The boom in web models brings about great changes to the economic exchanges. They can provide purchasing services with a great potential for efficiency and with considerable strategic opportunities. However, the purchase of offshore services remains confined to an unadapted local information process, which is too much related to the purchase of local consulting services, due to national listing agreements. Nevertheless, the offshore sector includes numerous strategic methods for reducing the customers’ capex. The productivity of commercial departments of IT companies, which hasn’t changed over the last 20 years, affects prices and customer satisfaction. A few thoughts about it…

If I had time… oh, another post which begins with an incantation! So, if I had time, I would like to carry out a detailed study on the appropriateness of IT service purchasing models which are currently used in the European IT sector. Indeed, I am regularly surprised to notice that among our prospects who visit us, those who always pay the most for their trip and their stay are those who have a purchasing department, having listed providers for at least one year. At a time when the web is gaining in popularity and there are less and less intermediaries, and guaranteed income is called into question, this type of practice is absurd, as there are always promotions that their listed travel agencies do not offer them. Very often, they pay between twice to four times more than us for a trip that they bought on the same day from the same company. Whenever this happens, they protest against this waste, but this scenario is invariably repeated all over again. There is a typical tendency to avoid making fundamental changes.

In the offshore sector, internalization performed by the service provider reduces the clients’ capital expenditures and boosts R&D and maintenance operational expenses

The same thing happens when purchasing IS and offshore-nearshore R&D services. We regularly receive requests from major groups in the form of average daily rates for juniors or seniors, even though it is obvious that the offshore model cannot be reduced to the price of the manpower. They ask us for the average salary, the related local expenses and try to skip infrastructure costs… whereas the difference between Paris-based IT companies and their offshore counterparts lies in the location of work, the integration of security aspects, mass training, logistics, internalized staff management… Their way of thinking resembles that of commercial managers of local IT companies, i.e. from a gross margin perspective. In the offshore sector, internalization performed by the service provider reduces the clients’ capital expenditures and boosts R&D and maintenance operational expenses! At a time when the strategic criterion is execution speed, that makes all the difference. The purchase service, which has been formatted for several years, refuses to understand this and puts its internal clients at a disadvantage by excluding the true offshore pure players, the ones who make investment efforts. Offshore stakes are, in many cases, not known. In the US, where the offshore rate is estimated at around 40%, the first questions that you are asked pertain to intellectual property, the telecommunication platform and its security, the quality process etc. In short, the subject has been understood and I truly believe that there is work to be done within the purchase departments in the offshore sector. Excuse me for smiling at the thought of the numerous Moroccan and Indian offices (which may be a part of partnerships or not) of average French IT companies which are listed de facto because their mother company sells time and material services in Paris!

Paris listing agreements do not guarantee offshore-nearshore quality

In this case, listing agreements act de facto as intermediaries (a word which is hated by buyers), which, as with airplane tickets, should regularly go through the rich and renewed offer which appears worldwide. The web can thus play a role in reducing the number of commercial intermediaries just like it did in other sectors of activity. Generally speaking, clients understand the internationalization of purchases and global engineering better than IT companies. Therefore, they have much to gain from this. The clients’ security and purchase departments might want to visit the offshore resource suggested by their referenced partner. I remember seeing an offshore project of a major aircraft manufacturer in which 3 developers out of 10 worked during the evening for another company of the same sector. Of course, this small company benefitted from the listing agreement of a referenced French IT company. In Vietnam, I saw the team of developers of a major French company within one of the important players of the country, which is known to be working for the Vietnamese army… They worked on security programmes for European borders. Paris listing does not guarantee the quality of offshore-nearshore services. No more comments.

I am sure you have understood what I mean, despite the fact that I am biased. But the difference between these companies and ours is that at Pentalog, I am the one who makes a commitment, not a sales manager who has worked for 3 employers over the last 5 years! However, I haven’t finished my criticism. The last aspect does not concern the offshore sector in particular. It is rather general. The purchasing processes within IT companies have allowed clients to exert pressure on prices for quite a while. This is a fair fight and everyone has this aim, after all.

The productivity of sales managers in IT companies has virtually made no progress

Nevertheless, I am wondering about the impact on the commercial organization of IT companies which, in order to gain this much-coveted listing agreement and then support it, end up with expensive and excessively large sales teams. On average, major IT companies have one sales manager for every 20 employees, who represents 5% of the services sales figure. This is just the direct salary-related cost. The entire sales environment weighs between 20 and 30% of the sales figure of traditional IT services companies, with a level of technology-related capital expenditures close to 0. I think that here lies an important performance and productivity stake for all of us, both clients and providers, as this figure cannot be justified in a world where technical assistance amounts to more than 50% of invoices. Even though in comparison with the beginning of the 90s the demand has skyrocketed, the average sales achieved by a commercial employee of IT companies seem to be blocked under the 2-million-euro threshold, which, if my memory serves me right, is the same as the figure which was usually achieved when I began my career in ‘93! In other words, despite the volume effect and the contribution of new technologies, the productivity of a sales manager in an IT company has not improved. This represents a lack of creativity in the management of our sector.

The experiments that we have carried out at Pentalog and Invelia in terms of virtualization of commercial positions show that this figure can easily be tripled. Pentalog has only one sales manager for every 150 employees! Clients and providers in our industry might want to give this some thought. The cost of sales positions (25 to 30%) has a considerable impact on the purchasing price, quality, profitability and social satisfaction. At a time when the service purchase framework must be reviewed in order to better integrate an offshore component which will reach between 30% and 50% of committed man-hours, isn’t this an opportunity to ask ourselves a series of questions on the efficiency of our client-provider relations?