Talent Search 2.0

Ken Hill, vice president of information technology at General Dynamics Corp., is having déjà vu all over again. Any day now, if management approves a major project aimed at wiring up the company's purchasing operations to the Internet, Hill will face a huge but all-too-familiar staffing challenge. He'll have to beat the bushes—hard—to find the IT help he needs to pull off the project.

Top IT pros are hard to find at any time, but now Hill needs to find an ever rarer kind of technologist: a quick learner who can both collaborate with vendors and users, and simultaneously manage five competing project schedules—all while developing new systems using myriad disparate technologies. Hill is not alone: CIOs across the corporate landscape are finding themselves having to scramble harder, even now, for good help. "E-business projects raise the bar on the skills you need to get your projects off the ground," Hill says. "These days, you need technologists who are also good at managing business change, finding the business payoff and anticipating the business needs." In other words, says Hill about e-business: "It's not about the technology, stupid. It's about process change."

For years, CIOs like Hill have suffered from a chronic shortage of skilled IT professionals, but the big surprise now is that the shortage is still bad, and it's about to get worse. Even with the economic slowdown, new foreign-worker visa laws and the sudden availability of thousands of former dot-com tech whizzes, there's still an IT job-shortage crisis and, says McKinsey & Co. senior partner Bruce Roberson, large companies in particular are just beginning to enter the early stages of a decades-long shortfall.

To be sure, the current economic slowdown has eased the immediate crunch a bit: The Information Technology Association of America, the computer industry trade group, says vacancies are down 51 percent. But there are still some 303,000 tech jobs unfilled—and some experts say those estimates are far too conservative. Former Labor Secretary Robert B. Reich, for one, estimates that there are more than 600,000 openings in IT organizations right now—and that number could double when the economy recovers. Says Reich: "We can say with certitude that the shortage is still there, it is still quite large, and it is likely to grow much larger when the economy is back on track."

It's not that there isn't any tech talent out there. According to dot-com headhunter Allison Hemming, president of New York City-based The Hired Guns and organizer of the now-popular Pink Slip parties for displaced dot-commers, plenty of young technologists are out floating their resumes, eager to hone their skills in a traditional corporate environment. Trouble is, traditional companies aren't all that crazy about former dot-commers. Sure, they're welcome in some jobs. But there's some skepticism among top HR executives about how well they'd fit into high-level positions. Michael Haefner, senior vice president of human resources for travel systems company Sabre Inc., will only hire dot-commers if they can demonstrate an ability to anticipate future business needs and build systems sophisticated enough to meet them. Many dot-commers, he says, "never had to deal with the problem of scale"—systems that can handle higher volumes or speeds as a business grows and more demand is put on them. Adds TRW Inc.'s CIO and vice president Mostafa Mehrabani: Many techies who went the dot-com route will either abandon a corporate IT job when the next hot trend comes along, or they'll have a hard time adjusting to the traditional corporate culture because many went straight to a dot-com right after graduation. "The ones who have the most difficulty adjusting are the 23-year-olds who had a title of vice president of strategy or technology or HR, and had huge stock options and no sense of the reality of the normal workforce. These are the kids who do not want to go work for large companies and become a number," he says.

But that skepticism is only a small part of the problem: What's continuing to daunt CIOs the most is a lack of people with both technology and business strategy skills, still in chronic short supply. And thanks to the push by more and more companies to rewire themselves to the Internet from the ground up, that shortage is being felt now more acutely than ever. Says Reich: "People who have insight and experience both at the cutting edge of IT and at the cutting edge of strategy in a particular business are extremely hard to find." Just ask Hill. In e-business projects, Hill says, "you have more constituents to satisfy in a shorter time frame. The learning curve isn't a curve—it's a cliff. There aren't many who have gone up that cliff."

How bad does it get? Companies are paying high premiums—up to 18 percent above salary—to IT pros who possess the right mix of tech know-how and business strategy skills for their needs. For large companies in particular, that reflects the fact that today's IT labor shortage is as bad as ever, if not worse. An April CIO Insight survey found that while only 28 percent of companies with fewer than 1,000 employees are hiring IT staff, 55 percent of companies with more than 1,000 employees are still hiring. And of those larger companies, 78 percent say finding qualified staff is as difficult as it was a year ago, or more so.

