In my previous post, I attempted to place some context around the enormously high interest this blog’s readers have expressed in the topic of PS market rates. I also briefly discussed the TPSA 2009 Market Rates study, just completed, that offers participants a highly granular view of rates across multiple positions, rate types, delivery types and 31 geographies spanning each global region. Having provided this context, however, it occurs to me that this information does little for TPSA member companies that are not participants in the Rates Study, let alone for individuals and companies among my readership not formally affiliated with TPSA in any way. So in this post, I’d like to share some data points from the TPSA benchmark survey data. This will fill in the gap somewhat and provide a bit of detail on what’s happening with rates as of the 3rd quarter of 2009.
The good news is that the TPSA benchmark study provides some very good guidance on this topic. Specifically, there are two relevant items for which we capture categorical data: realized rates and rate realization. The first metric is simply a measure of the actual average hourly rates that PS organizations are realizing at the close of a project for all delivery resources. Rate realization, on the other hand, reflects a PS organization’s actual rate performance relative to listed rates or the PS rate card. Considered together, the two metrics provide an overall picture of rate strategy, structure and performance. In addition to all of this, the TPSA benchmark study gives us the ability to trend-analyze these market rates data points. For the purpose of this post, I’m going to compare two TPSA benchmark quarterly snapshots: Q108 and Q309. This is useful and interesting because it gives us a comparison of two distinct points in time relative to the economic context that characterized the second half of 2008 and the first half of 2009: before the crash and during (hopefully) the tail end of it. So let’s look first and foremost at actual rates.
Based on the data in the above figure, the headline finding is that PS rates have come down somewhat between Q108 and Q309. This is evident in the fact that the proportion of companies reporting average actual rates of between $100 and $200 globally has increased (by 5% basis points), while the proportion of companies reporting rates in the $201-$300 range has decreased by the same amount. At the same time there has been a slight movement of companies into the lowest average actual rate category and a small movement away from the highest rate category. So while we’re not able to look at real dollar averages here, we can very clearly say that actual rates are generally lower in Q309 than they were in Q108.
This is exactly is one would predict, given the extreme pressure that technology companies have been under over the last year. Topline pressure leads to increasing price competition which leads to lower PS rates. The same pressure that causes rates to decline, however, should also motivate and cause companies to operate more efficiently and — among other things — discount less and do a better job a maximizing billable and charged hours so as to increase rate realization. Has this been the case? Well, let’s take a look at the data and see.
And indeed, the data in the second figure show that companies are doing better on rate realization over the same period in which they saw actual rates decline. This is evident in a 3% pt drop in companies reporting in the lowest rate realization category, a 3% pt increase in companies at the highest level, coupled with a steady state trend in the other two categories.
So what happens to PS market rates in an economic downturn? Well, according to the data reviewed in this post, rates do go down in an absolute sense. But this in turn causes technology companies to become more focused on rate performance and rate realization. If they can successfully pull this off, better rate performance becomes an economic engine that can enable companies to hold the line or even prosper when times are tough. I guess it was Friedrich Nietzsche that once remarked: “what doesn’t kill you makes you stronger.” As the philosopher that articulated and popularized a nihilistic view of the world, Nietzsche certainly can’t exactly be called the poster child for the power of positive thinking. But this quote, long a cliche, certainly captures the affect that the economic downturn has had on technology companies when it comes to rate performance. Maybe there is a point to the (technology services) world, after all?
Tags: PS Hourly Rates, PS Market Rates
