducing the risk of

dependency on a new supplier relationship.

2



As clients advance further in the outsourcing journey, and as their suppliers prove themselves and

inspire confidence and trust to actually perform the work (instead of merely providing resources),

clients tend to migrate the outsourcing of their routine IT operations (such as maintenance and

support of production systems) from a Staff Augmentation model to a Managed Services model,

and project work (such as systems development) to a Fixed Price model. However, even after

such migrations, the Staff Augmentation model continues to be relevant, especially for projects

that involve a considerable amount of innovation or experimentation; projects in which

requirements cannot be clearly specified and/ or the underlying technologies are too new for the

retained team to handle without expert assistance.

At the heart of the Staff Augmentation model is the Time & Materials (T&M) pricing mechanism

that draws upon a “rate-card” that has been contractually agreed by the client and the supplier,

which forms the basis for periodic billing. Each resource employed by the supplier and deployed to

work for the client, is billed according to the agreed hourly billing rate for the specific role played by

the resource (taking into account the complexity of skill and depth of expertise required of the

resource) multiplied by the number of billable hours expended on client service by the resource

during the billing period. The rate-card therefore must cover the entire gamut of roles,

technologies, skill levels and combinations thereof as relevant to the client’s needs.

3

INTRODUCTION


Copyright © 2016 Neo Group, Inc. All Rights Reserved. 4

Rate-Card Change Control – Issues and Challenges

It is commonly observed that over the life of the contract, the rate-card evolves organically, with

ad-hoc changes and additional line items appended into it as the supplier responds to growing

client needs. This often leads to duplication of entries, which in turn causes inconsistencies. Then

again, there could be instances of resources being deployed to fulfill needs that don’t match any

line item on the rate-card, and who subsequently are billed per rates agreed with a specific IT

manager, but not entered back into the rate-card. As a result, after some years into the contract

the client will likely find that the rate-card is too long, too inconsistent and too complex to support

an error-free billing process.

Now imagine the same thing happening across multiple suppliers, each with their own

nomenclature for roles and skills and levels of expertise. Meanwhile, the supply side of the market

is continuously evolving. New suppliers, new services, new technologies, new labor pools,

changing foreign exchange rates, etc. open new opportunities for clients to negotiate more

favorable pricing. Skills that were once considered “hot”, for which clients paid a premium,

become mainstream in a few years.



5

And so when it is time for contract renewal and clients prepare to renegotiate with their suppliers,

the rate-card is the first item on their list. Mature clients prepare well in advance for such

renegotiations.

While preparations may include various steps, the two most important ones are:

(1) Rationalizing and normalizing the role taxonomy, to help remove duplication

and inconsistencies and thereby simplify, restructure and standardize the rate-card across

all suppliers of the same or similar services, and

(2) Hourly rate benchmarking, to help determine market pricing for the roles and skills

that they source from suppliers. While both steps may be conducted in parallel, it is prudent

to first get the taxonomy right so that the benchmarking can be done against a cleaner,

simpler rate-card structure.

RATE-CARD CHANGE CONTROL – ISSUES AND CHALLENGES



Role Taxonomy – Foundations

Three key dimensions underpin the foundation of a robust role taxonomy:

(a) Role groupings, based on primary functional responsibilities underlying each

role

(b) Skill categories, based on price-bands determined by the economics of the

labor market, and

(c) Skill levels, based on depth of expertise needed to perform the role. The

importance of each of these 3 dimensions is outlined below.



7

Functional Groups

This is the first step of role rationalization and it is extremely critical to get this right. Every role in

the rate-card is defined by the primary functional responsibility (e.g., developer writes/ edits code,

a tester tests the code written by the developers, and so on). Some suppliers may have different

nomenclature for the same role (e.g., a developer may be called a programmer). So it is important

to understand the primary functional responsibility pertaining to various roles and then group them

accordingly. This leads to reducing the number of items in a rate-card to a more manageable level.

A practical approach to grouping roles based on primary functional responsibilities involves

leveraging the conventional Software Development Life Cycle (SDLC) and the kinds of skills

involved at each stage in the SDLC: Analysis, Design, Construction, Testing, and finally, cut-over

to Production. Straddling all these stages across the SDLC, are the Management skills needed to

bring in projects on time and within costs.



Accordingly, we may define the following Groups:

A. Analyst/ Consultant: (i) to analyze (business and/ or technical) needs and develop/ modify

business requirements or system specifications and/ or (ii) to provide consultation on the business

domain/ process/ systems/ technology topics associated with the ADMS work performed by other

resources.

