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IT staff shortages are proving laborious for all concerned.
Scott Leibs, CFO Magazine
November 1, 2000
Earlier this year, Rep. Dick Gephardt (D-Mo.) paid a visit to SkillsVillage Inc., a Silicon Valley up-and-comer. Photo ops with dot-coms have become de rigueur for politicians these days, but this was something more: Gephardt was looking for answers to the IT labor shortage, and he hoped the Santa Clara, California, staffing applications expert might offer some insight.
His trip was part of a broader federal effort to quantify, and prescribe solutions for, a problem that has existed for the better part of a decade. The dearth of computer programmers and other IT workers is a well-established fact of corporate life, but the pain is growing more acute as companies increasingly try to move at "Internet speed," only to find that limited staff resources constrain them at every turn. Harris Miller, president of the Information Technology Association of America (ITAA), a trade group representing hundreds of high-tech firms, says the shortage "hampers economic growth from the micro level, by forcing companies to delay or cancel IT projects, up to the macro level, by playing a role in interest-rate hikes because the Federal Reserve has announced that one of the factors driv-ing such hikes is the shortage of skilled workers."
The ITAA says more than 800,000 IT jobs will go unfilled this year, a figure that's roughly in line with other estimates (Meta Group, for example, puts the figure at 850,000 and says shortages will continue through 2005). Certainly the anecdotal evidence confirms widespread vacancies, as CFOs and other senior management routinely swap horror stories over hiring woes. Pete Appl, CFO of hpshopping.com, a wholly owned subsidiary of Hewlett-Packard Co., says his company offers prospective hires everything from options to mentoring programs, but in the next breath he concedes, "It's still very hard to find all the people we need."
There is some good news. According to the Computing Research Association, the number of computer-science majors has more than doubled since 1995. And Meta Group reports that turnover rates have declined slightly, from 15 percent to 11 percent (although a rise to 13 percent by year-end is forecast).
Scant consolation, however, for companies that need people now--and most do. Meta found that while three-fourths of respondents say they are understaffed, most would increase their IT departments if they could, by an average of 25 percent. "Not only are there not enough bodies," says Maria Schafer, program director for Meta's Executive Services unit, "but there's a double-whammy in that the skill sets that are available aren't the ones most in demand."
With the labor supply short, business is making demands on government, asking, for example, that the number of H1-B visas granted to foreign workers with specialized skills be increased. This has touched off protests from the National Urban League and others (see sidebar, below), and is certainly not viewed by anyone as a long-term solution. In fact, the ITAA's Miller, who favors an increase in visas, is quick to point out that "there is no silver bullet for this problem." Businesses, most agree, will have to approach it on several fronts, dedicating more time, money, and thought to technology staffing than ever before.
That's true even at companies that would seem to hold the greatest allure for IT workers: Internet start-ups with cutting-edge technologies and plenty of stock options. Jerrold Grochow, chief technology officer at Foliofn Inc., an online brokerage firm in Vienna, Virginia, says, "When we find good people, we hire them. We don't even worry about what specific job they'll do; there's no doubt we'll have a place for them." The company plans to double its IT staff during the second half of this year, and says it needs people in all areas of technology.
"Too many companies operate like the NFL," remarks the ITAA's Miller. "They let colleges develop the talent, then recruit the best. They should follow a baseball model, creating farm teams and developing people themselves." That's precisely what IBM and other companies now do. Internships have been expanded and made more lavish, with the emphasis moving away from supplying a cheap source of grunt work and toward romancing future full-timers. "It's 'try-before-you-buy,'" says Chris Bahr, program director of developerWorks and alphaWorks, IBM's free developer portals that offer code, tools, and tutorials. "It's a brutal market, and you have to grow your own talent."
"We rely on a referral program, recruiters, you name it," Foliofn's Grochow says. "We have to fight to find good people, just like everyone else."
But the nature of the fight may be changing, and in a way that benefits most companies. Stock options, the carrot that has given dot-coms a big recruiting advantage over established companies, have lost considerable luster following the Nasdaq correction and the demise of several high-profile E-tailers. Suddenly, blue-chip firms look like safe havens, not stodgy dead-ends.
Companies must still cater to the demands of IT workers, which can range from the mundane ("Even though we're a pretty buttoned-down corporate culture, we let our technology people wear whatever they want," says UPS Capital CFO Michael Bryant) to the critical. Appl says hpshopping.com's mentoring program has been an important selling point because "people in technology fields always want to learn, and to feel like they have a career path." Many companies promise to rotate IT people through various jobs to alleviate even the impression of being slotted into a potentially stultifying niche.
Attention to Retention
That's part of a broader effort to improve retention, which most companies consider as important as recruitment, if not more so. A best-practices study conducted earlier this year by the American Productivity and Quality Center on behalf of AT&T, Chase Manhattan, UPS, and several other large private and government employers found that retention boils down to four key areas: providing professional development and defined career paths, orienting and assimilating new hires so that they feel like part of the organization from the outset, recognizing and rewarding employee contributions, and offering a solid compensation and benefits package (versus new cars, on-site masseurs, and other headline-grabbing perks).
