Often, companies try to balance staffing with the natural variability in IT workload by engaging contract workers. They don’t want to make a long-term employment commitment to the number of people required to handle their maximum workload. So, they hire enough full-time employees to handle their typical workload, and in periods when the workload is higher they bring in temporary workers on a contract basis. That way, companies can expand and contract staff to match the internal demand for IT services.
Problems occur when the parameters of the temporary staffing engagement are at odds with the nature of the work performed. Because “coaching” has not been a well-understood category of services, it has more-or-less accidentally fallen into the “hourly contract” mode. Is this appropriate? Does this model cause difficulties for any of the three constituencies that have an interest in it: The clients, the workers, and the middlemen?
Normally, contract IT workers are placed with client companies by smaller firms whose business is to connect qualified people with the client companies who need them. People call these firms various names, like “body shops,” “vendors,” “contract houses,” or “middlemen.” They usually call themselves “consulting firms,” although their business model is very different from that of management consultancies. For purposes of this post, I will call them “middlemen” because they operate “in the middle” between the qualified workers and client companies.
The typical model is that the middleman retains the services of the workers and “rents” them to the client on an hourly basis. The middleman manages two relationships: One with the worker and another with the client. The advantage to the worker is that the middleman takes care of marketing and sales; they “shop” for suitable clients and try to keep the workers busy. The advantage for the client is that they need not work separately with each individual worker, and they can deal with variable staffing needs by working with a short list of “preferred vendors.” This is called staff augmentation, or “staff aug” for short.
Provided the nature of the work lends itself to an hourly billing model, there is no problem with this approach. Work such as programming, software testing, business analysis, conventional project management, and even certain contemporary roles like Scrum Master, can be structured as hourly contract work. These temporary workers are, indeed, augmenting the client’s staff; hence, “staff aug” works just fine.
However, other types of work provided by external helpers may be structured differently, depending on the nature of the work. True consulting services are not billed on an hourly basis. These services may be billed by the day, by the week, or on a retainer-plus-overage basis. Similarly, training services are not billed as hourly contract work. Training classes are usually charged per-head-per-day or on a flat rate basis (typically for client-specific training delivered in house).
Another type of work has become popular in recent years: Coaching. IT organizations make use of coaches who have different areas of focus to help them improve the organization in different ways. There are “leadership coaches,” “process coaches,” “technical coaches;” there are “organizational transformation coaches,” “Lean coaches,” “Agile coaches,” and more. They work with individuals, groups, teams, and management hierarchies at all levels of the organization. Often, multiple coaches operate as a team to address different levels of the organization in a consistent way.
Once on an engagement, coaches usually self-organize into a coaching team, even if they were placed at the client company by different middlemen. Their mutual professional interest is to provide the maximum possible benefit to the client, notwithstanding competition between middlemen.
Is the “staff aug” model consistent with the nature of coaching work? Let’s reason through it from the perspectives of each of the three interested constituencies.
The nature of coaching work
Contract programmers, testers, and analysts are usually given a series of single-task assignments to be completed within a stipulated number of hours. They are authorized to log no more than that number of hours against a given tracking number (project ID or similar) in the client’s time-tracking tool. Everything is about hours. When they have used up the hours they are authorized to bill, they simply stop working. They are literally augmenting (supplementing or extending) the client’s staff (number of people working). Hence, the “hourly staff aug” model fits well with the nature of their work.
Coaches do not perform their work in the same way. In addition to spending time directly with individuals and teams, they also observe and analyze organizational structure, culture, and work flow. They spend time creating and preparing customized workshops, training, and coaching interventions tailored to the organization as a whole, to particular levels of management, to specific teams, and to individuals. They spend a certain amount of time building working relationships based on trust with key client personnel; a process that takes time. Most of that work falls outside the hours they spend in direct contact with client personnel. It is not unusual for a coach to work 10 to 14 hours per day on behalf of a client.
Due to the nature of coaching work as described above, clients who engage coaches on an “hourly staff aug” basis face a difficult choice. If they pay coaches for all the hours they actually work, the cost will be variable and unpredictable, and the budget may be expended before the goals of the coaching engagement have been achieved. If they ask coaches to stop work as soon as the stipulated number of hours has been billed, then they will not receive the full potential value of the coaching services.
Thus, the “hourly staff aug” model does not fit this category of service. Coaches are not augmenting the client’s staff; they are helping the organization to function at its best today, and to improve toward a more-effective tomorrow. They cannot predict or estimate exactly what must be done to achieve this goal in advance; the work requires direct observation and analysis to determine what to do, how to do it, when to do it, and how to measure results.
A billing model similar to that of management consulting would serve clients better than the “hourly staff aug” model. Consider a flat daily or weekly bill rate for full-time on-site coaching, or a retainer-plus-overage model for ongoing, periodic coaching support. The latter is often done as a follow-up to a full-time on-site coaching engagement.
The advantages for clients include:
- The cost for coaching services becomes stable and predictable, and therefore easier to plan, easier to get approved, and easier to track. (Note that the bill rate may not actually be lower than an hourly rate if you simply divide the daily rate by eight. There are larger gains to be made than raw hourly labor cost. Think of return or net value rather than cost in isolation.)
- You can be assured each coach will be able to provide the best support he/she is able to provide without worrying about hours or impact to the budget.