B. Architect/ Designer: to design technical architecture and/ or user interfaces, user experience, etc.

that forms the basis for technical work (such as coding). May include secondary responsibilities such

as providing technical consultation/ advice/ guidance to other ADMS resources such as developers,

testers, etc.

C. Developer: to create and/ or edit code (applications software programs) based on requirement

specifications.

D. Tester: to test code submitted by Developers for testing as per agreed testing strategy.

E. Administrator: to perform system/ database admin and/ or user support services.

F. Manager: to ensure successful completion of work products by the team of resources assigned to

them to deliver an ADMS project/ service. May include secondary responsibility of performing some

part of the ADMS work (typically the most complex/ critical pieces).

FUNCTIONAL GROUPS



This is the last step in rationalization of the role taxonomy. For each combination of role and skill

category, the depth of expertise required to perform the role may vary. Since depth of expertise is

difficult to objectively define (and agree, while negotiating prices) a good proxy that comes in handy

from a pragmatic viewpoint, is the number of years of experience of the resource. Thus, one may

differentiate by junior, senior or expert level depending on the number of years of experience. As may

be obvious, the more senior the skill level, the more the hourly billing rate. Which is why it is

important to review resource requisitions that specify a high skill level (to check if a slightly lower

level of skill would suffice).

Skill Levels



SKILL LEVELS

Fig. 2 tabulates the combination of the three dimensions – Functional Groups, Skill

Categories and Skill Levels – that defines the “space” in which the rate-card may

be structured. It may be noted that based on the supply location, prices are likely to

vary. Therefore, every location will require one instance of this table, in which each

cell will contain the price for that role quoted by a supplier.



11

Role rationalization and normalization in itself is an exercise that can yield substantial benefits in

rate reduction, in situations where there are limitations on time and budget that preclude

investment in benchmarking. It leads to a simplified and easy-to-implement rate-card and can

also identify potential savings by consolidating similar roles (quite often – the same role

described using different words) that were previously at different price points in the old rate-card.

Our experiences with various clients show that role rationalization and normalization alone could

unlock anywhere from 5% to 10% savings. These savings may be obtained purely by

consolidating a wide spread of different-sounding roles, all of which are associated with the

same primary functional responsibility. Adding benchmarking to that could increase the savings

potential up to anywhere between 12% and 15%. These are proven numbers and our track

record stands testimony to having helped clients save several millions of dollars on their annual

ADMS T&M spends.

Summary & Conclusion



Neo Group Can Help

The global sourcing landscape is constantly evolving. For a deeper discussion on planning and executing

a successful globalization strategy, contact one of our lead advisors.

Atul Vashistha Brad Pickar Hemant Puthli

CEO & Founder Partner & SVP Partner & SVP

[email protected] [email protected] [email protected]

Kevin English Pankaj Sharma Vikram Naaidu

Partner & SVP Partner & SVP Partner & SVP

[email protected] [email protected] [email protected]

About the Author

12

Hemant Puthli is a Partner and Senior Vice President at Neo Group, where he is responsible for assisting

clients in the development of their outsourcing strategies and governance models. Hemant brings over 25

years of experience in Management Consulting and IT Services, having served several clients in North

America and India

.

mailto:[email protected]








About Neo Group

Founded in 1999, Neo Group helps organizations meet business objectives and address business

challenges by leveraging global services and sourcing. To learn more about Neo Group, please visit

www.NeoGroup.com.

About Supply WisdomSM

Supply WisdomSM is a unique cloud-based service that provides data and intelligence for sourcing risk

and opportunity monitoring of global countries, cities and suppliers. To learn more about Supply

WisdomSM, please visit www.SupplyWisdom.com.

No part of this report may be reprinted/reproduced without prior permission from Neo Group.

13

http://r20.rs6.net/tn.jsp?e=0012RL-OeluYzdjkJeCpuwCeBcTSj7d2-nHpXOTKjLegrOVafuAc01UNb98-xknQvQf4Qtc55T1G6Q8PlDzOLzp1Z7gc_9p7v3T4QPuDJZgO4A=

http://r20.rs6.net/tn.jsp?e=0012RL-OeluYzdjkJeCpuwCeBcTSj7d2-nHpXOTKjLegrOVafuAc01UNb98-xknQvQf4Qtc55T1G6Qtww6mP8-5QqYBIQKMUWa6eBVxyYZ626Uu4qIHAJfEFyQHoTDbnS2J

Getting role taxonomy right enables effective rate card negotiation e book

Business

Transcript of Getting role taxonomy right enables effective rate card negotiation e book