Research Consultant, Info-Tech

A study conducted by Info-Tech Research Group this summer found that IT department staff reduction, while providing short term benefits to companies, can lead to many detrimental effects in the long run.

Info-Tech based the study, “Opportunities and Challenges in IT Cost Reduction,” on 167 surveys and 60 interviews with senior IT leaders in various industries at companies primarily across Canada and the U.S.

“We found that 21 per cent of IT organizations experienced a budget decrease of more than five per cent from August 2007 to August 2008,” said Info-Tech research consultant and co-author of the study Aaron Hay. “We expect that trend to continue through the next year. A lot of organizations are looking to cut costs, particularly in the manufacturing sector and sectors that are highly dependent on the cost of fuel.”

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From a general standpoint, the most popular cost reduction technique for IT departments is optimizing business processes and renegotiation vendor and outsourcer contracts, said Hay.

Layoffs and staff reductions are typical courses of action when IT departments are looking at staffing in particular as a possible place to reduce costs, he explained.

When IT staff reductions take place, companies typically target entry-level and intermediate employees. According to the companies surveyed, 44 per cent of reductions take place at the entry/intermediate level. Management encompasses 19 per cent of IT staff cuts, with contractors following behind at 17 per cent. About 15 per cent of cuts involve senior staff. Five per cent of staff reduction efforts are targeted at consultants.

While reducing staff is a quick way to meet lower budgets, several detrimental effects can occur. “The most important one is to your moral,” said Hay. “The moment you start cutting staff, you’re going to have an IT department that is fearful of losing their jobs and will be probably more stressed out and not as productive as a result.”

Other negative results include additional legal costs or compensation for terminating long-standing employees, said Hay. Customer relationships may also be affected, which could lead to reductions in revenue, he suggested. Another possible side effect is having difficulties finding people with the same skill sets in the future, said Hay, which could costs businesses additional sums of money in the long-term.

“If you have to cut staff, be as transparent as possible about it…so rumours don’t circulate and people’s morale aren’t unnecessarily affected,” said Hay.

While businesses may push remaining staff to increase productivity and work longer hours in the short term, proper training is necessary for long-term success, said Hay. “When you push people to work longer hours in the medium to long-term, they are going to start to burn out and you are going to have the adverse effects of staff turnover, staff that become less productive overall because they are stressed out and working too many hours.”

The moment you start cutting staff, you’re going to have an IT department that is fearful of losing their jobs and will be probably more stressed out and not as productive as a resultAaron Hay>Text

By investing in training, organizations can increase the productivity, skills and usefulness of their employees and put a freeze on future hires, said Hay. “One organization froze their hiring and as employees retired or quit, they left those positions vacant because the remaining staff actually had the skills to take over the duties in those open positions.”

Companies can avoid the negative side effects of staff reduction by more proactive staffing, suggested Kevin Dee, CEO of IT staffing company Eagle Professional Resources. “If companies plan their staffing levels such that they have a buffer built in with contract staff and temporary staff, then they can ride the wave of those ups and downs without affecting their full-time staff,” he said.

Hay suggested vendor management as an alternative to cutting staff. “We found that vendor management and very careful vendor cost control actually had the most gains in terms of cost savings and the least amount of pain to the internal organization.”

“It’s a continuous effort that you need to do over a year or two or more,” said Hay. “Organizations that really have good control on their costs and are able to reduce costs over time are those who have chosen to proactively manage their vendors, not just once, but every month and every year.”

Despite the budget cuts, IT professionals needn’t worry about massive layoffs or job shortages in Canada. “The economy has slowed down and that will cause some things to happen in different places, but that’s different than laying off IT people all over the place,” said Dee.

“There’s going to be a lot of technology people coming out of Bell Canada because of those layoffs, but there is huge demand in other places for people with good skills…The oil and gas sector continues to be hot. The government sectors go through different cycles, but there’s not really big layoffs there. If anything, I see the federal government hiring more people in technology,” said Dee.

“I think the [hiring] volume has slowed, but we are not seeing any kind of major departmental layoffs,” said Terry Power, president of IT staffing firm Sapphire Technologies Canada.

Even in slow downs, companies see IT as a means to manage and increase productivity and continue to be competitive, said Power. “I don’t know that organization would see staff reduction as a means by which they would achieve overall business goals because of the overall strategic importance of IT now.”

“It’s important to understand that even at the peak of demand over the last few years, there’s always been an element of IT workers that have had a tough time finding a job and that’s really more a factor of the level of skill set or lack thereof than anything else,” he said.

Sapphire’s VP of marketing Christopher Drummond pointed out, “The unemployment rate for IT professionals is still substantially lower than the unemployment rate for all positions across Canada…for IT professionals, it’s below 3 per cent.”

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