Taking Stock for Future Shock

Taking Stock for Future Shock

Into the 21st century, IS organisations will require new cultures and pay systems to manage a new breed of employeeSure, there are plenty of great ideas for attracting and retaining good IS people. Every week I get a call from an excited client who has discovered another approach. And each one makes me wince: they don't realise that many of these ideas are quick fixes at best - and at worst, they're time bombs with 12- to 24-month fuses.

For example, overemphasis on salary for retaining some people or for expanding an already bulging contractor population creates resentment and seriously affects morale. Too many companies are content with seat-of-the-pants solutions aimed at manipulating a moribund pay and reward system rather than overhauling the system to accommodate today's unique staffing demands. Moreover, companies are taking their focus off other things workers crave, such as non monetary rewards (for example, praise and recognition, training and education, flexible work schedules) and pleasant working conditions.

The fact is that as the Information Age forces the Industrial Age corporation to look in the mirror, an inescapable truth comes into focus. Attracting and keeping IS workers who can help solve complex problems and add value under unprecedented flux is impossible without fundamental changes in both compensation and IS culture. Maintaining the proper relationship between the two is critical. The IS executive's toughest task over the next 10 years will be to lead or otherwise enable such change. The cost of CIO failure: his or her job. Here are a few things to know in the new millennium and beyond.

Staffing: The Next 10 Years

Get ready for one wild ride. IS staffing will be influenced over the next several years by organisational models that feature more nimble entities, distributed management and highly participatory employee roles. There will be a far greater focus on relationship building, information sharing and communication between employees, partners and customers.

The corporate environment in 2008 will still be fuelled by hard-nosed analytical thinking but with greater consideration of intuitive factors in managing people and making decisions. Staffing strategies will increasingly demand workers strong in what psychologists call right-brain activity - that portion of the brain that controls the ability to nurture, collaborate and communicate among others (interestingly, qualities associated more often with women than men).

Staffing IS organisations under such extreme conditions will be an adventure since, simply put, the IS department as we know it will vanish over the next 10 years. In its place will be a restructured operation resembling the business models of consulting firms and other service organisations. It will be populated by a permanent workforce of internal technical and business consultants, all competing for corporate resources.

A new breed of worker will play a variety of important roles: managing and collaborating with external vendors, dealing with technology change, eliminating asset management burdens, resolving internal political issues and developing more efficient IS operations. An explosion in shared risk/reward relationships between companies, their vendors and even their competitors will blur distinctions between IS organisations, business units and outside partners regarding how services are purchased and delivered.

Complicating migration to the new models is the belief - widely held by IS leaders - that up to one-half of their employees are unable or unwilling to adapt to this new world. Companies are desperately seeking IS workers with the technical know-how, analytical acumen and process skills to help them solve complex business problems. Now that line management controls roughly one-half of a company's IT spending - expected to reach over three-quarters within two years - it's likely that more selective outsourcing deals and forced IS workforce turn-over are right around the corner. This has already begun spurring CIOs to decisive action.

In the US, PECO Energy, a $5.7 billion electric and gas utility serving southeastern Pennsylvania, turned over 76 per cent of its IS workforce in three years. Senior vice-president and CIO Katherine Holland (now with IBM) installed a competency-based traditional consultancy management model that enables IS to respond to sudden changes by rapidly deploying resources, people and skills.

She negotiated a $600 million outsourcing deal that redefined the group's service delivery role, work processes, career development programs and compensation system.

Holland's staff carefully managed expectations and change through frequent meetings and continuous education. Eventually, every IS worker was asked to make a personal decision about whether to apply for a job in the new organisation or choose from among several alternative employment options. If they qualified to help implement the restructuring plan, they were provided well-defined career tracks with flexible promotion paths stretching out several years.