The labor shortage has prompted one staffing firm, Knowledge Workers Inc., to shift its focus from recruiting services to retention. "Replacing an employee can cost up to two-and-a-half times that employee's salary," says Bill Sebra, president and CEO of the Englewood, Colorado-based firm, which promises to replace at no additional cost any employee it places if that employee leaves within two years. "Companies may understand how important it is to find an employee who 'fits,' but in their rush to fill positions, they often overpay and hire people with the right skills but the wrong profile."
But companies do seem willing to devote more attention to people once they hire them. "If there is a silver lining to the IT labor shortage," says Schafer of Meta Group, "it is that companies are once again trying to treat employees right. They understand that you have to make the most of the people you have."
A bigger challenge may be making the most of the people you don't have. The market for contract workers is booming, and companies have a growing number of ways in which to tap into this labor pool. New Web-based services such as SkillsVillage and Vivant Corp., in Oakland, California, take some novel approaches to linking employer and employee. SkillsVillage, for example, not only offers an online exchange that matches parties by skill sets, but also enables a client to create a private network of staffing firms and independent contractors.
Given that some large companies spend hundreds of millions of dollars a year on contractors, providing a better way to obtain and manage these services seems like a solid niche. "Companies are tending to manage large-scale IT projects as if they were movies," says Chris Wong, president and CEO of SkillsVillage. "You hire a director, actors, a cinematographer, and so on, and then disband them when the proj-ect is done." While there are economic benefits to hiring contract workers (such as reductions in health-care and pension costs, and the compliance and paperwork issues posed by full-time workers), a study by the American Management Association found that flexibility in staffing issues and the ability to find specialized talent are the primary drivers.
If you want the work but not the worker, a company called HotDispatch Inc. has the answer--literally. Its global bulletin board service allows IT workers to post requests for help and then pay a nominal fee for the solution, which could be an answer or actual code. "Even the most talented employees run into situations where they need help," says Mike Kaul, CEO of HotDispatch. "No one can keep abreast of all the technology that's out there." Kaul says a programmer can simply post a query to HotDispatch and ask for guidance. In doing so, they reach the broadest possible talent pool.
Anuj Seth, for example, has responded to many such queries from his home in Bangalore, India. A full-time programmer for an Indian firm, he makes extra money by responding to calls for help on HotDispatch. "Getting paid is just a bonus," he says. "It's really about helping someone when you know the answer. You know you're saving them a lot of time."
For many years the promise of a technological solution to the technology staff shortage has seemed right around the corner. Programming languages for nonprogrammers and reusable (object-oriented) software modules have offered promise, yet haven't materialized to any meaningful degree. ComponentSource, based in Kennesaw, Georgia, is among the companies that hope to change that. It has assembled a vast bazaar of software modules, available on the Web, that in theory provide an off-the-shelf approach to custom development.
But most experts say that it will be a long time before technological innovation eases the manpower crunch. The Bureau of Labor Statistics forecast a 117 percent jump in IT positions between 1998 and 2008, making it by far the fastest-growing portion of the economy (health services is second, at 67 percent). In all likelihood, companies will have to take a multifaceted approach, wooing employees, retaining them, and using contractors and other services where suitable. It's a management headache that's not going away anytime soon, but companies that address it smartly may find the investment provides a real edge.
Scott Leibs is technology editor at CFO.
The Emperor's New Clothes?
While the existence of an IT staff shortage is an article of faith in most quarters, some observers believe the situation is grossly distorted. Norman Matloff, a professor of computer science at the University of California at Davis, dubs it a myth, and has told Congress as much. He sees a number of factors at work, including a desire on the part of the Information Technology Association of America (or, more accurately, the high-tech firms that are its members) to make a case for additional H1-B visas, and a misconception on the part of human-resources organizations as to what experience is necessary or relevant.
Citing data obtained through several university studies as well as the Freedom of Information Act, Matloff argues that workers brought into the United States on H1-B visas are paid about 20 percent less than similarly qualified U.S. citizens. In theory this is illegal, but loopholes abound. It is the desire to save money, not a true labor shortage, he asserts, that prompts the call for more visas. "The ITAA admits that the biggest categories of unfilled jobs are for tech support and network administration," says Matloff. "Yet these are not the sorts of positions at issue in H1-B visas, so there is obfuscation at work."
Matloff also has harsh words for many HR departments, which he criticizes for screening applicants based on college grades, internship experience, and programming languages, and for failing to see the value in older workers. In his view, companies are too rigid, failing to interview candidates who would be excellent employees but lack some crucial element on paper. "Microsoft hires less than 2 percent of applicants, so how bad can this alleged shortage really be?" he asks. "If Bill Gates had stayed in college he would have been totally turned off by today's theory courses. Lots of students are, but they are crackerjack programmers." Matloff's advice: students should get internships, older workers should get lawyers, and HR departments should get a clue. —S.L.