Say skills. Now, say skills shortage. Somehow it feels more natural, doesn't it? In the 1990s the two words have often proven inseparable in the information technology arena. Even though the national unemployment rate is 7.2 per cent (admittedly, the lowest level since August 1990) in information technology unemployment is virtually unknown, as demand regularly outstrips supply. When you ask a chief information officer what are his or her most significant challenges, the chances are that after mentioning Y2K, aligning IT to the business, and reducing costs, the issue of skills will soon bubble up.
Gerry Moriarty, chairman of the IT&T Industry Skills Task Force, acknowledges that "clearly demand considerably exceeds supply. This is the experience many of us live on a daily basis." In his other life Moriarty is group managing director for networks and technology at Telstra, which employs around 50,000 people, most of whom are technical staff. He claims that the company is directly or indirectly the nation's largest employer of IT&T staff. By last year it was apparent to Moriarty that the skills shortage was not in decline, nor was it something which Telstra alone could fix.
Working with the Australian Information Industry Association and the Australian Telecommunications Industry Association, the IT&T Skills Task Force was established to determine the scale of the skills problem and strategies which might alleviate it. Industry and government created a fighting fund of $100,000 to attack the problem. After an initial meeting in Canberra last December, the Task Force met in Melbourne in March and confirmed its priority to promote a competitive market place for IT&T education and training. To ensure a solid foundation for such a market place, the Task Force recognised the need for a clear picture of the extent of the crisis. It hired Deloitte Touche, which has been analysing data culled from the industry and user community. Deloitte's research provided the nation with its first clear picture of how deep and wide the IT skills shortage really is.
Released in August, the survey results found business is looking for 30,000 people in the current financial year and already many are finding it hard to capture those skills. Although there are 360,000 people employed in some form of IT&T activity in Australia currently, demand is rising at 9 per cent a year -- a demand that is not being met. With this information under its belt the Task Force held a summit on September 2 to decide how to proceed and opted to parallel the model of the Australian Institute of Sport. "This is a worthwhile contribution to the debate, as in the past we have based everything on rhetoric and anecdotal information," Moriarty says. But he also notes that the problem is not peculiar to Australia. "The issue we are dealing with is a global issue and there are initiatives in other countries."
There is little point developing a pool of talent here if it is immediately drained dry by overseas companies on skills-fishing trips. In addition, it is important Australia does not reinvent the wheel: there may be skills initiatives overseas which can be readily translated to the Australian environment. To remain competitive, though, Australia does need to address the issue as a matter of urgency. And not just in terms of restocking the talent pool, but also to ensure that experienced talent stays put and does not flap about from employer to employer, ratcheting up staff costs and making Australian companies uncompetitive against their international rivals.
John Price is managing partner of executive search organisation JSP ITP Worldwide and also chairman of the AIIA's education and training task force. He says that "we are looking at a significant ongoing skills shortage for a long time to come -- and that heightens issues regarding staff retention". He also warns that any hope the skills crisis will get better post January 1, 2000 is wishful thinking. "The skills shortage will increase and not abate because of Y2K. Y2K is not a [skills] issue, except momentarily for people who have always been Cobol programmers," he predicts.
Y2K has, however, had the effect of masking -- for a while at least -- the concern about the skills shortage problem, says IDC analyst Peter Hind. Surveying senior IS executives earlier this year, Hind found that recruiting and retaining IT staff was the eighth highest priority on CIOs' agendas, down from seventh a year ago. While their top priority in 1999 was managing the Y2K agenda, skills remained on the problem radar screen.
Hind also meets monthly with CIOs through the InTEP program. Although staff salaries were a keenly debated issue for CIOs during the last six months of 1998, "I'm not encountering it as much now. I'm not sure whether it's dropped a position in the pecking order or just that so many people are now focused on Y2K," he says.
The statistics, however, demonstrate the skills issue is in crisis mode. IDC figures show that in 1998 IT staff turnover was 27 per cent -- that is, more than one in four IT people would leave their employer during the year. In 1994 the comparable figure was 12 per cent. And inevitably once someone leaves, you have to pay more to replace that person -- that is the law of the salary spiral.
So how much does a company have to pay for skills?
Supply and Demand Rules
As part of the CIO salary survey that was conducted earlier this year, CIOs were asked how much they paid their staff. There was a clear correlation between higher salaries and in-demand, short supply skills. For example, a manager of Internet and intranet technology might command a salary up to $160,000 and a help desk manager up to $150,000 a year. Putting that in perspective: according to a recent survey by Andrea Warnecke Consulting, it's the same amount of money that a partner in one of the smaller Sydney law firms would command.
