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The IT Worker Shortage: Practical Considerations for Tech Buyers

~ By Timothy Nuckles

A team of people working together in a computer lab

The shortage of skilled IT workers is not like global warming. We are certain the worker shortage is real, and we are definitely feeling its effects now.

Heavy users of technology tend to focus on how the worker shortage is affecting them most directly; that is, their present inability to fill open technical positions. Perhaps less obvious is the impact the IT worker shortage has on organisations' use of outside vendors and consultants for their projects. Vendors and consultants are also finding it difficult to hire the talent they need, which is limiting their engagement capacity and growth opportunities.

Tips for Technology Buyers in a Tight Supplier Market

If you are about to undertake a project that will rely heavily on an outside vendor or consultant (from this point I refer to both simply as "vendor"), consider the following tips and suggestions.

RFI/RFP Process

When you are ready to source any new project, think carefully about your Request for Information/Request for Proposal (RFI/RFP) process. In a tight market, vendors have less time for everything, including time for responding to RFIs and RFPs. Your goal is to get the attention of a number of qualified vendors, and now more than ever, you need to be creative in your approach.

The one-size-fits-all RFI (you tell a vendor very little about your project, but ask the vendor to tell you everything about itself and its products and services) is not an option. You need an RFI that is very specific and tailored to your current project. All-encompassing, fifty-page RFP documents are also not an option (except for agencies of state that must follow a statutory procurement process). Chances are that many good (busy) vendors, the very vendors you want to attract to your project, will not have the time to review and respond to an old-fashioned, one-shot, cover-the-world RFP.

As a continuation of a trend that started well before the current tight supplier market, you should try to break your RFI/RFP process down into smaller chunks that are more easily digestible by your vendor candidates. By "layering" your RFI/RFP process, you will win a first response and subsequent responses from a greater number of vendor candidates. Think of your RFIs and RFPs as living documents, subject to later amendment and supplement, and declare them as such to your vendor candidates. A layered approach maximises vendor response rates and saves you and your vendor candidates precious time. You request the most detailed information only from the most qualified vendor candidates, and only the most qualified candidates have to prepare more detail.

Give prospective vendors a meaningful document, but one to which they can respond in a reasonable amount of time. Strike a balance between sufficient relevant content and the length of your document. Load up the most relevant information about your project and your needs in the first two or three pages, and save all the procurement boilerplate for later in your document or in a separate attachment (or better still, leave this clutter out of your document altogether and cite vendors to some private web pages containing this content). Limit the number of "exercises" a vendor must complete in order to respond; for example, self-scoring of base functionality for software. You may want this and other detailed information at some point, but be prepared to get it over time from select candidates instead of all at once from all candidates.

Pricing

If you are negotiating with a vendor for a new project, now is not the time to squeeze excessively on product price or a rate card. In many market segments, vendors are turning away work because they do not have the resources necessary to complete it. After a number of years of operating in recession mode, vendors are looking for higher margins, and they are getting them. They are in the enviable position of being able to choose which engagements they will undertake, and margin is one of their prime considerations. You could very easily, and perhaps unwittingly, ruin a deal with your preferred vendor because your costing expectations are more aligned with the recession period than the current market.

Different Focus

If you accept that you do not have much pricing leverage in today's market, try to negotiate into your deal things that provide value to you but do not diminish your vendor's margins. The fact that your vendor cannot or will not budge much on pricing may mean that it will be more flexible on terms and conditions. Insist on more and better fee holdbacks, software buyback options, creative testing and acceptance models, penalties for milestone delays, etc. Whatever makes sense for your particular project. Simply put, if you are going to pay a premium price for your project, ask your vendor to put more skin in the game. Again, knowing that it has not offered you any real pricing breaks, your provider may put up less resistance to the buyer-side protections and vendor management tools you seek. Although these elements do not directly decrease your project spend, they may be valuable in terms of keeping your project on track, and they may be invaluable should your project run into trouble.

Bundling

If you are about to hire a vendor for a new project, and there is a chance you will need additional products or services from the vendor in the future, by all means, tell the vendor during the sourcing phase for your current project. The prospect of additional revenue for your vendor might allow you to obtain more favourable pricing for your current project, lock in a rate card and discounted product pricing for your next project, or both. You do not have to commit now to using this vendor for your next project, and you can reserve the right to renegotiate the rate card and product pricing for your next project (you are creating price ceilings, not price floors). When bundling is done properly, you have everything to gain, and nothing to lose.

Resources

It is fair to ask a vendor candidate whether it has the resources available presently to deliver your project on time and within budget (both are often a function of resource allocation). What is the vendor's present utilisation rate? Will additional resources be released from another project in the near future? What resources will be dedicated to your project and for how long? If you get some uneasy answers to these questions, think about using another vendor. If you want to work with a particular vendor and your project is not mission critical, think about delaying your project.

The A-Team

We have all witnessed the situation where a project seems to move forward at a good pace when the vendor's A-Team is on site, but things bog down when it is not on site. If you have identified your chosen vendor's A-Team through referrals, demos, test or use cases, or by whatever means, be sure to ask your vendor how much time the team will devote to your project. A vendor's A-Team is its most valuable corporate asset, but it can be your most valuable project asset as well. It is not unreasonable to ask a vendor for presence of its A-Team at the launch of your project, for some stated period thereafter, and at other important times; for example, during unit testing or the commencement of a new project phase, and certainly during implementation. The promise of off-site monitoring and intervention by the A-Team is not as good as on-site presence. Unless you set expectations and get agreement from your vendor in advance, you may see very little of the vendor's A-Team during these times of high demand and short talent supply.

Fixed Cost Projects

Given current market conditions, think twice about fixed-fee arrangements. Depending on how your project goes, your vendor might smell the aroma of higher margins down the street and move good consultants off your fixed-fee project. In a fixed-fee arrangement, a vendor will typically require more project control, including control over its resource deployment. The vendor's A-Team may show up to start your project, and its B-Team may do the heavy lifting (as is usually the case). But if your project runs into trouble, or your vendor's margin is otherwise being threatened, you may find the vendor's C-Team showing up, then the D-Team, and then a subcontractor. You want a finished project, not a languishing project. This scenario happens with fixed-fee projects in all market conditions, but it may be more prevalent in a tight supplier market.

Outsourcing

Offshore outsourcing of all or a portion of your project might be a temptation during the current tight market given traditional vendors' lack of capacity and the current pricing they command. However, in addition to all the other negatives associated with offshore outsourcing, consider that the current tight market might make it more difficult for you to obtain prompt domestic assistance, or additional domestic assistance, should your outsourced project go south.

Build Versus Buy

Consider buying an Off-The-Shelf (OTS) solution instead of a custom build. Further, for any OTS purchase, consider changing your business rules and requirements to match the OTS functionality (to the fullest extent possible), as opposed to customising the OTS solution to match your existing business rules and requirements. Both strategies can reduce your project expense in this tight market, and they will certainly reduce your project risk.


Timothy Nuckles is a Wisconsin technology attorney whose practice is dedicated to technology transactions and the workout of troubled technology projects.


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