Richard Tyler, Transformation Director at bedigital, discusses the common failures of organisations in managing IT contractors and how typical approaches to reducing spiralling costs are often wrong for the organisation in the longer term.
Why use contractors?
Using IT contractors often makes sense for a business or public sector organisation. Especially those undergoing periods of rapid growth or transformation, where the ability to temporarily engage specialist tech skills and scale resources flexibly at pace is invaluable. At a time when we face a tech skills shortage in the UK, resourcing projects via the contractor market may be the only practical way to achieve major IT business objectives.
The challenge is to use contractors well so that your organisation gets the best value out of them.
Achieving value is about more than just cutting costs
In 20 years leading digital transformations in the public and private sectors, I’ve come across a lot of examples and consequences of poor practice managing contractors, including: lack of visibility of ever-expanding costs; contractors delivering business-as-usual functions for extended periods; increased business and employment risk, especially around IR35 compliance; and a detrimental impact on the morale of permanent staff who feel underpaid and undervalued.
When organisations recognise that any of these poor practices are taking place, their gut reaction is to reduce their costs or restrict contractor use. This is typically done by cutting the total number of contractors, and therefore the amount spent on them; and/or by re-tendering work-packages to force down day rates. These are what I call procurement-led approaches, often promoted by procurement consultancies. Although these approaches may seem to work initially, realising cashable savings in the short term, in my experience they are rarely successful or cost-effective longer term.
Why?
Firstly, cutting contractor numbers is likely to diminish the ability to achieve business objectives and so increase costs to other parts of the organisation which are dependent on timely completion of IT projects. Also, if contractor numbers are cut indiscriminately, as often happens, resources may be lost from priority projects while continuing the same level of spend on less important work. On the surface it looks like costs have been cut, but the likelihood is that productivity has decreased, expensive problems been created, and the overall value to the organisation from using contractors decreased.
Secondly, the current skills shortage and high demand for IT resources have created a seller’s market for good contractors. Their response to cuts in day rates will simply be to move to the next job which offers them their market-value. Thus, re-tendering to force down day rates may cut costs in the short term, but losing the best contractors puts business objectives at risk and creates the additional cost and trouble of recruiting replacements.
Last and by no means least, procurement-led approaches don’t tackle the underlying problem of why poor practice developed in the first place or help create an effective strategy for improvement going forward. Poor contractor management will persist and inevitably re-emerge as a problem down the line.
When managed correctly, however, our experience tells us that enterprises with more than 20 contingent contractor resources, can increase value by 20% within less than 12 months period. With a similar level of savings and improvements achievable in indirect and intangible costs. These are sustainable improvements based on enhanced capabilities and improved practices, with reduced business and employment risks.
I believe that the right approach for an organisation looking to optimise the value it gets from IT contractors is not to undertake a procurement-led cost cutting exercise, but to develop and adopt the right strategy, capabilities and practices to managing contractors across the whole business.
So how can bedigital help your organisation optimise use of IT contractors?
bedigital offer a different way.
We use our experience and expertise in IT, HR, recruitment, business, finance, supplier management and procurement to co-create with you the right strategy and capabilities in your business to optimise your use of IT contractors. Working across departments to analyse and understand their requirements, maturity, pain points and opportunities, we help put in place practices and governance which fundamentally change your approach to contractor management. Leaving you with both a workable strategy for optimising use of contractors and practical tools to deliver that strategy going forward, without compromising business objectives.
What next?
Please use the contact us form at the bottom of the page, or email us on hello@bedigitaluk.com, to get in touch and discuss how we can help your organisation optimise the value you get from use of IT contractors without compromising business objectives. A great way to start is with a capability and maturity assessment which will identify the key areas of your current operations where operational and cost efficiencies can be created to increase value.
Richard Tyler is Transformation Director of bedigital
