Strategic IT Workforce Management

Strategic IT Workforce Management

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Strategic IT Workforce Management

Building Tomorrow’s Key Capabilities Today
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    The demands on IT organizations continue to change and expand. Today’s IT organization is far more centralized, outsourced, and complex than it was just a few short years ago. It also offers the business a much wider range of products and services. And this evolution promises to continue. Tomorrow’s IT organization may be expected to support the business on any number of additional, high-value-added fronts, including business process design, product design, innovation, business transformation, and even business strategy development. In short, IT may be expected to serve as a genuine partner to the business. The question is, will your workforce be equipped to respond?

    If you are not actively thinking about this now—and most CIOs and IT leaders are not—the answer might be no. The roles, skill sets, and head count that serve you well today could prove inadequate, excessive, or fundamentally misaligned by 2015, depending on industry developments and your company’s business strategy. And your ability to adjust quickly and effectively could be greatly compromised by a host of factors, including an aging demographic, specific skill shortages in the market, and competitive activity.

    In short, this is a topic that should be at the top of the CIO agenda. Yes, the current environment remains unsettled and demands your focus. But the future will be here before you know it. Taking a proactive, strategic approach to workforce management will ensure that the IT organization is in the best possible position to support the business—in whatever capacities the business needs—when the future arrives.

    Active Management of the IT Workforce

    Strategic IT workforce management is the antithesis of a reactive or passive approach. It means taking a longer-term (for example, a five- to ten-year) perspective on personnel, and actively thinking about possibilities, needs, and constraints with regard to the company’s business and IT strategies. It means asking questions such as the following:

    • Where is the CEO taking the company, and how will IT be expected to support that?

    • What size IT organization will be required? What new roles will we need to establish, and which roles should we consolidate or eliminate?

    • Which skills will be necessary, and where are we currently deficient?

    • If we need to add people, where and how quickly will we be able to find them, and what salaries will we need to offer to be competitive? Alternatively, if we need to shrink the IT organization, how and when should we start that process?

    • What percentage of our current workforce is approaching retirement, and what steps should we be taking to prepare? What is our voluntary attrition rate?

    The questions will vary depending on a company’s particular circumstances. (See Exhibit 1.) Nonetheless, asking these types of questions, and following up with rigorous analysis and planning, will ensure that there are no surprises around the corner and that the appropriate capacity and capabilities are in place at the right time. IT is seizing the reins and actively preparing for its own and the company’s future—rather than simply waiting passively and reacting.


    Note that this approach is not meant to replace standard HR practices and activities (employee qualification, training, recruiting, and head-count reduction strategies) as they are applied to IT. Rather, it is meant to inform and strengthen those practices and activities, take them several critical steps further, and add a long-term, strategic lens.

    Strategic IT Workforce Management Defined

    Taken on a high level, strategic IT workforce management has four steps: determining how exposed the IT organization is to demographic risk; projecting internal demand for IT resources; identifying gaps revealed by these analyses; and defining and launching corrective measures.

    Determining Demographic Risk. The first step in the process is to determine how exposed the IT organization is over the medium to longer term (that is, over the next five to ten years) to demographic risk. If no active hiring or firing decisions were made, where and when would there be vulnerabilities (that is, shortages in key positions and skill sets) due to such variables as retirements, unforced attrition, and changes or advancements in career paths? This analysis should be done for each and every role and position in IT. (See Exhibit 2.) It should also be performed for freelancers—that is, external contractors who work on a full-time basis filling roles that the company would ideally like performed in-house. Most IT organizations require from 15 to 25 discrete roles. These roles can be refined into subroles as warranted on the basis of IT architecture domains or technologies. The “business analyst” role, for example, might require separate positions for CRM and ERP analysis.


    The results of this exercise can be surprising. One company determined that its IT workforce faced no demographic threat over the next five years—but that head count stood to plunge by roughly 50 percent over the following five years, particularly in positions that demanded a significant degree of experience. Given common staff-development paths, the company realized that it needed to take action immediately to ensure that it would be prepared.

    Gauging Internal Demand. The second step is to gauge internal demand for IT personnel, which starts with the establishment of a budget. There are two components to this step. The first is the establishment of long-term IT-efficiency targets. This can be done on the basis of a variety of metrics—for example, IT costs as a percentage of company revenues—benchmarked against industry standards. The second component, which can significantly influence how rigidly the company adheres to its efficiency targets over a specific time period, is a determination of the IT organization’s near- to medium-term goals and objectives. If the IT organization is planning a major transformation over the next 12 months—or if the business is undergoing a dramatic change—the budgetary implications will be far different than if IT expects to operate in a business-as-usual mode.

    Once a target budget has been determined, the optimal IT head count, roles, and skill sets can be estimated on the basis of projections about the company’s future business strategy and corresponding IT requirements, which will influence such things as the IT architecture and organizational structure. This requires both top-down and bottom-up analysis. Top-down modeling is used to define the targeted size of the workforce and the optimal mix of roles and skills. Bottom-up analysis using industry or functional benchmarks is used to validate those findings.

