Butt-hours
The fear of committing to results
There’s a nasty little problem that’s been deteriorating the provision of technology services for some time now. People call it man-hours; I’m going to call it “butt-hours”.
It all possibly began with good intentions (causes), but really it presents great problems (effects) for the technology industry of our country. It’s even evolved a variation that looks different at first, but is really nothing more than the same problem on a different scale: "body shopping", or, as I call it, butt month.
In this article we’re going to examine what this problem is and what are its causes and effects, so that in future articles we can look at better alternatives.
In a nutshell, butt-hour services are when someone charges you for sitting on their butt.
Let’s use an easy-to-understand comparison that’s similar enough to providing technology services: painting a house. When we look for someone to paint our house, we’ll find two types of service providers: the butt-hour painter and the results painter.
The butt-hour painter will give you a quote for painting the house without looking at it. His model doesn’t consist in selling you the solution itself, but rather only part of the solution, which in this case is the painter's time.
The butt-hour painter will say that painting the house costs $30K COP per hour per painter. On the off chance that he visits the place, he may inform that the process will take between 5 and 10 days. However, the fine print will say that this duration is not guaranteed because other factors are out of his control (opening hours of the house, availability of materials, etc.). The butt-hour painter will indicate that the paints and brushes are also not included and that you can buy them according to your needs. Typically you pay the painter these “butt-hours” in agreed time periods (weekly, fortnightly, etc.).
The results painter, on the other hand, visits your house, takes measurements and photographs, recognizes the area, determines the quality and color of the paint you require, and after understanding the problems and risks inherent in painting your house, will indicate that the process will cost a total of $3M independent of other variables.
This painter also indicates that the job can take between 8 and 12 days, but clarifies that finishing the job earlier or later won’t affect the price. Payment is not according to specific timeframes but rather to progress on the overall result (milestones): for example, a payment of 20% when the courtyards are finished.
You as a reader, whether customer or supplier, can now probably quickly identify what percentage of your purchase or sale of technology services follows the model of butt-hour painters or results painters. I.e., IT guys who charge by the hour until the job is finished, or IT guys who charge for getting the job done, regardless of how long that might take. And I’m sure you’ll agree that in the IT sector of our country, the butt-hour model is the king of transactions. It’s the model most preferred by buyers, and the easiest to market for sellers.
Let’s compare some attributes of both types of painters to understand how we as computer specialists essentially became nothing more than IT staffing agencies and that our relevance as an industry is in jeopardy.
The first thing to analyze is the total cost of the solution. The butt-hour painter is selling only part of the solution and not the solution itself, so his quote is a unitary value of labor and not the closed value of a solution to a problem.
With the results painter the final total cost is known in advance, therefore the operational risk is fully transferred to the supplier. The butt-hour painter can sit on his butt and dawdle if he wants, spend an hour more, an hour less, spill a can of paint or two, and we’ll only know the total cost of everything at the end.
From the buyer's perspective, opting for the butt-hour painter is to hope that by managing the variable costs of labor and materials the job will turn out cheaper than what the results painter charges. But do the theoretical savings of cheap butt-hours compensate running the operational risk?
A buyer has to put in a lot of cost management to ensure that his butt-hour service will end up cheaper, and this brings with it a whole slew of hidden costs.
Optimizing painter hours and materials implies spending time and money on the part of the buyer to ensure the proper use of resources: counting painter’s hours, negotiating hours, selecting and purchasing materials, among others.
In the butt-hour model the buyer acquires administrative responsibilities in which easily managers of the parties invest two hours of their time each discussing whether a painter arrived at 8:00 AM or 10:00 AM to know if one, two, or no painter butt-hours should be paid. After subtracting the hidden costs, is the cheap butt-hour still cheaper?
A dimension apparently in favor of butt-hour painters is the speedy capacity to deliver a quote, and the low investment needed to make the sale.
When you paint a house in butt-time you don’t have to estimate or precisely define the task at hand. You don’t have to measure the area of the house, you don’t have to make a detailed estimate, you don’t have to determine the type of paint, you don’t even need the house to be built already, or to have a house at all. You just send a price list in advance quoting a unit of time, so you barely have to spend any time preparing a quote, nor invest anything in attempting to make the sale. But is it really cheaper to not know what I have to do instead of investing in specifying the result I want?
Since butt-hour painters all use the same quoting unit—that is, the painter’s hour—, this model gains an advantage when being evaluated by the Purchase Department: supplier comparability. If there are several butt-hour painters, you can compare them by looking at their skills rather than the quality of their work. For example, you can filter for painters with over two years of experience who are certified in heights and handling toxic materials.
Suppliers who submit their price quote assure you that they will supply painters with the requirements you specify, and it’s assumed that painters who fulfill these requirements will all deliver the same quality of work. So when you compare quotes you’re not really comparing quality since supposedly it’s all the same—all you’re comparing is the hourly price. However, isn't it cheaper to have a supplier who is twice as expensive per hour but is four times as productive?
Taking all this into consideration, we can clearly see that the butt-hour service model encourages dawdling. Obviously, painters charging by the hour will be motivated to overestimate the time required for the job, or report more time than was actually spent.
Whereas on the other hand, the results model encourages innovation. Results painters must constantly be on the lookout for new technology or working strategies that will allow them to meet the defined objective in less time and cost.
