THE IT&T employment market swings like a pendulum between periods of extreme shortage at one end of the arc to periods of extreme oversupply of professional staff. New Zealand has recently experienced a prolonged period of skill shortage where the pendulum swung strongly in favour of the employee. Jobs were plentiful, wages were on the rise and contract rates were extreme in some specialist areas. Employers find it difficult in these circumstances, as it is hard to keep staff and attract replacements. In addition, some employees and job candidates demonstrate a degree of arrogance and aggression that is not easily forgotten. The market works best when it is at or near to the point of balance, and the mid-point of its arc. In these circumstances neither group has too much leverage, and market forces keep costs and behaviours in balance.
In the difficult conditions of the past 18 months, the pendulum has swung wildly to the other extreme of its arc. Now jobs are in short supply and there is a large pool of highly skilled, unemployed professionals to fill any vacancy. As a result, staff turnover rates are very low, wages are soft, employees compliant, and contract rates affordable. Especially when compared with the boom years. How should employers react in these conditions? Is it payback time?
Like most IT professionals, Woodbine Associates has not been immune to the current worldwide downturn in our industry. In the past two years we have been working much harder for much less, and have lost several valued workmates as our contractor team reduced to about half its pre-crash size. We have tried to stay close to our customers and show consideration for candidates in what has been an extremely difficult time. This article arose from the challenges we have faced, and from the experiences and strategies we have learned about from our customers.
Business strategies for a tight employment market:
1. Thoughtful employers act in the same way towards their employees and suppliers in all phases of the business cycle. This consistency allows them to build a climate of trust and loyalty that benefits all parties in the long term.
Although it is tempting to exploit supply and demand situations, this short-term thinking often backfires as the business cycle changes. Low wage offers in these circumstances are seen as exploitative, whether in the permanent or contract employment market, and are likely to cause instability in the future.
Employees who quietly accept a pay cut or a below-market employment offer during tough times will soon seek better work conditions when the market improves, leaving their employers with offsetting replacement costs which might exceed the savings won at the negotiating table.
The best strategy is to maintain wage rates and work conditions through the whole business cycle. In the tougher times, employers benefit from low staff turnover and increased employee commitment. Be satisfied with this bonus, and use the opportunity to build trust and loyalty on your team.
2. Concentrate on quality and customer service. If you are under budget constraint, concentrate your energies on maintaining and improving service levels to your internal and external customers. If you are under headcount constraint, optimise your position by placing every team member in the role which maximises their effectiveness and their contribution to team objectives.
Maintain constant and open communication with team members. If it is necessary to increase workloads, be open about the pressures and constraints, and ask employees to share the burden. If the focus is on business objectives, service levels and quality targets, the chances are these challenges will energise your team. You will be well placed to manage a smooth transition when the cycle eventually turns.
3. If it is within your authority, resist the temptation to reduce team size in a downturn. Downsizing is usually destructive. Restructure, retrain and redeploy your people, but if possible, retain the experience, specific business knowledge and continuity within your workforce. The hidden costs of downsizing include anxiety and reduced commitment among surviving staff members, loss of knowledge and experience specific to the business, loss of standing and reputation in the employment market, and the direct and indirect costs of re-hiring and training when the business cycle changes.
4. Reduce contractor numbers and contract labour costs. If you have a mixed team of contract and permanent employees, reduce the contract workforce as a first priority, even if this means retraining costs associated with redeploying a permanent staff member. Training costs may not make much sense in the accounting department, but this strategy will retain the strategic value of the business and maximise effectiveness and profits in the upturn.
Resist the opportunity to exploit contractors and contract suppliers during tough times. (The temptation to seek payback for high-handed behaviour and price gouging during the skill shortage years is enormous at times.) People do not forget predatory behaviours, and the long-term impact is always negative.
If the headcount is available, it may be possible to convert those contractors with strategically important skills and experience to permanent employees at a lower rate of pay. Most agencies will be pleased to facilitate this process, and most contracts include reasonable business terms to effect the transition. Since contractors demand a 40% premium over permanent employees, a saving of this order is potentially available through the conversion process.
It is not wise to force rates down on incumbent contractors as this causes resentment and stores trouble for the future. Some organisations find themselves with a rump of long-standing contractors who have assumed many of the characteristics of permanent employees, and whose historic rate is well above the market. Let these people go. In an ideal situation, contractors should be used as a short-term resource, and if these people are long standing, better to replace them with permanent staff. If the best strategy is to retain a contractor in the position, hire new blood at the lower prevailing rate. Your new employee will be grateful for the opportunity, and pleased to put in a big effort at the lower rate. You will also avoid the problem of a disaffected and resentful team member.
5. Position your team for an upswing in the cycle. We know that nothing lasts forever, and prevailing business conditions are always changing. Even in the depths of winter, we know that spring is just round the corner. It is easy to succumb to gloom in a protracted downturn, however this will not help you or your team. Dig deep in the tough times, but keep a hopeful eye on the horizon for the better times ahead.
Don Smith is managing director of Woodbine Associates, specialists in IT recruitment. Smith can be contacted on Ph: +64 9 363 3324, or email: DonSmith@xtra.co.nz. For further information, visit www.woodbinenz.com
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