Before we continue, yes, that is TRILLION, numerically represented as 1,000,000,000,000, repeated twice in the title and yes we mean US (as in United States of America) dollars!
Gartner projects that IT spend will surpass 5 Trillion this year. When you consider that 30% of IT spend is usually for software, and that one third (or more) of software spend is wasted (for unused licenses, which is why we have a whole category of IT and SaaS specialists that analyze your out-of-control SaaS and software spend and typically find 30% to 40% overspend in a few days), that means that roughly half a trillion dollars will be wasted on software this year.
Even worse, Gartner projects that spending on IT Services will reach 1.5 Trillion. And the waste here could be two thirds! Now, we all know that you need IT services to implement, integrate, and maintain those IT systems you buy. But how much do you need? And how much should you pay? Consider that an intermediate software developer should be making 150K a year (or 75/hour), that says that an intermediate implementation specialist shouldn’t be making any more than that, and not billed at more than 3 times that (or 225/hour). But how much are you being billed for relatively inexperienced implementation consultant, with maybe a few years of overall experience and maybe six months on the system that you are installing? the doctor knows that rates of $300 to $500 are not uncommon for these resources that are oversold and overcharged for.
But this isn’t the worst of it. As per our upcoming article Fraud And Waste Are Not The Same Thing, many implementation “partners” will try to get all they can get and make sure that when you go in for a penny, you go in for a pound and they will push for:
- frequent change orders during implementation, usually billed at excessively high day rates as they have to “divert resources” or “work overtime”
- unnecessary customizations or real-time integrations that are an extensive amount of work (and cost) when out-of-the-box or daily flat-file synchs are more than sufficient
- extensive “process evaluation” or “process transformation” processes that are well beyond what you need to eat up consulting hours
- extensive “best practice” education when your practices are good enough for now and/or those best practices are already encoded in the system you just bought and paid a pretty penny for and just following the default process gives you the same education
That will often double to triple the cost. But that’s not the worst of it. As per comments the doctor has made on LinkedIn, he regularly hears stories of niche providers losing 200K deals because customers said their quote was too low because all the Big X companies quoted over 1,000K for what should be 100K worth of work in their view (and, right or wrong, if a niche firm comes in less with a detailed proposal, they should be evaluated — maybe the Big X, with a very general request, over estimated your requirements and the effort, or maybe the niche firm completely underestimated it — how will you know if you don’t evaluate all the responses?). Literally. This is because, as the doctor has noted in previous posts and comments on LinkedIn:
- they don’t have always have the talent in advanced tech (and even The Prophet has noted their lack of talent in areas of advanced tech in multiple LinkedIn posts, though he has been much more diplomatic than the doctor in discussing their lack thereof; but he did note in a 2024 advice post that consultancies are going to have a hard time attracting talent this year) — for every area, an average firm will have a team leader who’s a superstar, two or three handpicked lieutenants who are above average, and then 20 to 40 benchwarmers who are junior and not always worth the rate they are charging); now, as with every general observation, there are exceptions (with some Big X recently acquiring a number of best-in-class technology, analytics, and AI vendors that give them top-notch world class talent, and others actively recruiting top talent form the best tech firms, but every firm is different, and, most importantly, every need is different — it’s up to you to fully qualify your need, review the proposal carefully, and vet the proposed talent, otherwise, it’s your fault if you overpay, fail miserably, and don’t get value
- some of these firms have an incredible overhead — they got big in good times and built posh offices to house the partners making more than top lawyers who have a lifestyle to maintain (or, in some cases, they just acquired expensive real estate in premiere locations)
- they don’t always have the knowledge of, or experience in, modern tools — some of which are ten times more powerful than last generation tools; this, of course, means that, in these situations, Big X benchwarmers are using last generation tools which take ten times the manual labour to extract value from
- etc.
Unless you want to pay 1K an hour, at some of these firms, you’re not guaranteed getting that one superstar resource trying to be the front end to two dozen projects that his three lieutenants are trying to manage, all of which are staffed by junior to intermediate individuals who can barely follow the three to five year old playbook. (While if you chose a different Big X firm that just acquired a whole consultancy with dozens of top analysts, it’s a different story.)
There’s a reason that The Prophet predicted in his 9th prediction that SaaS Management Solutions [will] Start to Eat Services Procurement Tech and that many companies will go in house if they have tech expertise. Because he realizes that these consultancies will have a hard time not only hiring, but retaining, tech talent when they have hiring freezes, salary freezes, and reduced engagements as more and more companies can’t afford the ridiculous rates they’ve been charging recently. (Companies may not have had a choice during COVID where it was implement on-line collaboration and B2B tech or perish, but now they do.)
But there are still many companies who will, when they encounter a (perceived) tech need, immediately pick up the phone and call their favorite Big X firm and bring them in to help them understand who to bring in for an engagement, instead of widening the net to niche providers who might be 3 to 5 times cheaper, and who will deliver results at least as good, if not better, or, if their proposals won’t cut it, will validate when that multi-million proposal is a great value and will deliver the expected ROI.
Now, again, the doctor would like to stress that, despite how much he insists they are usually not the right solution for specialist advanced tech implementations that aren’t the enterprise systems and suites they usually implement, that Big X are not all bad, and sometimes worth many times more than the high fees they charge. [See when should you use Big X?] Most of these companies started off as management/operational/finance/strategy consultants and grew big because they were one of the best, and in certain domains, each of these companies still are. As they grew, they added more areas and became experts in those. But no company can, and should, be expected to be an expert in everything!
And while there will be exceptions to the rule (as every one of these companies has some tech geniuses), the reality is that when you need more bodies than there are talented bodies in an entire industry, you’re not going to get them and, because consultancies are not cool when you want to be a tech superstar (and join a startup that becomes a unicorn), the ratio of superstar to above average to average to below average talent in these organizations is much thinner than in multinational tech companies (like Alphabet, Apple, Meta, Microsoft, etc.) (Because if they were the best of the best, there’s no way they’d lay off 10,000 employees at a time every time the market jitters.)
In short, manage that IT services spend carefully, or you’ll be double paying, triple paying, or worse and providing a big chunk of the roughly ONE TRILLION DOLLARS in IT services overspend that the doctor predicts will happen (again) this year. (Unless, of course, you agree with Doctor Evil who says, why make trillions when we could make … billions. Because that’s exactly what happens when you overpay for software and services. Don’t expect the Big X or Mid-Market to say anything as they get the majority that overspend, and that’s how they stay so profitable. Plus, they usually need those revenues to deliver what you’re asking for, as ill-defined projects mean they need to make a lot of assumptions and often over engineer to decrease the chance you will be disappointed in the result! In other words, if you overpay due to your lack of research and preparation, it’s on you. )