- When the coach is an “hourly contractor,” your staff tends to relate to him/her as a peer; they don’t listen to his/her advice. When the coach is a “consultant,” it creates the perception of some level of authority, and staff tend to listen a bit more to his/her advice. You receive greater benefit from the coaching service.
- The nature of the working relationship becomes more professional than the “staff aug” relationship, allowing for more transparency and trust, leading to better outcomes.
When you are engaged on an “hourly contract” basis, you are constrained in the level of service you can offer to the client. You are faced with a choice among three undesirable alternatives:
- Repeatedly ask for additional budget or time extensions so that you can do the work you have been asked to do. This tends to irritate clients.
- Limit your work to the hours permitted in the contract. This will almost always prevent you from doing the off-hours or off-site work that is so critical to successful coaching.
- Go ahead and do the off-hours and off-site work you feel professionally obligated to do, and eat the cost yourself. This tends to cause burn-out and early withdrawal from engagements.
Most coaches choose option #3, which tacitly encourages middlemen and clients to continue to treat coaching work as “hourly staff aug.” Thus, it has both short-term and long-term negative consequences for both clients and coaches.
Advantages of flat rate billing for coaches in full-time on-site engagements:
- The more-professional relationship with client management opens doors to offer more kinds of assistance to the organization than might be welcome from an “hourly contractor.” In the normal course of your work, you will discover opportunities for improvement that were not understood at the time the contract was written. You and the client both benefit when the terms of the engagement allow for “true” consulting advice.
- The perceived status of the coach as a “consultant” tends to cause client staff to pay more attention to the coach’s advice than they would to “just another hourly contractor.” This increases the likelihood that you can make a difference in the organization.
- You are free to spend whatever amount of time you deem necessary to analyze needs, prepare materials and workshops, devise coaching strategies for teams and individuals, and other work above and beyond direct contact hours with client personnel.
- With a flat weekly rate in particular, you are not penalized when the client company schedules a holiday for its employees. You are locked down for the day in any case, and it’s appropriate for you to be paid. “True” consultants are always paid a rate that covers holidays and spur-of-the-moment early releases by their clients. This relieves you of financial worry that should not be part of the careeer choice of coaching.
Advantages of retainer-plus-overage billing for coaches in ongoing support engagements:
- Many clients ask for you to be available from time to time after a full-time on-site engagement to provide follow-up observations and advice. When you are “sold” or “rented” on an hourly basis, it is all but impossible to satisfy this kind of request. With a retainer model, the client pays you a flat fee per month to be available to them (not physically on site every day) when they have a question or problem. In return, you guarantee your availability for a certain number of hours per month. Time above and beyond that level is billed according to whatever terms you and the client agree.
- It’s conceivable you could help several clients concurrently with a retainer-plus-overage model. The value of your services is amplified in two ways: First, you are helping more than one company, so your value is amplified in the industry; second, you can bring to bear lessons learned in multiple situations, so your value is amplified for each of your clients individually.
Most of the small “middleman” companies that place coaches (at least, in the “agile” and “lean” coaching space) don’t like to be called “middlemen.” They would rather be considered “consulting firms.” But as long as they sell everything on an hourly basis, they will never be consulting firms. Consultants don’t work as hourly contractors, and clients don’t perceive hourly contractors as consultants.
Clients commonly refer to middlemen as “vendors.” If language begets behavior, then this language begets undesirable behavior. Coaches are not little bags of snacks that come from a vending machine. They are not a commodity product. Each is unique, and fitting an individual coach to a client is a bit of an art. This is perhaps the single greatest value a middleman can offer, both to clients and to coaches. Let’s use language that emphasizes that perspective, so that middlemen can be seen as providing a real value-add service.
The core problem here is in sales. Most salespeople who work for middleman firms either cannot or will not break free of the “hourly staff aug” mindset. They apply that model to every type of work their company offers. The reasons for this are probably historical. It’s more interesting to consider how sales can adapt to present-day reality than to dwell on that history.
Two traditional practices of middleman firms operate in conjunction to create financial stress for those firms:
- They struggle to balance the concerns of clients (who want to minimize the hourly rate they pay for contract labor) and coaches (who don’t see themselves as “contract labor”).
- They compete with each other by slashing hourly rates. The mentality is “the contract goes to the lowest bidder.”
How do these practices lead to financial stress for middlemen? In the short term, slashing rates to compete can put pressure on the profit margin. Middlemen often accept a low margin or even take a loss in hopes of getting more work at better rates from the client in future. While this sounds good, in practice the future business almost never materializes. Clients simply turn to a different middleman who is desperate to get a foot in the door, and squeeze them instead.
A second problem is that clients ask for the best coaching talent available, but that talent will not accept very low hourly rates. Even if a person could “afford” a lower rate temporarily, they will usually not accept it because of the precedent it would set for future work.
The longer-term problem with competing on the basis of hourly rates is that clients will start to associate you with low-end talent. It will become increasingly difficult for you to sell anything to those clients.
A different approach to sales is called for. Recognize that coaching is not, by nature, the same category of temporary labor as contract programming, testing, or analysis. Treat it, and sell it, as a type of consulting service. Set weekly or daily rates for coaching an appropriately professional level, rather than calculating the percentage of the hourly rate that you need in order to stay in business, and squeezing it out of the “meat.” In discussions with prospects, help them understand the appropriate billing model for coaching work. Help them understand the benefits to themselves. It’s time for everyone involved to be treated as professionals: You, your clients, and the coaches who bring in your revenue.