According to Robert Zawacki, a retention expert and professor emeritus of management and international business at the University of Colorado in Boulder, CIOs and IT executives at large firms such as Alcoa Inc., The Kroger Co. and Johnson & Johnson anticipate no letup in the IT talent shortage, and have seen no increase in applicants for IT openings. Zawacki, who runs a network for CIOs and IT HR executives, says there is a prevailing sense that this is no time to roll back employee perks such as extra health benefits and telecommuting privileges.

What to do? There's always money. In 2000, CIOs boosted IT salaries by 10.1 percent, according to David Foote, president of Foote Partners LLC, a Stamford, Conn.-based employment research firm. That's well above the 4 percent average for other workers cited by WorldAtWork, a Scottsdale, Ariz.-based professional compensation and benefits association that tracks compensation at Fortune 500 firms. Companies are still paying more to land MIS grads: Their average salary increased by 5.4 percent, to $45,167, according to a survey released in April by the National Association of Colleges and Employers.

The problem with money, of course, is that it doesn't buy loyalty. Other factors—including a challenging work environment and a strong relationship with the boss—matter far more when it comes to retention. Employment experts say the data suggests that CIOs, especially when budgets are tight, may need to adopt a compensation strategy that rewards high achievers instead of warm bodies.

Promoting Loyalty

That's what's happening now. According to Foote, CIOs are taking advantage of the economic climate to stop handing out big raises and bonuses to inexperienced staff or those whose skills sets are not well-matched to high-priority technology projects. Meanwhile, companies are redirecting their bonus pool to proven performers, and tying these rewards much more to team or project performance rather than to individual performance. Consider the numbers. In the first quarter of 2001, companies reined in base pay to a slight 0.9 percent increase, and started paying less for many networking, operating systems, ERP and database skills, specifically TCP/IP, Microsoft NT Server, Linux, Oracle DB, DB2, SAP and Siebel. The median bonus paid for these skills declined overall by 3 percent between the fourth quarter of 2000 and the first quarter of 2001. However, variable pay such as bonuses and incentives increased by 3.1 percent of base pay, while pay premiums for workers who've earned Microsoft, Cisco, Oracle and networking certifications increased by 11.4 percent overall, and as much as 2 percent to 5 percent of base pay for workers most in demand. In short, CIOs are rewarding IT managers and staff who are successfully completing the key projects that can make or break a CIO's reputation.

Employee Relationship Management

Companies are also adding on non-cash benefits to lure top IT talent, or keep them from roaming. Some companies now offer casual dress policies, flex time and telecommuting options. But some companies are getting more inventive as a result of the widening skills gap. IT workers at the Houghton Mifflin Company, for example, can look forward to birthday parties, Friday afternoon gatherings, spot bonuses and IT incubators that give them the chance to turn their IT projects into revenue-generating products, according to Mark Mooney, HMC's chief technology officer.

Another way companies are battling the shortages is by creating new on-the-job training programs to improve managers' people skills and make them better supervisors. According to the Human Resource Institute, "bad bosses" are cited among the top reasons why IT workers fail to stay on the job. "When companies do exit interviews, tech workers always say they're leaving for more money or a better job, but when we interview them later, they tell us it's because of that 'SOB' boss," says Jay Jamrog, executive director of research at the Human Research Institute at Eckerd College in St. Petersburg, Fla. At Sabre, a lack of communication skills by supervisors factored among reasons cited for IT worker turnover. "We found most of the people who left weren't necessarily looking to leave Sabre, but when they got another job offer, they didn't really know where they stood at Sabre," says Haefner.

Little wonder, then, that companies are asking more of managers. Sabre, for one, is teaching managers to help their staff set performance objectives and provide feedback, coaching and career planning to employees. Strengthening the supervisor-employee relationship is a way to "re-recruit" existing employees, says Haefner. "Managers are not always able to communicate that total value proposition; they tend to get stuck on one thing like pay or stock options."

Most significantly, though, the widening skills gap and IT worker shortage is spurring many companies to completely rethink the core of their hiring and retention strategies. Consider Haefner's phrase, "total value proposition." Identifying what matters most to each employee and pinpointing how the company can help each get what they want out of their careers over the long-term is the key to successfully grabbing and keeping talent.