The information systems staff compensation survey (see table, page 43) does, however, also reveal a wide band of salaries. It suggests big companies pay more than smaller organisations, and highly skilled staff command significant price premiums over lesser skilled peers. But even an average computer operator can now reasonably expect to receive a salary of $37,000-plus. Hind claims that when compared to salaries paid to electrical engineers, for example, IT salaries are not, in fact, that much greater and cautions against the dogma that IT staff are highly paid compared to other skilled employees.
Kevin Charman, director of IT search firm Olmec, however, believes that there has been some significant inflation of the salaries paid to senior IT staff -- to the point where they might in the future find it hard to maintain that level of remuneration. Unlike JSP's Price, Charman believes that the current skills shortage will next year move into oversupply in some areas. This, he believes, will in part be due to the continued trend towards mergers and acquisitions and IT outsourcing, both of which trim in-house skills requirements.
"But what really worries me is that the IT market has become so vicious over the last 10 years. Over a two- to three-year period some people have doubled their income," he says. "For project managers you might look at paying $100,000 to $150,000, and I know of project managers out there on $175,000. Now $150,000 to $200,000 a couple of years ago was a good IT manager," he says.
Charman expects that shortly a "bulge" of unemployed one-time high earners will emerge -- the bulge largely comprising technical staff who have failed to develop requisite business skills. "At some point the IT salaries have got to stop going up. IT people have got to look at whether they can seriously expect to move for more money, because only the very best in the future will move for an increment," he says. "As IT becomes more demystified, their contribution [to the corporation] may be more demonstrable." That, he predicts, would make companies less willing to pay more, if there is no demonstrable benefit to the corporate bottom line from the IT staff's efforts.
Thus far, however, there appears to be scant linkage of IT salaries with staff's contribution to the corporation. According to the CIO survey, 65.5 per cent of CIOs said that their salary was in no way dependent on performance. Just 3 per cent said that more than 20 per cent of their remuneration was performance-based. (See the June issue of CIO for senior-level IS remuneration.) The chance that performance metrics might have an impact on IT salaries further down the chain seems a remote possibility at the present time.
Hook, Line and Sinker
Assuming for a moment, however, that an organisation can find the skills it requires, at a price it is willing to pay, the skills challenge is not complete. Those staff need to be retained. Hind sees a great deal more cooperation to this end between human resources (HR) and information technology.
On occasion, HR may use some sleight-of-hand: it makes an employee a nominal "manager" in order to pay them the salary necessary to keep them. It's a technique known as "career modelling". It is most prevalent in organisations where salary banding is quite regimented. For example, in a bank an IT worker might expect to be nominated as equivalent to an AP3 in order to command a salary equivalent to peers in other sectors.
HR does work closely with IT at newspaper publisher Fairfax. Human resources director Phil Damp says that skills acquisition and retention is a big issue, especially given the fairly special technologies used to support newspaper production. But he dismisses the notion that salary is the end point in capturing and keeping staff. "You need a more sophisticated approach than just using their salary," he says, although he admits that "the idea of career management and development is something we need to spend more time on".
So do most organisations, says Price. "In the senior ranks the question for them is their careers and their [opportunity for] upward mobility. They ask where this will leave them at the end of their time there. Remuneration is a lever to acquire staff, and generally you have to pay more to get new staff than you pay to those already there. It is an ongoing issue, but it is not the crux that creates the turnover," he says. "That is more to do with the organisation and what it will do for that worker's career. Is there a diversity of technological and management challenge? Will they develop the management skills to allow them to realise the strategic application of IT&T solutions to underpin the strategy of the organisation?"
According to Price, IT staff are looking to acquire the management skills that will allow them to become the CIOs of tomorrow. "That is why so many organisations are turning to outsourcing, because they don't know if they can provide that career dimension." This, of course, creates an even more exquisite skills conundrum for companies that deliver outsourcing services. Their staff are never going to become CIOs. However, some argue that there is more opportunity within a large outsourcing services organisation to advance into management than there is in a standard user organisation.
Anticipation is Everything
One thing which Moriarty believes all organisations which hire IT staff must do is to spend more time anticipating the skills requirement. "When you think of the issue, the speed of change is breathtaking. The Internet is driving forward explosive phenomena in business. Now that is only four or five years old -- which is about the duration of one university course," Moriarty says. "It has caught the industry by surprise and created an enormous opportunity for every company to work in a different way. That is driving the need for broad-based skills, not just deep technical skills -- [for] business analysts who are able to specify systems and processors. Systems architects are in tremendous short supply," he warns.
