With every aspect of the IT spend under scrutiny, CIOs are getting creative in staffing their departments. For some, a mix of permanent IT staff and contractors creates a more flexible and responsive environment.
At first glance staffing your IT department and a trip to the dentist don't have much in common - other than neither is a particularly pleasant experience.
In fact, finding the right staff - when you need them - can be as hard as pulling teeth. With keener competition for scarcer people resources, complicated by the increasing pace of technology change, it's hard to find and retain good help these days. But there are tactics that work.
One is a gradual shift towards the strategic use of contractors to supplement permanent staff. Increasingly, IT departments are discovering the benefits of contracting: workforce on demand; the elimination of annual leave and career progression concerns; tighter control of costs; and access to costly, specialised skill sets only when needed. It's not all roses though. Contracting does leave you with a high-cost, transient workforce that will only stay as long as you can afford them.
So when do you opt for contractors over permanent staff? Graham Young, director with specialist IT recruitment consultancy Anagram International, cites one clear-cut example. "When you have a discrete task to be performed which needs a certain well-definable set of skills, that's when you look for a contractor," he says. According to Young, this often means project-based work, with the contractor going away at its completion (see "An Agreement to Disagreement").
Flexibility is one of two drivers to taking on contractors, according to John Rawlinson, Melbourne director of recruitment consultancy Morgan and Banks. "The other is supply and demand," he says. "Shortage of skills often means that an organisation can't hire them [highly skilled people] permanently, but can buy them at a premium on a contract basis."Workforce on demand was one of the incentives that led the ANZ Bank in Melbourne into its particular outplacement arrangement. Instead of directly hiring contractors to perform specific, individual functions, ANZ actually handed over the running of its contracting needs to network integrator Anite Networks. But at the same time, ANZ brought a group of skilled Anite employees into its structure full time. Now Anite staff work on site helping ANZ proactively manage its networking requirements, while their employer sources contractors to perform other less critical tasks.
According to Graham Smith, team leader for telecommunications at ANZ, the relationship is the consolidation of maintenance and cabling contracts held with numerous suppliers. Two years ago the bank saw an opportunity for those contractors to do more than just maintenance. ANZ also maintains a group of its own key network management staff. "We've actually been able to focus our people on more central issues," says Smith. "Our ANZ staff are now in a position where they don't have to worry about how many cables we need. We can actually get in and start managing our network better."The staffing model used by ANZ is one that Morgan and Banks' Rawlinson believes is becoming more common. He says most IT departments have a balance between permanent people and contractors. "The permanent people are going to certainly have good technical skills. But they are more likely people with good project management or leadership skills, or innovators and lateral thinkers. You'll then supplement that core of people with a pool of contractors."The ANZ example demonstrates the flexibility of staffing options. Not quite an outsourcing agreement, the arrangement with Anite gives ANZ full control over the staff it uses and the ability to closely monitor the quality of work. It also eliminates the problems generated when staff members get sick or go on leave. "It's not our concern," says Smith. "If these people leave or what have you, it's not up to us to actually replace them."Smith grants that it was certainly possible to have directly employed people to do the work of the dozen or so Anite staff, but says the number required would be closer to 14 once leave was taken into account. Further, not all leave-taking is of the holiday ilk. Should the need arise, contractors are more easily let go than permanent staff.
One IT shop to experience this situation is The City of Melbourne. According to Trevor Mouat, coordinator of business information support, use of contractors to handle development work has given it room to manoeuvre. "If there is a problem, you can remove the problem fairly easily without too much angst. If it's a staff member, especially in the public service environment, there is a lot more hand holding you have to go through. It can be very painful at times for everyone."South East Water, one of the companies formed by the break-up of Melbourne Water, has also found flexibility a benefit. "With contractors we've got more flexibility in terms of upping or reducing the numbers," says IT manager Bernhard Knorr. "Our policy is that any project that is a two-day job will be outsourced. What we do internally are the services where day-to-day relationships are important."In the past the high turnover of contracting staff who had contact with the business users was a problem for Knorr. He says those users reported feeling uncomfortable with such an arrangement. In the future he sees South East Water increasing the number of core staff, replacing contractors with permanent employees when the opportunity arises.