    To get an accurate sense of head-count and budgetary needs, it is important to treat each IT unit separately and to calculate budgets for the “plan” and “build” functions (that is, projects) separately from the budget for the “run” function (that is, operations). Forecasts for the plan and build functions should be based on the anticipated project pipeline. The run budget should be developed on the basis of industry benchmarks and previous years’ run budgets, adjusted for any planned growth or reduction targets.

    Estimation of the required skills is mainly driven by the type of function. For each IT unit, the relevant roles are determined on the basis of the services and products delivered, the processes and tasks performed, and the IT architecture domains and technologies covered. The sizing of the skill mix is done on the basis of typical spans of control and role ratios. While the type of function has a major impact on skill requirements, the type of project—contrary to what one might expect—is relatively unimportant. The differences in the skills demanded by different kinds of projects—for example, systems consolidation versus upgrade—are rather minor and tend to cancel each other out as long as the pipeline has a mix of project types.

    The results of the head-count and required-skills modeling should be complemented and validated by industry benchmarks and the company’s own experience. Often, this reality check can lead to significant adjustments to the top-down calculations. One company’s top-down estimates, for example, suggested that it needed roughly three business analysts for every systems analyst. Bottom-up analysis and benchmarking, however, revealed that the typical industry ratio was approximately one business analyst for every two to four systems analysts. On the basis of this finding, the company made a major revision to its numbers, settling on a ratio of one business analyst for every two systems analysts.

    Gap Analysis and Remedial Steps. The third step in strategic IT workforce management is a comparison of the supply and demand assessments. This will reveal shortages or surpluses in IT capacity and skill sets for the time period under consideration. It will also provide the IT organization with a highly informative, quantitative basis for taking corrective action through such HR measures as hiring, training, outsourcing, qualification and transfer, head count reduction, and temporary staffing.

    Gap analysis not only allows the IT organization to systematically determine the orientation and scope of the required measures, it also allows for the simulation of the direct effects of those actions. Further, it allows the set of measures to be modeled and optimized with regard to costs. For example, if there is a significant surplus of head count or skills in some departments but shortages in others, this can often be remedied most cost-effectively by the qualification and transfer of suitable employees, which avoids the costs arising from head count reduction and part of the cost of hiring and training new staff. Gap analysis permits a “dry run” of such potential moves and a look at probable financial outcomes.

    The roles defined by the Information Technology Infrastructure Library provide a good starting point for this analysis.

    The Approach in Practice

    A look at how one company utilized and benefited from strategic IT workforce management is instructive. The company’s demand analysis revealed the need for a sizable decrease—more than 50 percent—in the required IT workforce over the next seven years. Driving that targeted decrease was a confluence of forces—the company’s revenues were expected to decline, the company’s IT budget as a percentage of revenue was more than 35 percent above the industry benchmark and therefore needed to be reduced, and IT workforce costs were growing annually. The challenge was how to accomplish the reduction while maintaining and building critical capabilities—the IT organization was planning a major transformation of the IT architecture—and doing so in as cost-efficient and humane a manner as possible.

    The company’s assessment of key roles and skill sets indicated that cuts could not be made indiscriminately or across the board. Top-down analysis revealed that the company would have a strong future need for project and problem managers, in particular. Bottom-up analysis confirmed that finding but also indicated that IT’s projected need for other roles was too high. The need for business analysts, for example, had to be adjusted downward by fully 50 percent. 

    To minimize the number of layoffs and associated costs, IT and HR worked hard to identify and qualify people in soon-to-be-obsolete roles who might be suited to in-demand roles (including those typically filled by external contractors). Some application managers and systems engineers, for example, were vetted to see if they might qualify to be problem managers. IT and HR also used the findings of their analysis to lower IT costs by more than 10 percent by reducing the number of external contractors in selected capacities.

    The upshot of these and related efforts was that IT put itself on the critical path toward an optimized workforce relative to the company’s evolving needs—and did so while keeping related costs to a minimum and sparing as many jobs as possible. Ultimately, IT and HR concluded that layoffs could be avoided completely in the first three years and that the extent of internal layoffs could ultimately be held to 35 percent, even though the total planned workforce reduction (including full-time external contractors) would exceed 50 percent.

    Strategic IT workforce management offers practitioners a range of benefits. It ensures that the IT organization is appropriately sized relative to the company’s future business strategies and IT’s agreed-upon role in supporting the company. It identifies needed resource shifts toward new roles and skills that are necessary for IT to become a trusted business partner. It addresses the management of capacity risks due to looming retirements and attrition, and identifies roles with critical shortages. It helps establish effective HR management of the IT staff by adapting qualification programs and budgets to arising needs. In short, it is a powerful competitive weapon and one that we believe all IT organizations would do well to utilize.

    Problem managers are responsible for rectifying and preventing problems and resulting incidents related to IT services.
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