The last TPSA webcast was on optimizing utilization. In my post before that webcast, I identified four reasons embedded PS firms do not drive the same level of billable utilization that pure services firms do:
1. Policies: Embedded PS organizations set different compensation policies, training policies, etc. that impact billable utilization.
2. Delivery Processes: Embedded PS organization struggle with executing key delivery policies such as change control management.
3. Pre-Sales: Embedded PS organizations are much more likely to provide free pre-sales activities in support of securing large product deals.
4. Product: Product quality and volume impacts the ability for embedded PS to bill.
After the webcast, we had a member inquiry surrounding the first category of “policies.” The member was curious about the differences in compensation policies between pure and embedded firms. Specifically, the amount of compensation based on billable utilization targets. For this question, we do have data regarding how much embedded PS organizations pay on utilization.
Bo Dimuccio has conducted compensation studies with our members for the past two years. The key driver for the companies participating in these studies is to model two aspects of PS compensation:
1. How leveraged are positions within embedded PS organizations? In other words, how much of total compensation is base vs. variable?
2. For the variable portion of compensation, what factors drive payouts in embedded PS organizations
We have learned many things analyzing these studies. One thing we know for sure: billable utilization is a relatively small portion of overall compensation for embedded PS staff. How small? The figure below provides a snapshot from the last comp study. What can be seen is that billable utilization for Project Managers (PM) is less than 20% of the total incentive compensation offered and less than 2% of total compensation. You can see the same mix for other positions like Technical Specialists (TS), Technical Architects (TA) and Business Analysts (BA). This relatively low percentage of compensation related to billable utilization is a perfect example of a policy within embedded PS firms that can drive lower billable utilization rates. But how big is the difference between pure service firms and embedded firms in this area? Great question for a poll.
Let’s see if we can’t tease out the differences between embedded PS and pure services firms regarding how much they compensate on billable utilization. For this poll, we will ask you to identify if you are a pure services provider or an embedded services provider. Answer only one of the following polls based on that attribute. Also, we will focus on the compensation practices for technical specialists. These are the front line consultants that should be spending a majority of their time executing customer project activities.