Here's the scenario: you're a CIO who, in spite of reading ZapThink's warning about issuing a SOA RFP, you find yourself doing just that, shopping for a professional services firm who can help you with your initial
To your surprise, the three responses come back with wildly different figures. The boutique firm proposes the highest price, the midsize firm comes in at 75% of the boutique firm, and the large firm, whom you expected to be the highest, proposes only 20% of the boutique's price, and the evaluation portion of the project, which you estimated would take a quarter of the time, they're throwing in for free.
On first glance you rejoice, because you didn't think you'd be able to afford the large firm, while now you'll be able to accept their bid with money to spare. But then you get a funny feeling that something's not right. After all, the two other firms are both highly regarded, and based on your conversations with them, they are both interested in winning your business. So what gives? Why are the bids so wildly different, and is the larger firm automatically the best choice?
The ol' bait and switch
The reason for the larger firm's lowball bid is pretty basic: they are willing to take a loss on the up-front architecture work in order to win the potentially much more lucrative follow-on implementation business. Now, if this approach were simply a loss-leader sales strategy, that would be one thing -- but it's not. It's actually a bait and switch.
Here's the problem: the large firm is taking this loss leader technique to sales opportunities around the world, bringing in a small team of sharp SOA architects in a pre-sales capacity to close the deals. But the problem is, they don't have enough seasoned, competent SOA architects to go around. So once they close a deal, it's time for the crack SOA team to move onto the next sales opp, leaving a passel of wet-behind-the-ears developers just a few years out of college holding the bag. And while these junior folks have been through a few weeks of SOA training, they fundamentally aren't up to the challenge of SOA projects like yours.
The economics behind the numbers
Macroeconomically speaking, qualified SOA architects are in short supply and high demand, and as a result, the market is pushing their prices up. When a firm charges less than market value for their services, therefore, it creates an imbalance in the marketplace. Customers who think they're getting a deal but instead get shoddy work are the ones at the short end of the stick.
In fact, the small and midsize firms who bid on this project are more likely to be charging true market rates for such services. The boutique firm has nothing but qualified SOA architects on staff, and as a result, their services are always in demand, and they can command top dollar -- which in today's market can actually be as high as $500 per hour for the most senior resources. The midsize firm has a more diverse staff, and is planning on putting a mix of senior and mid-level consultants on the project, so they can charge a bit less than the boutique firm. But as long as the large firm continues to underbid the architecture work, they will continue to have too few resources to provide sufficient quality -- at least, until customers get wise and stop giving them their business, or worse, start taking them to court.
How much should SOA architect consultants really cost?
The $500/hour cost mentioned above, however, is admittedly at the top of the market -- that is, how much you'd pay for the best regarded, most seasoned architects available. Generally, customers bring in such crack teams when there's a special situation, like the need to build the business case for SOA for management, to mentor internal architects in order to bring them up to speed, or when there's some kind of mess to clean up. Perfectly good onshore SOA architecture teams consisting of a mix of skill levels are more likely to run you between $200 and $300 per hour as an average per-person cost for the team as a whole, or between $100 and $200 per hour for offshore resources.
It's important to note that these rates are global rates. While there is still some difference between onshore and offshore resources, today's SOA consultants are a globetrotting bunch, and it doesn't matter where you're located -- or where the professional services firm is based. Adam Smith's invisible hand of supply and demand has mostly evened out the rates for such architects, and you shouldn't expect to get much of a discount rate from, say, an Indian firm as compared to a European or North American one. You can expect a small break, however, if the firm charges US dollars instead of, say, Euros.
Avoiding the squeeze
If you've been burned before by a large firm's bait-and-switch tactics, or perhaps you simply take this ZapFlash to heart, then you can decide to make the right choice and select a service provider who can truly do the work, even if they're not the least expensive option. But unfortunately, many organizations don't have that luxury. For example, many governmental bodies are required by law to conduct a formal, open RFP process, and must choose the least cost provider. Furthermore, many public sector (and a good number of private sector) organizations have policies that they cannot pay any consultant more than, say, $150 per hour. Does that mean that such organizations are stuck, with no choice but to hire poorly qualified teams? Not so fast.
There are ways around the "bill per person-hour" approach to purchasing professional services, especially when supply and demand are driving up the value of the resources you desire. Basically, don't purchase such services by the hour. Instead, purchase by the project. Consulting firms love billing by the hour -- the oft-quoted "time and expenses" -- because it shifts much of the risk of project overruns to the client. Fixed-bid projects, on the other hand, shift such risks to the provider. Be that as it may, it's not that difficult to scope initial SOA engagements with sufficient detail to expect a fixed-bid project. If the service provider quotes deliverables instead of hours, then the true cost per hour is hidden from view, and may not even be determined ahead of time.
For all you SOA practice directors out there, here's ZapThink's advice. First of all, never, ever underbid the architecture part of a SOA engagement. You simply won't have enough seasoned architects to go around if you do, and your customers -- and eventually your business -- will suffer as a result. Boutique SOA consulting firms: stick to your guns. Instead of reducing rates, move toward fixed-bid projects that specify deliverables instead of hours. Remember that your most senior people will likely get the work done more quickly than your more junior people would, anyway.
Individual SOA consultants -- remember, you're in the driver's seat. If the firm you're working for now isn't providing you with everything you're looking for in a position, then there are plenty of others who would be happy to have you. There's no reason to be underpaid; top SOA architect consultants should be bringing home upwards of $200K per year, and even India-based consultants could be bringing home six figures. But remember, even if you are being paid what you're worth, if your firm is losing money on you, then something has got to give. You don't want to upset clients or adversely impact your career, or worse. So unless you're in a commissioned sales role, steer clear of working for firms that underbid your services.
The ZapThink take
ZapThink has been following the SOA talent crunch for a while now, with ZapFlashes in late 2004 and early 2007, but even now, the problem is only getting worse. As SOA finally becomes mainstream, virtually every enterprise is coming to require seasoned SOA architects, so the lure of an enterprise position, and the stability it offers, is drawing talent out of the consulting pool. As a result, the travel schedules for the remaining SOA consultants is becoming even more onerous, and as any former consultant will tell you, it's only a matter of time until the travel commitment leads to burnout. And furthermore, it's not easy to take someone who's not a seasoned SOA architect and make them into one. Training is the first, critical step, but there's no substitute for years of experience.
This was first published in July 2008