Some well-managed companies are permanently reducing their full-time IS workforce in favour of outsourcing partnerships, consultants, telecommuters, job sharers, interns and other non traditional types. Heavily contracted workforces aren't new; what is new is that over the next decade, more companies will make flexible workforces a cornerstone for building their IS delivery models and will incorporate innovative compensation and incentive programs as critical elements of infrastructure support for the "flexforce".

Stand By for New IS Skills

To succeed in the new millennium, IS executives should begin to bone up on their technical, interpersonal and business skills. Technical skills are associated with software development (especially enterprise resource planning packages), network engineering and administration, systems management, LANs, databases and security concerns. Project experience on Inter-, intra- and extranet or data warehousing development teams is a bonus. Soft skills include communication, negotiation, collaboration, coaching, analytical tools, business knowledge and project management. Demand will be especially intense in the next five to 10 years for enterprise project managers who are able to link projects and people across the enterprise and unsnarl enterprise "traffic jams" of dozens (often hundreds) of projects competing for limited resources.

The new breed of IS professional will be distinctive for his or her blend of technical and non technical skills, business orientation and attention to customer service. These professionals will excel in team-based environments operating under pressure, where project management skills and interpersonal abilities are key to completing work that is increasingly cross-functional in nature.

Feedback from hundreds of companies I've tracked over several years indicates that the following traits - familiar to business workers but mostly new to IS - are particularly important to success: a facility for risk taking and acceptance of failure as a natural event; tolerance for ambiguity where there is no clear answer to what is right for a given situation; adaptability and flexibility in being able to make educated guesses and open up to new ideas; accepting responsibility for the outcome of projects and not blaming others for things that go amiss; and the ability to anticipate what users want before they know but to lead them to discover the answer in a highly participatory fashion.

New Pay Systems

Unfortunately, there can be no sustainable solutions to IS staffing problems over the next decade unless the traditional hierarchical pay system - with its philosophy of obsessive internal pay equity - is replaced. Developing workable models for managing IS careers in the 21st century means, for example, rewarding acquisition and use of critical consulting and technical skills and the traits listed above. In addition, employees should demonstrate the impact they've had on the business rather than adhere to the nebulous concept of "upward advancement" that typifies most pay models.

CIOs should emphasise employees' unique personal qualities rather than factors like length of service, budget size and number of subordinates. For example, those using intuition and initiative to find ways to add business value need to be singled out, as do young workers possessing budding leadership skills. An IS organisation must be able to readily offer customised packaging of base salary, cash and non cash incentives, and training to suit the special needs of key talent. All the better if those packages can be linked to performance - individual, team, department, business unit, company - and anything that business units believe add value.

Two compensation models merit attention: broadbanding and competency-based pay.

More companies are replacing their traditional salary structures with broadbanding, which eliminates multiple pay levels and job grades in favour of a relatively small number of broad pay ranges. It's one of the most popular systems used in re-engineering organisational and value systems: A 1997 survey of 413 of the Fortune 500 industrial companies by Hewitt Associates LLC, a human resources consultancy, reveals that 27 per cent are using broadbanding for some employees, and another 30 per cent are considering it. A second Hewitt survey of 1048 US companies also showed a growth in broadbanding usage (from 6 per cent in 1992 to 21 per cent in 1997).

Broadbanding systems encourage IS workers to try new jobs, learn new skills across functions and develop their careers. Workers can perform several different jobs falling within the same salary range, with room for multiple bonuses and incentives. Career growth under broadbanding is defined in terms of many of the factors that will be most highly regarded in the emerging IS service model: Skills acquisition, especially cross-functionally, that creates greater responsibilities and challenges Job complexity and challenge Customer service and satisfaction Sustained contributions that progressively add greater value Flexible job definitions that support team needs Advantages of broadbanding include less bureaucracy (less onerous job evaluation and administrative burdens) and more organisational flexibility. But even more important is that HR, IS and business unit managers form productive relationships as partners rather than as adversaries. Implementation is not without pitfalls; managers need to be adequately trained and employees sufficiently educated so that there's a clear understanding of the new processes. This system also involves significant cultural changes - always a risk.