In ANZ's situation circumstances are different again. Anite staff work on site alongside ANZ staff as de facto employees. The Anite staff all wear a photo ID which identifies them as such, but Smith isn't concerned that it might provoke an identity crisis. "It is my goal that these people should be seen more as an ANZ person than as a contract person," says Smith. "This is not ignoring the fact that they are Anite [employees], but by viewing them as an ANZ resource their acceptance is greater and they're not viewed as the outsider." Although, being an outsider is not necessarily a bad thing, according to Smith. The company gets the best of both worlds. "These people [have worked] for a number of large corporations. They're able to bring in their experiences. And as contractors - who are also recognised as ANZ people - they're able to put their points of view forward," he says.
Where Anite staff and ANZ staff situations do differ is in how their performance is monitored. ANZ runs a ticketing system against which Anite staff record their time. "We try to account for 90 per cent of their time; we recognise that there is no-one who is 100 per cent utilised. We review what they've actually done, so that they're not artificial inflating hours," says Smith.
Who's got the benefits
No matter how contractors are treated, Morgan and Banks' Rawlinson cautions that you don't need to provide contractors the benefits you do for your employees. "With permanent employees you've got some obligation to their career, to helping them stay employable," he says. "Contractors know when they go into an organisation that they are there for a fixed task, a fixed job.
They're going to be paid generally by the hour, and then they'll leave. Having established that up front I don't think an organisation needs to feel guilty," he explains.
No longer having to structure career advancement opportunities is a real benefit to ANZ. "We're a bank who uses IT, not an IT company who happens to have banking as a sideline," says Smith. "Although we have a career progression for our IT people, there's a group of them that we don't have to worry about.
That's up to Anite."
It's also Anite's responsibility to ensure that all staff bought into ANZ are up to scratch, which effectively relieves ANZ from the burden of training.
"We didn't want to train any trainees here, because then there is no business case to go with Anite," Smith says. "It would have actually been better to bring in graduates and train them up ourselves. The idea was that we have people going immediately. They fit our needs from day one."While it is ANZ's prerogative to take only experienced staff, Anagram's Young says it's a situation that can lead to problems further out. He understands that, like ANZ, most organisations want productive people from the start, but there's a price to pay. "We've kind of got into an instant gratification society, and you can understand it, but we could end up relying on a very, very small pool of highly skilled people."As demand increases, these skilled contractors will prove more and more scarce and can charge higher rates for their services. Rawlinson believes it may even fall back to firms like Morgan and Banks - the organisations making money out of contractors - to ensure that contractors build their skill sets. "We give our contractors assurance that we will help them meet their objectives, whether it's to become a specialist or to get exposure to different industries and skills." He says it often comes down to deploying contractors in ways that they don't become stale.
According to Rawlinson, many organisations can benefit by taking a more strategic view of their resourcing. "We're now working with organisations to find the optimum mix of contractors and permanents. Equally important, we're working to find what permanent skills are needed. Unfortunately, in IT departments a lot of the skills of permanent staff are no longer required by the organisation. Organisations really need to change the [in-house] mix of permanent skills, as well as using contractors."Perhaps it's one to keep your staff and your CFO happy, anyway.
An Agreement to Disagreement
Any CIO whose IT department has felt the pain of outsourcing, downsizing and cost cutting will know that one of the first things to go is headcount. A common remedy is to replace permanent positions lost with contractors. Anagram International's Graham Young counsels against it, saying in some situations it can lead to upheaval.
"If you really need 40 staff to run the division, then the company should appreciate that," says Young. "To play the game of hiring 20 permanent staff and getting another 20 in contractors is silly. You're not genuinely achieving the full desired financial benefits and laying yourself open for potential conflict between contracting staff and permanent staff."Contracting staff normally receive a higher level of pay, but trade off benefits such as employment security and annual leave. The opposite is true for permanent staff. Conflict arises when permanent staff see contractors earning higher incomes, but because they are filling what are basically permanent positions, they aren't in fact trading off career advancement or job security.
Young says this is especially true of younger permanent staff, who may be attracted to contract work's high pay rates and are willing to forgo job security. The result is you lose your younger and brighter staff altogether.
Using contractors in permanent positions also goes against the model of deployment for short, specific projects. Young feels it is better to have someone as an employee than as a long-term contractor.
"If a contractor's there for a long period of time, then you have to look at why they are staying there, and whether it actually makes sense to offer them a career opportunity.
"I think in the long run it's a wasteful game to play, because of the impact on your staff and the fact that you're hiding the true cost of your organisation."* Brad_Howarth is the news editor of Australian Reseller News(c) 1997, COMPUTERWORLD