James W. Walker, author of Human Resource Planning and Human Resource Strategy, calls this the "value package," and says it must be customized to each individual, particularly for top talent and older employees with fairly complex work-balance issues. "A value package includes continuing learning, career opportunities, flexibility, autonomy, compensation, and the relationship with immediate managers and team members." The "employee value proposition" —similar to the customer value proposition used by companies now to lure and retain new customers—is "the answer to why the most talented people should work and stay at your company," says Roberson. To put it another way, think of a job as a product you are selling in the technical marketplace, he says. "If large numbers of customers didn't like your product, if you had high customer defection rates, what would you do? Make the product competitive in quality and price point, and put in metrics and tracking systems," Roberson says. Jobs, he says, are the products companies offer technical professionals, "and most companies offer a poor product. The job is boring, the tools are not particularly good, and the leadership and work environment is poor."

Winning Elements

Sabre responded to the tight labor market by developing an integrated approach to retention between 1997 and 2000. According to Haefner, the four-point approach of Sabre's "Winning Elements" strategy—opportunity, reward, compensation and community—involved rewarding workers through total compensation and recognition, offering them work-life balance and providing them with a meaningful community of co-workers. Also critical: granting stock options to all employees, tying compensation to business performance, putting benefit information online and training managers. The result? IT staff turnover at Sabre has decreased dramatically—from 12 percent to 5.5 percent. And Sabre is not alone: Harrah's Entertainment Inc., another company that developed its own integrated HR strategy, slashed its turnover rate from 35 percent to 9 percent.

Still, CIOs are concluding that focusing on recruitment and retention alone isn't enough to battle the chronic shortages. Among CIOs who outsource their IT work, 64 percent cite a lack of internal staff or skills as the top reasons they've done so, according to a May 2001 CIO Insight study on outsourcing. Outsourcing is clearly a component now of many companies' IT human relations strategies. According to McKinsey's Roberson, CIOs need to weigh which skills needs should be met through full-time staff, and which through outsourcers or part-timers. What can be better done through outsourcing? "Be clear about what you're uniquely good at," Roberson advises.

Another question CIOs should consider is how long they want to keep their full-time staff. The obvious answer—as long as possible—isn't necessarily the right one, according to University of Dayton, Ohio, professor Tom Ferratt, co-author of Coping with Labor Scarcity in Information Technology: Strategies and Practices for Effective Recruitment and Retention. Retention strategies that encourage long employee tenures make little sense in companies that demand high achievement, high energy and high rates of change. The reason: Stress inevitably leads to high burnout rates. In addition, some IT jobs do not require in-depth business knowledge, and therefore don't benefit from many years of experience in a company. Encouraging long-term retention makes more sense for IT jobs that put a premium on industry and company knowledge, says Ferratt.

Whatever you do, be selective. Between 1998 and 2008, the five fastest-growing occupations will be in IT, according to the U.S. Bureau of Labor Statistics—but there will be fewer and fewer people to fill them. There has been a 4 percent drop in the 18- to 34-year-old population since 1990, and the Census Bureau predicts that supply of 35- to 44-year-olds will decline by 14 percent by 2015. The lesson? If you haven't taken a good hard look at your company's hiring and retention strategies lately, get moving. Your e-business initiatives could hang in the balance. Says human resources expert Walker: "HR strategy isn't about the people in the organization, it's about how the organization gets its strategy implemented through people."

Alan Horowitz, the author of The Unofficial Guide to Hiring and Firing People (Macmillan, 1999), has written about business, technology and human resource issues for 20 years. Comments on this article can be sent to editors@cioinsight.com.

Profile: How Harrah's Found Its Groove

In 1998, CIO John Boushy was unhappy to find his IT staff was leaving Harrah's Entertainment at the rate of 35 percent a year. Today, turnover is down to a scant 9 percent. How did he do it?

When Boushy and Eileen Cassini, vice president of IT Services (which includes IT human resources), began to confront the turnover issue, Boushy thought increasing salaries would keep people from taking other jobs. But both remembered when they had happily stayed at jobs despite the pay. The real question, they realized, wasn't "Why are people leaving?"; it was "Why are people not staying?"

"They sound like the same questions, but they are not," says Boushy, for they lead in different directions. Instead of pay, they redirected their thinking to creating "a culture and environment where people want to stay."