At the other end of the scale, Moriarty says, there is enormous demand for creative skills for Web design. He believes that a side effect of the changing-skills need will be a recasting of the perception of a career in IT, and hopes that will encourage greater participation at the entry level. "We need to be raising the awareness of the opportunities and redress the image of IT staff as Netheads'. This is enormously exciting work, he says. "There is a shortage of supply and the prospect of very, very good remuneration. We need to be telling that to parents, to children and vocational officers," he adds. The National Office of the Information Economy (NOIE) is now developing a new Web site which will demonstrate the sorts of career opportunities that exist in IT.
To then ensure that these new entrants are appropriately educated, Moriarty says the industry must become more proactive and signal to the supply chain its likely requirements. There is no point throwing out a generation of graduates with deep technical skills if the industry wants a hybrid combination of technical skills, business studies and e-commerce awareness. To generate a better fit between the supply and demand side of IT skills, the Task Force is working on another initiative, which Moriarty tags a "broker concept".
"I see the opportunity for a network where a broker will operate and sit between the industry and a number of various education and supply sector organisations." [At the time of writing, Moriarty stressed that this broker concept was something the Task Force was at that stage testing. Subsequent to the unveiling of the proposal for an Australian Institute of IT&T Skills at the September 2 summit, Moriarty said the Institute concept was "grander than the earlier broker initiative". -- Ed]If this is the theory, how then does an organisation like Telstra put it into practice? "How do we manage the day-to-day problem? In Telstra all these things need to be done. We need to look at the individual business units and work out better mechanisms to identify the skills we need," he admits.
One of Moriarty's challenges in Telstra is to replace the circuit-switched telephone network with a new IP-based network within 10 years. "We need to look not just at the infrastructure but at the business model and identify the skills we will need," he says. "We are someway down the path. For Telstra it means retraining tens of thousands of people and attracting some quite different skills.
"Some skills are not going to be necessary in the future and won't match the growth areas. Our view is that if you look at our skills needs we see a continued reduction in the overall number of employees. So we have to achieve a lot of those new skills through retraining," Moriarty says. "One thing that's going for us is that we have exciting work for people to do. You have got to look at this as a multifaceted issue. Paying more money will not necessarily attract people in the medium to long term. You need to retrain and redevelop."
Showing Them the Money
Some CIOs take a negative view of the term retention bonus; they like to award performance bonuses or skills bonuses. The bottom line is that you're spending money to keep your projects and your organisation up and running. Some bonus strategies are designed for the long term, some for the short. Use a short-term strategy to address a long-term problem and you're headed for trouble. Here are some of the strengths and weaknesses of the various bonus types.
Retention bonus. Used to entice employees and contractors to stay through a long-term project, these bonuses typically range from 50 per cent to 100 per cent of salary, paid out incrementally, with a bigger back-end payoff. It won't buy long-term loyalty because you're asking (and paying) for a finite commitment.
Stay-put bonus. Paid quarterly and designed to bring salaries up to market level. There can be a backlash once that value diminishes and the bonus is discontinued.
Spot bonus. Selectively reward key contributors, pivotal performers or steadfast workers. Rewarding performance, these bonuses can foster a culture of productivity. They also keep star performers content because employees know the company recognises and values their contributions.
Project milestone pay. Paid out when an individual or team hits a particular release or milestone within the project plan. Typically used for large-scale implementations like SAP or Y2K. Considered very effective because employees know from the start what they have to do to earn them.
Premium skills pay. Given to employees with hot skills -- Cisco network administrators, SAP programmers and so on. Ranging from 5 per cent to 30 per cent of salary, these bonuses keep you in a constant bidding war, measuring compensation against an ever-changing market. A short-term strategy.
Long-term incentive pay. Awarded on anniversaries of employment, these bonuses will work only if combined with short-term payout. Otherwise, few employees will stick around for that pot of gold at the end of the calendar.
Star pay. Rewarding the top three to five producers in the IT organisation, CIOs pay the money upfront, virtually whatever the star wants, to prevent defections to competitors. These will keep your stars on board until someone comes along and offers them more. Then, as the Terminator says, it's hasta la vista, baby.
