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Paying “By the Drink” Versus Retained Technology Services

Regularly evaluate your tech spending to determine whether it’s worth a retained services agreement versus purchasing services on a “one-off” basis.

Chris Taylor

By Chris Taylor

Business Development Manager Chris Taylor helps build and grow relationships in all business facets while leading teams and writing articles.

10 min read

As the seasons change and the calendar prepares to flip to a new year, most tech leaders are thinking about their strategies, project portfolios, and staffing as they prepare for the next 12 months. These days, staffing is a significant concern, with quality tech talent challenging to source either from the full-time market or from various partners and vendors, many of whom are struggling to fill demand.

In this situation, it can be easy to make decisions based on what’s available versus the right longer-term strategic fit. That challenge certainly comes into play when building relationships with tech service providers.

Consider the Capability, not just the Skill

When filling a skill gap, avoid the urge to focus on the handful of roles you might need. Focusing on individual skills makes your concerns more about people versus the capability that your organization might require and the duration for which the capability is relevant.

This focus on individuals also might shortchange your organization in the longer term. For example, suppose you need to develop some customer-facing applications and immediately hire a UI designer. In that case, you might end up with beautiful comps of your screens but a disjointed user experience and no one who can turn the design into functional front-end code.

If you had considered this need from a capability perspective and realized you needed front-end application skills, you would have eventually ascertained that multiple skills are required to deliver that interconnected capability.

A focus on capabilities rather than individuals also allows you to make more intelligent sourcing decisions.

Intelligently “Renting” Capabilities

In many cases, it will be more cost-effective to acquire a capability externally. This is especially true when a capability requires multiple disciplines to deploy effectively. Common technology programs from ERP upgrades to VR apps might require a half-dozen disparate skillsets. This is a wildly expensive proposition to acquire internally unless your volume of work or a strategic priority justifies an in-house team.

Assuming this isn’t the case, broadly speaking, you have 2 options available for acquiring capabilities on the external market:

  1. Acquire talent on a time and materials basis when needed, essentially “paying by the drink” as a need occurs
  2. Purchase a scalable capability that can be ramped up and down as needed

Too many organizations assume the first option is the only route available, as it’s one of the most common forms of accessing temporary talent. It can also be an effective means of acquiring “medium duration” talent, where having the same set of individuals work with your company for a period of months is appropriate.

“Paying by the drink” can work well for large systems implementations or upgrades, mergers, and acquisitions, or international rollouts. This strategy allows you to assemble a consistent team with a narrow skill set and keep them around long enough to understand your company and requirements. You’ll do that while avoiding the cost of providing benefits and training and alleviating the risk that their skills grow “stale” once the work is complete.

Paying by the drink is far less effective for more variable or complex needs. Consider developing a typical consumer-facing application. Typical apps require a litany of different skills and people, from researchers and product designers to various teams of developers and cyber security experts. Simply sourcing these multiple roles, understanding when they’re needed, and doing all the contracting and onboarding would drive even a competent procurement staffer mad.

Buying Capabilities

Instead of focusing on individuals in this scenario, consider buying an “app development capability” from a partner. Most technology service providers offer this in some form and can do everything from landing a team on your premises to offering cost-effective full-service capabilities in lower-cost locations, an example being the “nearshoring” model that BairesDev provides.

Buying a capability reduces your role in determining which specific skill sets are needed and managing the balance and coordination between different functions. Rather than trying to plan out how many front-end developers you’ll need based on your product development strategy, you essentially “outsource” the staff planning and management to your provider. Your provider also takes on the role of coordinating the interactions and handoffs between different skill sets, a significant undertaking for complex technology-based products.

The management of the individuals and tools that deliver a capability is a benefit that cannot be overstated. An in-house ability to manage complex, multi-disciplined technology and design teams might make sense if you’re a software company but likely does not for a manufacturer or consumer products company.

Buying capabilities also presents an opportunity for more creative and predictable pricing. A simple approach might be buying a “bucket of hours” that can be allocated across a wide variety of skill sets that includes management overhead. More complex arrangements might range from monthly “build and maintain” fees to revenue sharing agreements or licensing and maintenance fees.

The biggest challenge for many companies transitioning from renting talent to buying capabilities is getting away from the mindset of selecting and managing individuals, and instead focusing on the quality of the capability, its ability to scale, and ancillary concerns like IP ownership and ongoing maintenance.

Rather than regarding buying a capability as a new way to price individual human talent, think of it as a physical machine. Just as you likely wouldn’t obsess about the individual components of a new CNC machine and would instead focus on the throughput, quality of the parts produced, and support provided by the manufacturer, so too should you focus on the output, throughput, and support of the vendor supplying your capabilities.

Like many strategic partnerships, take the time to vet the companies you’re considering when buying a capability. This is a longer-term relationship than hourly talent, and you want a company that can meet your needs today, scale for tomorrow, and provide the management oversight and tactical guidance that creates a true asset for your company.

With the right partner, your organization can acquire advanced capabilities that allow you to differentiate in the market without the cost of developing and maintaining those capabilities in-house.

Chris Taylor

By Chris Taylor

As Business Development Manager at BairesDev, Chris Taylor improves and grows relationships with partners, suppliers, and clients alike. Not only does he lead teams and offer strategic planning but also writes interesting and informative articles for the BairesDev blog.

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