Boushy and Cassini turned to two well-known theories of human motivation: Abraham Maslow's "hierarchy of needs" and Frederick Herzberg's "two-factor theory." In Maslow's hierarchy, higher level needs such as the need to learn and realize one's potential—two factors that drive high performers—only receive attention if basic needs such as physical comfort, safety and acceptance are met. Herzberg's theory, on the other hand, says external conditions that must be met to prevent dissatisfaction—such as salary and working conditions—must be considered separately from internal factors, such as achievement and recognition, which motivate people from within. Boushy and Cassini synthesized these ideas: Take care of basic needs, and you'll avoid dissatisfaction; focus on intrinsic needs, and you'll have an eager, excited IT staff.

They first mapped such factors as compensation and the work environment to Maslow's hierarchy, to identify potential dissatisfiers and motivators. Then the IT management team tackled those dissatisfiers: Base salaries were raised 5 to 7 percent to competitive levels, and a dual technical and managerial career track was created.

At the same time, they addressed intrinsic motivators such as recognition, achievement, and self-actualization, and broke them down into four categories.

Communications: IT management started to publicize and discuss current projects among their staff, focusing first on cool technology to grab attention, then on the value these projects bring to Harrah's business. This internal public relations effort spurred the quantification of the business value of IT work, and helped non-IT staff appreciate the importance of the IT effort at Harrah's. Boushy's team also sought out to win awards and media attention, which provided further recognition for the organization's achievements.

Choice of projects: As discussing business value became part of the culture, Harrah's IT management team changed its way of staffing projects. Rather than assign people, management publicized new projects, opened up a discussion of its business value, and then encouraged qualified staff to volunteer.

Career development and job mapping: To establish qualifications, Boushy's organization developed a "career progression matrix" which listed the skills required by every job, and then launched a procedure to certify that an IT staff member met the requirements for the job. Training was boosted to more than two weeks a year on average per employee.

Choice of where to work: Employees are now allowed to work at home, if they meet certain minimum qualifications.

Within a year of fully implementing this program, turnover dropped to 13 percent a year. Today, undesired turnover is only 5 percent. No wonder Cassini is reluctant to change Harrah's HR strategy, regardless of economic conditions. "It's working for us," he says. No question there.

Paying for Achievement

Between 4th quarter 2000 and 1st quarter 2001, CIOs diverted bonuses to proven performers. (Changes represent a percentage of average base pay; "hot" skills and certifications are those receiving pay premiums over 10 percent in 1st quarter 2001.)

- 0.2% Average decrease in bonuses for IT workers with "hot" skills

3.1% Average increase in bonuses for IT workers with "hot" certifications

3.1% Average increase in bonuses for high-performing IT professionals

Source: Foote Partners, LLC Hot Technical Skills & Certifications Pay Index, 1st Quarter 2001.

Room for Improvement

Many companies fail to use the 10 most effective techniques for retaining IT talent. For example, giving IT workers additional vacation days, the sixth most effective technique, ranks 25th in prevalence in a study of 33 different retention techniques.

1 Challenging Work Assignments 1 2 Everyday Casual 11 3 Flex Time 12 4 Support for Career and Family Values 7 5 Favorable Work Environment 3 6 Additional Vacation Days/Time Off 25 7 Premium for Defined Set of Hot Skills 23 8 Project Completion Bonuses 19 9 Stay/Retention Bonuses 22 10 Project Milestone Bonuses 27

Source: William M. Mercer 2000 Attracting and Retaining High-Technology Talent Report, based on a nation-wide survey of 935 organizations from all industries.

Hiring in 2001

Most Large-Company CIOs Are Still Hiring in 2001...

 

...And Having as Tough a Time as a Year Ago.

Source: CIO Insight Survey of 419 CIOs, April 2001.

The Five Fastest Growing Occupations, 1998-2008

108% - Computer Engineers

102% - Computer Support Specialists

94% - System Analysts

77% - Database Administrators

73% - Desktop Publishing Specialists

Source: Bureau of Labor Statistics

Resources

Organizations

Information Management Forum IT/Human Resources Program Next quarterly meeting: Sept. 10-11, 2001 in Atlanta www.infomgmtforum.com/hrprogram.html

IT/HR Symposium Network Next annual meeting: Sept. 12-14, 2001 in Cincinnati. Contact: Prof. Robert Zawacki at robertz@zawacki.com

Human Resource Institute, Eckerd College Holds workshops, seminars and an annual conference in February. hri.eckerd.edu/

Publications

The War for Technical Talent The McKinsey Quarterly, 2000 Number 3

The War for Talent, Part Two The McKinsey Quarterly, 2001 Number 2 www.mckinseyquarterly.com

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in CIO Insight.