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The overall IT talent shortfall the industry has experienced for the last decade or so is becoming more pronounced, as time moves on. Despite the outcry for good workers and a continual escalation in pay scales and employee benefit packages, potential recruits aren’t exactly shoving themselves aside to land these positions.
Employees are clearly in the driver’s seat due to many more opportunities at both startups and established companies. Managers are finding they must pull multiple levers to keep pace attracting and retaining talent while also successfully delivering on some substantial market growth opportunities.
On February 28, Gartner published an in-depth report on this topic and came to a pretty stark top-line conclusion: previous levels of effort to attract and retain talent are not enough to keep pace, let alone win, in today’s talent crunch. This means managers have to review their hiring practices completely and come up with some more creative ways to get good people into their enterprise realm and stay there.
The report suggested these specific remedies:
- Increase recruiting effectiveness by sharpening their organization’s employee value proposition (EVP), while increasing recruiting volume by tapping into nontraditional labor pools and profiles in addition to utilizing alternative sourcing models such as crowdsourcing, subcontracting and acquisitions.
- Counteract attrition of current staff by launching internal initiatives to address the most pernicious attrition drivers: poor people management and management quality. Ensure greater odds of success by weaving in both short- and longer-term tactics.
- Prevent gaps in delivery for current commitments, and enable greater productive capacity to serve the growing market demand, by using multiple tactics from across all five levers detailed in this research. “Business as usual” efforts are not enough to maintain or grow share in this market.
Opportunities are greater for everyone
There is both unprecedented growth and resource constraints in the 2022 service market, Gartner reports. A historically high level of revenue growth of consulting and outsourcing firms, for example, continued in 3Q21, with 14.7% growth year over year. Average employee headcount grew 5.2% quarter over quarter in 3Q21. Average gross margins increased by 1% to 31.3%. However, average operating margins remained flat, due to higher expenses for recruiting and higher backfilling expenses.
The 3Q21 attrition rate rose to 21.9% (from 18.0% in 2Q21) and reflects the strong demand environment with better negotiation power for in-demand skills. Gartner research shows that the time to fill a role has increased by 18% since before the pandemic, and a survey of HR leaders found that 48% of organizations report significant concerns about turnover.
2022 presents greater growth opportunities than over most of the past 20 years, Gartner said. However, the talent crunch in all IT sectors threatens to stunt growth channels in addition to the ability to meet current backlogs. These conventional approaches to HR are good but not good enough:
- Compensation-related tactics. The three most popular strategies selected by HR leaders are increasing employees’ base salary (50%), communicating how to grow one’s pay at the organization (37%) and increasing current employees’ short-term incentive (STI) target amounts (17%).
- Non-compensation-related tactics. The most popular non-compensation-related tactics are offering work flexibility options (74%), enhancing employee development opportunities (47%) and upskilling managers in retention and career conversations (44%).
The report offers five key alternate strategies that general managers of technology enterprises need to use now in a white-hot market, where the balance of negotiating has shifted from the talent buyer to the seller.
Five new levers managers can pull
Lever 1: Tap into nontraditional labor pools and profiles
Tech consulting and outsourcing firms traditionally have hired computer science or science, technology, engineering and math (STEM) graduates from technical universities, and then backfilling those who leave with lateral hires of similar experience. Many firms have in the past confined their recruitment to the cities in which the firms have delivery centers, often partnering with local universities to attract new graduates.
These strategies must now be rethought. The COVID-19 pandemic has proved that many consulting and software engineering services can be delivered by people working remotely, often from home. There is no longer any benefit in restricting recruitment to the cities where you have delivery centers. Companies also need to look at hiring neurodiverse (ADHD, autism spectrum, etc.) employees who otherwise might have been passed over; many people with these conditions make excellent employees in specific positions.
Lever 2: Utilize alternative sourcing models
General managers recruit based on forecast business, aiming that there will always be enough employees available “on the bench” to staff newly won projects. Freelancers, contractors and staffing agencies have always been a Plan B for resourcing short-term peaks of work. Indeed, some service providers have built a business model based entirely on freelance or contingent labor, eliminating the challenge of managing utilization already.
However, flexible staffing is not a simple solution to the current talent crunch. In some countries, the flexible staffing market had been disrupted even before COVID-19 by government legislation seeking to extend employment benefits and taxes to freelancers (such as IR35 in the U.K.). During the COVID-19 pandemic, the flexible staffing market has experienced the same high demands as the rest of the service market, making resources scarcer and daily billing rates higher than usual.
Lever 3: Prioritize and implement relevant technology
The technology lever has three main value vectors to consider:
- Using automation to free up people’s time for higher-value activities;
- enabling much higher-volume processing (e.g., sifting through hundreds or thousands of CVs in the hiring process); and
- providing greater effectiveness in processes (e.g., reducing unconscious bias in hiring processes and decisions) or greatly reducing friction in employees’ work and process environments.
Used properly, automation can be used to improve work by eliminating highly repetitive tasks, which frees up talent that can then be focused on higher-value-add work. Employees value this greatly. The higher-value-add work in turn will be important to attract and retain talent.
Lever 4: Strengthen your employee value proposition
The employee value proposition is the set of attributes that potential and current employees perceive as the value they gain through employment with the organization. General managers have to deliberately shape this perception. Gartner research shows that, while compensation is very important, job opportunity, career development and respect are equally powerful factors that employees value.
Fundamental principles of EVP can be split into personal and organizational aspects. Personal aspects are no longer only about salary and bonuses, but myriad choices ranging from internal gigs, freelance work for other business units, completion fees and even competitions for startup funding. Long gone is the concept that salary increase is the only way to increase your income. Similarly, employees don’t expect traditional career tracks but want opportunities for nontraditional career paths and value employability outside the organization.
Organizational aspects include radical flexibility of when, where and what people work on. Work-life balance is now replaced by work-life harmonization, with a growing realization that work needs to fit into life and not overpower it. Employees want their organization to take action on issues they care about and go beyond merely making a statement.
Lever 5: Redesign how the work is done
Successfully addressing the talent crunch will require general managers to rethink and redesign the way work is performed and measured. The highest prioritization should be on improving processes and making work easier. Gartner research shows that these have the most impact on workforce health, while also making the process environment more effective.
General managers have an opportunity to take a fresh look at basic assumptions about the work that goes into producing and delivering their products and services. This analysis should start at the business process level. It should include job categories behind each product or servic, and typically may need to extend to the level of individual tasks and job roles. Critically, it needs to include a strong focus on metrics — for example, the fixation on utilization as a primary measure of IT service performance can detract from a more value-oriented focus.
Process improvement is a key strategy for increasing productive capacity and counteracting a key attrition driver. Frustration with processes has led to two-thirds of employees developing their shortcuts to bypass glitches, friction and layers of red tape. Adopters of these workarounds spend an average of 1.9 additional hours per day completing routine tasks. For a 10,000-person organization, that adds up to more than 3 million wasted hours a year.