With a systems integrator or large consulting firm, the vendor is promising to take on the full risk of project success, which naturally comes with a high price tag, due to the overhead involved in this type of business model. With a tech staffing firm, the customer might get a lower price, but the labor comes with few guarantees that it has been vetted, and no warranty of project success. As often as not, the staffing firm lacks the resources to vet ERP consultants, and will subcontract to a niche vendor – Naturally, as this tangled web of layers is spun, the end client suffers from unnecessary price escalation, and perhaps ultimately paying a premium rate for a sub-par resource.
In the middle, a Milwaukee-based firm called ERP-Consulting is trying something quite different: a reverse auction system that places pre-vetted ERP consultants into direct competition with each other, with a transparent business model that matches talent to needs, leaving no one guessing about what they’re getting, according to vice president of operations Mark Koenig.
“We have a group of 15,000 individuals, whom we have encountered firsthand and vetted out their profiles, and I am making them fight with each other to earn the work of Fortune 500 organizations directly,” Koenig says. “There are no additional layers or subcontractors inside our delivery methodology. This is in stark contrast to what many organizations face today where vendor partners utilize additional sub-partners to help them find talent. Before you know it you’re looking at a $70-an-hour resource at an end cost of $130 an hour.”
Koenig and his team have built an auction model and associated toolset that looks much more like a bargain airline ticket website or a financial trading system than the typical ERP consulting recruiting effort, delivering talent at an agreed-upon rate usually within 72 hours, as opposed to the traditional process, which can take weeks or months, he says.
Here’s how it works: a customer approaches ERP-Consulting with a project need. ERP-Consulting contacts it’s pre-vetted membership of consultants (all of whom have been hand vetted and verified by a team of seasoned ERP recruiters) who have indicated interest in a specific type of project. The client sets a maximum rate it is willing to pay, which is inclusive of ERP-Consulting’s 19.5 percent mark-up for facilitating the auction. Both the client and the consultants can see not only the rates, but the level of experience, location, and many other qualifications of each competitor. This way, “the end client never receives a rate that is higher than what they set,” Koenig says. And it’s not a race to the bottom. “The lowest bid is rarely the one hired,” he explains. “We have found the true crux of the delivery model is driving the most value out of the highest skilled resource available in the marketplace.”
From the consultant’s perspective, this is a boon compared to the typical tech-staffing process, in which case he enters his best guess at a reasonable rate and hopes for the best. He has to enter his price not knowing how many years’ experience the competition has, how many competitors he has, who works on a W-2 basis and who is freelance, or what his competitors’ price range is. The typical result is that the consultant trolls around the labor market and depresses his rate until he’s hired or gives up, usually in almost total darkness.
“How in the world am I going to present Acme Recruiting Corp. with a true market rate for my skill set if I don’t have any information about my competition?” Koenig says. “I just say, ‘I feel like making $80 an hour.’ Acme recruiter responds, ‘I have a guy who has 10 years’ experience who wants $60 an hour.’ I don’t know if that is accurate or if the recruiter is feeding me a line.”
With ERP-Consulting’s model, the consultant has enough information to develop a much more accurate market rate, and ask a price that is not only fine-tuned to his own needs, but also meets or likely exceeds the rate expectations of the end client.
For example, the same job might merit a very different market rate in Los Angeles from what it would get in Detroit. There may be more individuals in Los Angeles who are qualified, but they would be more expensive, as they come from a place with a higher cost of living and would have to travel and compete with the local talent. Conversely, someone in Detroit might want to work in Los Angeles for the winter, and would lower his rate accordingly, with the full knowledge of what comparably skilled competitors local to Los Angeles are charging.
“Auction participants can see in real time what the market is for this particular work in this particular city, which is an extremely dynamic process that we have boiled down to the least common denominator. In the end we produce an extremely harmonious, comprehensive, and value driven solution for both our consultant membership as well as our client partners” Koenig says.
From the client’s perspective, the level of transparency is significantly greater than what would be available from a staffing vendor, at rates -- set by the client -- that are between $50 and $100 less per hour than a full-fledged systems integrator.
“In our environment, it’s all transparent,” Koenig says. “If the first bid starts at $135 an hour, and then three people with more experience bid lower later, there is no compelling reason to look at a less experienced guy at $135 an hour vs. someone more experienced at $120 an hour. It is simply presenting the most compelling resources at the most compelling market rate available to them in the marketplace.”
On the contractual side, things are kept very simple. The client signs a master services agreement (MSA) with ERP-Consulting, which distributes a statement of work (SOW) to all of the consultants who respond to the auction. Both parties sign the SOW and the consultants are deployed through the MSA, Koenig says.
“We set out to do this because we found a way to access these individuals directly and safely for our clients,” he explains. “ABC Corp. will never engage these individuals on their own, because there is no recourse if things go south, which is why we have the MSA in place. It affords them that insurance, while ensuring them the work of the optimal talent in the market. Our innovative process is the antithesis of standard protocol showcasing an arbitrary starting rate with a linear price escalation as consultants work blindly through the traditional vendor pools.”
Koenig believes he has amassed a pool that is largely exclusive to ERP-Consulting. For quality control, his team routinely scrubs mainstream marketplaces to vett and verify consultant applications guarding against current rampant instances of fake resumes. Additionally, this process allows his team a continual affirmation that ERP-Consulting is truly delivering a unique candidate pool. Even so, there are no exclusivity contracts for consultants to sign.
ERP-Consulting is exploiting a hole in the marketplace that is very specific to ERP. While tech staffing firms have thousands of consultants at the ready to work on .Net or Java, few “carry a bench” in ERP, Koenig says. The systems integrators have also significantly cut their ERP bench since the 1990s, and are often forced to subcontract as well, which inflates rates even more, sometimes as much as five times the actual cost of the resource, Koenig says.
As specific as the firm’s name and mission may be to ERP, that’s not to say that other markets couldn’t benefit from transparent reverse auctions. The binding conditions for expanding into a new vertical are: the presence of a viable market for that talent, and the ability for an auctioneer to evaluate that talent.
“The real scalability comes from knowing these marketplaces,” Koenig says. “Anyone can build a reverse auction, but it would take a lot of upfront work to develop the data set about the talent pool. It took us years to find the resource pool to deploy through this mechanism.”
Koenig isn’t ready to go there - yet. He says his company has found about 20 other resource-constrained, opaque contingent labor markets that could benefit from its model, and has taken the step of purchasing domain names in those as-yet undisclosed markets.
Dan Woods is CTO and editor of CITO Research, a firm focused on advancing the craft of technology leadership. He consults for many of the companies he writes about. For more stories about how CIOs and CTOs can grow visit CITOResearch.com.