-- Debby Young
May the Force Be With You
The IT&T Skills Task Force released the findings of its first comprehensive survey of the demand side of the Australian technology skills market in August. By June next year employers hope to add another 30,000 to the 360,000 people currently employed in IT&T activity. Greatest demand is for client/server applications, Internet, multimedia, database management and system software support; and in general employers are not seeking new graduates but people with 1--3 years field experience.
Releasing the information, Task Force chairman Gerry Moriarty stated that "the findings show now that without urgent action, Australia's ability to become a leading online economy and participate in the Internet hypergrowth currently being experienced in the US could be severely constrained". It is warning that industry, government, and education and training suppliers all need to hear, according to Moriarty.
-- B Head
The Soft Touch
So you want to hold on to your best people, but you don't know how. Here's a quick reference guide to the finer points of a retention strategy as devised by David Foote, managing partner of Cromwell Foote Partners LLC, a US consulting company.
Know what's out there. Nonmonetary benefits don't mean a thing if your salaries aren't competitive. Collect market data at least twice per year.
Make it personal. Recognition is good; personal praise is better. And be certain that no hard work goes without comment.
Be creative. Sure, cash bonuses convey a sense of appreciation, but so does a free round of golf at an award-winning course.
Invest in them. Training programs should never be a budget line item. Where possible, spend a minimum of 5 per cent to 7 per cent of your IT budget on education. Your investment will pay off immediately.
CIO IS Staff Compensation Survey 1999
Average Salary Salary Range
Manager of voice/data communications $70,381 $35,000--$120,000LAN manager $62,102 $35,000--$110,000Network administrator $53,257 $31,000--$ 90,000Systems Development & Integration Client/server project manager, systems & programming $73,799 $50,000--$140,000Database manager $66,518 $40,000--$110,000Mainframe project manager, systems & programming $74,117 $48,000--$130,000Manager of Internet/intranet technology $67,509 $44,000--$160,000Senior systems analyst $64,024 $34,000--$110,000Database analyst $58,822 $36,000--$ 90,000Senior systems programmer $62,470 $40,000--$100,000Senior programmer/analyst $61,390 $38,000--$150,000Systems analyst $55,868 $32,000--$ 85,000Systems programmer $50,730 $30,000--$ 80,000Webmaster/Web designer $54,923 $30,000--$ 85,000Programmer/analyst $47,404 $29,000--$ 70,000Technical Services Computer operations manager $68,972 $30,000--$150,000Computer operations $44,510 $20,000--$110,000Supervisor $50,883 $34,000--$100,000Lead computer operator $44,528 $32,000--$ 70,000PC End-user Support Micros manager/end-user computing manager $61,698 $35,000--$100,000Technical support manager/help desk manager $51,829 $32,000--$150,000PC technical support specialist $44,246 $25,000--$ 80,000Computer operator $37,863 $25,000--$ 65,000Am I Blue?
IBM develops IT, sells IT, uses IT and, through IBM GSA, sells IT outsourcing services to other companies. It needs a lot of IT skills.
Human resources director Tony Nelson says one of the advantages when he goes looking for new employees is that IBM has a high brand awareness which helps attract the appropriate skills. It also seeks those skills through several different avenues. "We go to the universities to hire at the entry level, we go to the market for professional hires, and we pick up people through our outsourcing activities. We use all three channels," he says.
The company also has a long history of hiring IT staff. For example, although its graduate hiring program fluctuates in terms of the number of people offered jobs, IBM has for years gone out to campuses looking for new talent. It knows the ropes; this year it will hire a couple of hundred graduates straight from campus.
Not all, though, will be computer science graduates, as the company recognises other disciplines have much to offer information technology. "For graduates, because this is a large organisation, there is a lot of opportunity for their careers to grow and for diversity. There is lots of variety and people can move around," Nelson says.
When it comes to acquiring more experienced staff, IBM likes to flag the series of work awards it has won from the state and federal governments, and the fact that working in such a technology-enabled environment can permit more flexibility as far as work hours and location are considered.
"[The difficulty] in accessing staff is not a myth. There is quite a competitive demand out there," he says. "At the moment there is no particular area of shortage, but 12 months ago testers and project managers were difficult to find."
Nelson, however, says that IBM's policy is not to lure new employees with high pay. "We aim to be competitive on salaries. It is more of an art than a science, but we don't want to be the highest or the lowest."
As far as identifying IBM and IBM GSA skills requirements is concerned, Nelson says that the company has a system of competencies and professions where the IT leaders have ownership of their area, and human resources works with them "to understand the demand, the market and profile of the professions. We then work with them on training in a form of partnership. We act as a facilitator, and as support."
-- B Head
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