Butt-hour painters are very unlikely to develop and incorporate innovations, because doing things more efficiently means they’ll spend fewer hours doing the job—and therefore make less money. And anyway, innovating takes effort. Why would they do that if it gives no return? Better to keep sitting on your butt.
So, how can you innovate while in a company that works under the model of selling butt-hours?
You can’t.
The only option is to get rid of the model.
When there’s a contract between companies at a fixed value of butt-time, the supplier has to hire staff with a standard productivity and cost that lets him generate a profit margin. So a paint company that uses the butt-hour model for services must pay all its painters pretty much the same. Therefore, there’s little space for the development and retention of exceptional talent. Painters won’t learn how to do a better job, and those that do, will leave. Retaining painters that can paint twice or triple the area per unit of time would imply having to pay them more, increasing cost without increasing income even when there’s a potential perceived benefit for all parties.
For obvious reasons, in a results model the space for exceptional talent and wage differences of up to 3X or 4X are perfectly viable. Where would you as a buyer rather work, in a butt-hour company or a results-based company?
One thing that buyers like about the butt-hour model is that they can try to micromanage everything. Since the buyer is trying to manage everything himself and find the absolute cheapest way to get the job done, everything can be challenged.
The time spent stirring the paint, how long the painters take for lunch break, what time they arrive and leave, the painting speed of Painter A compared to Painter B, the painting speed of everybody compared to the fastest painting speed of the best painters in the world, the method of painting, the use of brushes instead of rollers, everything.
Roles are challenged or replaced by the buyer himself or even supplied by the competition. Essentially the buyer of a butt-hour service becomes the operations manager, research manager, and development manager of the supplier.
The ability to manage their own equipment ends up being a luxury only had by the results painters, whose method of work and hiring gives them the independence to achieve the results they initially committed to in their own way.
Why hire a painter and tell him how to paint? Could it be that in the long run you purchase capacity because you want to control more people? When the buyer gets to compare painter’s hours and challenge every part of the process, he ends up running the job his own way. Added to the standardization of skills and appraisal of man-hour price, butt-hour painters end up succumbing to disaster: commoditization.
Now, the only thing that sets competitors apart is price. Essentially, the butt-hour painter goes from being a tech company to being an IT staffing agency. Meanwhile, the results painters get to keep their own method, technology, work culture, and continue to supply final results rather than man-hours.
Once man-hours (or butt-hours) have been commoditized, the sale moves on to the next stage: granularity. Here we add the client's micromanaging to his incessant search for cheap deals, so now he doesn’t want us to pain the whole house, he just wants certain walls, or certain parts of walls, or to patch up a hole left by a nail where a picture used to hang.
These small one-or-two-hour tasks end up generating sales that don’t even cover the fixed costs of the remaining six or seven free hours that can’t be assigned to that painter in another patch-up job on the same day. After a while the small projects start to outnumber the large ones, and butt-hour painters start bleeding out in their financial results.
Some savvier companies have understood the problem of granularity and have moved to a more advanced version of the butt-hour: the butt-month! (I.e., “body shopping”, SCRUM included). This way they avoid granularity, and whether or not the painter is busy painting houses, they pay him to be available to paint them (which increases the cost for the client).
Using this structure, the supplier generates a larger sale, because instead of man-hours, it sells man-months over long periods of time. However its role as a staffing agency is all the more emphasized, and because it’s commoditized and in high demand, prices must always keep going down.
And here’s where your customer becomes your own competitor! After a while the client will get offended by the obvious (the margin between the painter's salary and the end price of the butt-month) and determines to hire the painter himself, pay him more, and get greater value by saving on the profit margin of managing a worker himself. Butt-months only postpone death. In the long run, it's always the same man-hour.
A results painter keeps looking for better ways to paint, better ways to pay, and keeps using trial and error in his search for the best and most efficient way to paint houses.
In short, results painters invest more time and money in the sales process by clearly defining what needs to be done, committing to a final cost, taking responsibility for estimation and execution errors as well as triumphs in case of achieving the result in less time and cost.
By controlling the method and service from start to finish they have room to invent new ways of doing things, to take care of work culture and have their own organizational practices. They’re independent. And lastly they have the greatest wealth of all: they can hire the most exceptional people given that they have room for a broad salary scale.
Butt-hour painters don’t have to invest a lot of time and money in preparing a price quote, because they don’t sell solutions to problems, they just rent time from their staff. They don’t commit to a final cost because they only control a part of the solution. They promote cheap unit value distracting from the global perspective of the number of hours required. For them, innovating is suicide, because doing things faster would mean selling less. On top of that they end up with a large team of mediocre talent because there’s no financial capacity to pay exceptional employees on differentiated salary scales.
After seeing that in our country the large percentage of transactions in technology services is butt-hours or months, all I can say is that this is clear evidence of the triumph of the purchasing department over the general management, where the small picture wins out over the big picture. Because it’s obvious that the best bargain is not achieved by hiring the cheapest man-hour. You get the best bargain when you understand that it depends on the total hours spent, hidden costs, and the hours wasted sitting on butts.
General managers have been defeated by the buyers within their own organization, because although they know this, they still don’t realize that butt-hours and months means turning your client into a shareholder who has more control than you do. This doesn’t bring in any more income and takes away your freedom to do your job the best way you know how.
For the supplier, this means playing a game that in the short term may bring growth and profit, but in the long run is unsustainable and creates minimal value. This is a game where we become nothing more than staffing agencies.