Your Global SI's financial model is costing you millions and setting you up for failure.

Who are these Global Systems Integrators, anyway?

Global Systems Integrators (GSIs) have long been the go-to choice for organizations looking to undertake complex technology projects. These multinational giants, such as Accenture, Deloitte, EY, PwC, IBM, and Capgemini, offer a wide range of services encompassing everything from system design and implementation to consulting and support. Their reputation for global reach, vast resources, and a one-stop-shop approach has made them an attractive option for businesses seeking digital transformation. Often IT leaders think "I won't get fired if I hire XX big name firm even if things go wrong."

But the decision to engage a GSI isn't always as rosy as it seems on the surface. While GSIs have slick sales presentations, promise comprehensive solutions and unmatched scale, the financial model they employ can often lead to inefficiencies, hidden costs, and is ultimately rigged against you.

The GSI Deal Models and Hidden Costs

GSIs already have the highest billing rates in the IT consulting world. They also deliver the largest profitability to these firms at well more than 70% margin. There is no wonder why their audit counterparts are fighting so hard to stay connected to their consulting arms! We are told that these fees will deliver you their global strength, loads of IP and accelerators, and extensive expertise. While this all sounds amazing and a great value, the opposite is true.

Here's how it works:

Global Integration: All of these firms love to talk about their global reach and how they have resources that line up to your firm's locations. While that is technically true, each one of these countries operates as completely separate entities. For these firms to work together, they must negotiate with each other for the buying and selling of resources. For US entities, they have an office in India that belongs to them where engagement is pre-defined; however, there is usually another India entity that operates independently and serves their own customers.

High Billing Rates: All of these firms ask for outrageous billing rates, but these rates are rarely used. In most cases, there is some sort of discount applied from the start. In fact, many of those on the sales team will be sure to tell you how much they marked down your rates so that you feel like you are getting a deal. These rates are often 2-3 times higher than other firms in the same category.

Mandatory Hours: Most GSIs have internal requirements that mandate an allocation of hours to partners and senior managers. Typically, the various partners (or equivalent role) involved in the deal must have billable hours making up around 3% of the total project time. Similarly, Senior Managers and Directors are required to be at around 7%. This is for all deals, regardless of type or nature. If you have worked with these firms before, you will know that these individuals aren't really engaged in moving your project forward. They are mostly in place to make the executives feel heard and to take people out for expensive steak dinners.

Negative Margin: A very little known fact to most is that even though the billing rates get larger as you move up the hierarchy, the GSIs margin for those individuals goes down. In many cases, individuals with a manager title are roughly break-even. Those above that tile generate increasingly negative margin for the engagement. As you move down the hierarchy, your billing rates go down, but the margin goes up substantially.  Considering the fact that most firms are going to have a minimum margin of 70%, you can start to see a major issue. This leads to the next two items.

Overreliance on Junior Resources: To compensate for the high costs of senior staff and margin targets, GSIs often utilize a large number of junior and unnecessary offshore resources. These less-experienced team members may not possess the necessary expertise to deliver the high-quality work and critical timelines leading to suboptimal project outcomes and deliverables. Many of these resources don't have a clear role or even know how to do the job assigned to them.

Massive Overhead: The GSI's approach frequently involves layers of management, resulting in increased client overhead in terms of communication, coordination, and project governance. This brings a two-fold benefit to the SI. One one side, they look like they are serious about governance. On the other, they can add more low value, high margin resources to your project!

In essence, clients end up paying a premium for the idea of security, experience, and certainty. The reality is that you are costing your firm millions, damaging your financial performance, and potentially negatively impacting your customers. Just do a quick search for lawsuits against these firms and you will see quite a list of massive failures.

An Alternative Approach

As organizations seek more cost-effective and efficient solutions for their technology projects, it's essential to consider alternatives to the traditional GSI model. Smaller Systems Integrators (SIs) and boutique firms offer a compelling alternative that can deliver higher quality results at a lower cost.

Here are some key benefits of choosing smaller SIs and boutique firms:

Focused Expertise: Smaller SIs often specialize in specific industries or technologies, ensuring a deep understanding of your unique needs and challenges.

Lower Rates: These firms typically offer more competitive pricing structures, as they have fewer overhead costs and do not rely on high billing rates for partners and senior managers.

Efficient Teams: Smaller SIs tend to work with leaner teams, resulting in streamlined project management and communication. This means less time spent on administrative tasks and more on delivering value.

Custom Solutions: Boutique firms often provide more personalized and tailored solutions, aligning their services precisely with your project goals.

Quality Over Quantity: Smaller SIs prioritize quality over quantity, ensuring that every resource on your project brings relevant expertise and adds value.

In conclusion, while GSIs may offer an enticing facade of skilled resources and global reach, their financial model can lead to inefficiencies, hidden costs, and suboptimal project outcomes. Businesses looking for cost-effective and high-quality solutions should strongly consider smaller SIs and boutique firms. While there is risk with any firm you hire and internal challenges that should be address in advance of any project, at least your partner wins when you win. These alternatives can provide the expertise you need without breaking the bank, ultimately setting your projects up for success rather than failure.