Does Talent or Price Drive Your Software Development Vendor Choices?

This age-old question has always sat squarely in the middle of the fundamental question that all companies address with their vendor choices…does price or quality drive my decision? The biggest obstacle is limited information regarding the vendor on whether they can deliver a price performance-based engagement based on an agreed-upon deliverable.

With this being the challenge, what is an enterprise supposed to do?

First, the adage “if it sounds too good to be true, it usually is” has held a lot of truth. The IT market is global, and prices are set based on the supply of talent, demand by the market, and overall competition for available jobs. In a perfect world, this algorithm would be enough to understand where pricing models should be; however, IT services are not a perfect market, and larger global providers and those created to support particular applications or languages tend to divide the market into value-priced services or premium-priced alternatives.

For example, some technology companies don’t offer implementation and delivery services and create affiliations that provide these services from a third-party perspective. Global and emerging enterprises step into the gap to fulfill these needs. Because profit margins on intellectual capital are typically smaller than those on intellectual property like software solutions, the rates charged are high because the raw resource “human capital” has higher standard expenses. They also pose a flight risk based on competing for employment opportunities.

In the services market mentioned above, the price to compete, all things being equal, will be much higher than average because the main input, “human capital,” will be the driving force. And the ability to receive substantial discounts, if not hiring resources at scale, will be challenging. This is typical of the IT market. Supporting packaged solutions and talent should be the driving factor, but the price is still considered.  

Developing custom applications is a cost-effective approach.

For custom application development resources, global and small business enterprises have a unique opportunity to assist enterprises that don’t see value in packaged applications or only need a subset of the typical offering.

In the long run, a custom application-driven environment can deliver tailored solutions. This strategy could also lead to lower maintenance and support costs in the long run because the business owns all IPs.

However, it is crucial in the custom application development world to bifurcate the cost strategy associated with spending money on a top-flight project manager that can articulate an initial minimally viable product (MVP) and one that can manage deadlines and a realistic deliverable schedule. A top-flight project manager may also allow an enterprise to be more flexible on developer costs, but only if the provider provides a contractually mandated procedure to replace underperforming resources with notice, combined with overall project expense holdbacks, to ensure a successful and timely project deliverable.

As you can see, there is no right answer without historical experience with the service provider under consideration, whether they be premium-priced or value-priced. The best advice an enterprise should consider is to create a long-term IT application strategy and understand the costs associated with custom application development versus packaged solutions. Once the decision has been made to custom develop an application, get references and an air-tight contract written by legal counsel with specific experience writing sows and MSAs.

On this point, always go with the best talent because good legal counsel can create contracts that protect their clients when projects go off schedule, which they inevitably will. And a good contract can potentially be the most valuable investment an enterprise can make!

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