When organizations are looking to cut costs and improve margins, headcount is often one of the first places leaders scrutinize. This strategy makes sense — labor is the biggest driver of cost in many functions, and it’s easier than ever for organizations to leverage technologies like automation to reduce the number of people it takes to carry out high-volume processes. When it comes to IT, however, organizations should proceed with caution in this current environment. Arbitrary headcount reductions could bring unintended consequences for your technology, systems, and your organization more broadly.
Based on data from nearly 4,000 participating organizations, APQC finds that organizations at the median have 74.3 full-time equivalent employees (FTEs) that perform IT processes per $1 billion revenue. Organizations with the smallest number of IT FTEs (those in the 25th percentile) have around 43 per $1 billion in revenue, while organizations at the 75th percentile have 127.3 FTEs carrying out IT processes.
Managing Today’s IT Function
For processes like accounts payable or payroll, a lower number of FTEs is generally better because it means that fewer employees can accomplish the same amount of work. For example, APQC finds that organizations at the 25th percentile can carry out the accounts payable process with 3.8 FTEs per $1 billion revenue, while those at the 75th percentile need 12 or more to carry out the same set of activities. It makes sense to say that 25th percentile organizations are “top performers” for this measure, while 75th percentile organizations are “bottom performers” with plenty of room for improvement.
There are several reasons why this rationale does not necessarily apply to your IT function. One is simply that the demands placed on IT have rapidly proliferated over the last few years. Managing an organization’s IT function today means:
- Managing the business of IT,
- Developing and managing IT customer relationships,
- Developing and implementing security, privacy, and data protection controls,
- Managing enterprise information, and
- Developing, deploying, and supporting information technology solutions.
These responsibilities are only growing in scope and importance, in line with organizational priorities like cybersecurity, data management strategy, AI programming, IT development ops activities, and enterprise-wide digital transformation programs.
Organizations often leverage technologies like automation or AI to carry out high-volume, repeatable processes and thus reduce the number of FTEs required for these processes. This strategy, however, does not get nearly the same mileage in IT because technologies like automation and AI require development, implementation, and ongoing maintenance to work effectively.
For example, many of the technologies that we use in our IT environment at APQC send out alerts and notifications when they detect anomalies in our systems. Even if those alerts are automated, we need a team of skilled IT professionals to monitor them, manage them, validate them, and interpret what they mean for leaders like me. Without the proper headcount to carry out tasks like these, we would be setting ourselves up for critical vulnerabilities that are simply unacceptable to our members, who rely on us to protect their proprietary data.
Use Strategic Workforce Planning to Calibrate Your IT Headcount
Before making changes to your IT function, it is important to consider your business strategy, IT strategy, the structure of your IT function, and the implications (both in terms of risk management and human capital management) of any changes you make.
For example, if you decrease IT headcount, can you still do what you need to do to keep data and systems safe? Do headcount reductions risk overwhelming the remaining IT employees with far more work than they could perform and send morale plunging? Considering questions like these helps to ensure that changes to your IT workforce are effective and sustainable over time, rather than simply a “crash diet” of headcount reduction that results in greater organizational fat down the road.
Human resources (HR) is an indispensable partner when considering the ideal number of IT employees for your organization because HR leaders and workforce planners often have visibility into talent needs across an enterprise. For example, even if a specific business unit needs to reduce the number of data analysts it has, other business units in your company might have desperate need of those skills. With enough visibility and lead time, you could retrain and deploy those employees to other parts of the organization rather than letting them go.
APQC has found that partnerships and collaboration between HR and leaders are critical success factors for effective workforce planning. If you do not have these types of partnerships with HR and your IT function today, start cultivating them now so you can make well-informed, data-driven decisions about your IT workforce.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.