Before contemplating implementation of broadbanded pay systems, ask yourself the following questions: Are there compelling business needs and unswerving senior management leadership and support? Is there a willingness to shift pay accountability to IS managers?Is there a commitment to developing IS careers? Does open communication already exist between employees? Is there a viable support system for managing performance and planning careers? If you answer no to any of these questions, sustaining these gains will become problematic.

Competency-based pay structures emphasise developing and paying employees who have the "competencies" needed to drive the organisation's success. These skills, which can be coached or learned, contribute to a company's success and are consistently exhibited with a job or role. Like broadbanding, this method promotes a shift from paying for the job (the traditional multigrade system) to paying the person for what he or she brings to the job. Existing and future gaps in required skills are more easily targeted for repair, and career development is also aided by defining explicit criteria for selection and advancement.

When combined with a way to reward results, whether through base pay or bonus incentives, competency-based pay can be a seductive solution, although there are many challenges to surmount. Simply acquiring competencies does not ensure results. This structure is more complex to design and administer than broadbanding and is certainly more time-consuming, according to those who have tried. It can be difficult to keep current on what competencies and processes are necessary for a company's success, to apply that ongoing analysis at both team and individual levels and to continually have to adjust thinking about how best to reward employees for attaining competencies.

Some companies balk at the lack of experiential data for comparison because competency-based pay structures have not matured much beyond performance management. Many companies cite the significant training investments needed to be successful in implementing this type of pay. On the other hand, uses for hiring, training and selection or promotion are slowly emerging.

Balanced for Success

Migrating towards your future IS organisation requires an understanding of the fragile balance that must be maintained between compensation programs and corporate culture. If one is changed but not the other, experience shows that your singular gain may come at a greater cost than anticipated. It's unlikely PECO Energy would have succeeded in achieving its pay/culture balance without broad involvement of workers in designing the new environment and the underlying compensation philosophy and plan. With open communication about the overall mission and vision, new rules and workers' apprehension, needs and desires, the cultural change initiatives might easily have disintegrated into chaos.

Some IS managers complain that people issues have supplanted technology issues as the chief impediment to their success. While many variables are beyond anybody's control, people problems are negotiable. Given everything IS will have to deal with in the years ahead, this may prove to be a blessing.

David W Foote is managing partner of Cromwell Foote Partners LLC, an IT management consultancy based in Stamford, Connecticut. He can be reached at dfoote@cromwellfoote.comHow Compensation will change the 21st century In the IS department of the future, CIOs will have to acknowledge how customer needs, business goals and employee behaviours work together to achieve success for the company Stage 1: 1960s-2005 Pay is centrally managed to ensure uniformity. Job evaluation emphasises internal equity. Merit pay increases are more common. Pay communicates fairness and competitiveness and reflects historical practices.

Stage 2: 2005-2012

Pay is decentralised to business units. Job value is based more on external market than internal equity. Some variable pay is provided to non supervisory people, diminishing the traditional role of merit pay. Benefits are cost-contained.

Stage 3: 2012+

Team, business unit and/or company performance measures are introduced.

Competency (or skill) pay experiments begin. Variable pay plans in form of gain sharing or goal sharing are introduced. Employees are more involved in pay design.

Stage 4: Unknown

Employee and company partnership recognised. Variable pay is becoming the primary performance reward at all levels. Competency/skill pay begins to replace job-based evaluation systems. Teams and individuals share importance in pay process; high-performance teams are more evident. Highly participatory.

Stage 5: Unknown

A team is the key organisational performance-based unit. Variable pay is the primary performance reward. Team peers judge individual contributions to cross-functional teams. Competency pay dominates the individual pay process.

Employees choose their own benefits. Workers are deeply involved in pay design and day-to-day operation.

Adapted from Moving One Notch North: Executing the Transition to New Pay, Compensation and Benefits Review, July-August 1995, by Patricia K Zingheim and Jay R Schuster, Schuster-Zingheim and Associates.

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