IT feels the squeeze

In a year when it seemed the entire industry was holding its breath waiting for global uncertainties to play out and for the economy to come back to life, few professionals have been immune to the financial pressures put on IT.

For the third year in a row, IT professionals have seen a soft job market and compensation in decline. Of the 2,884 respondents to the 2003 InfoWorld Compensation Survey conducted in March, 182 reported having been unemployed for an average of 12 months. Raises are limping along in the 1 percent to 5 percent range. And monetary bonuses have been slashed by 12.5 percent (see “What Are You Worth?” below).

“We saw base pay [in IT] from 2002 to 2003 increasing only 1.3 percent. In essence, it was flat,” says Beth Florin, executive vice president of Clark Consulting, a compensation consultancy in North Barrington, Ill. “Managers had a drop of almost 20 percent in their total direct compensation. Their options are really down. They’re still getting the options, … but they’re just not worth anything.”

Peter Panagiotatos, who had been director of BI (business intelligence) at Pittsburgh-based Nova Chemicals for three years, was laid off in August 2002. Since October, Panagiotatos has been working as an independent consultant — work he feels fortunate to have, given the market. Taking home approximately 40 percent less than he did at Nova, Panagiotatos is feeling the squeeze. “Consulting fees are not what they used to be,” he says. “There is too much capacity in consultants.”

One Lotus Notes programmer, based in the American southeast, has watched his contracting fee drop dramatically during a six-year stint with his current employer, despite having more than 20 years of experience.

“They keep cutting the pay and cutting the rate. I am making 30 percent less than I was six years ago,” says the programmer, who asked not to be identified. “As a contractor, you are always aware that a project could end without any notice, but you didn’t used to think they would cut the rates. There is a lot more pressure to justify the costs of the projects.”

The showdown

Flat salaries reflect tight budgets in a soft job market, and those who do have employment feel a greater pressure to perform. “We and our colleagues are challenged to do more with less,” says Robert Cerny, manager of IT strategy and planning at Elkay Manufacturing, an Oak Brook, Ill.-based manufacturer of sinks, cabinets, and other home-building and -remodeling materials.

Sinking markets and poor corporate earnings have IT under scrutiny from tech-savvy CEOs. Nearly 88 percent of CEOs who responded to the InfoWorld survey said they are the final decision makers when it comes to their company’s IT strategy. Assessments made by IT executives have therefore been under additional bottom-line pressure, and technology departments have suffered as a result. According to the survey, business executives may once again be thinking of IT as a cost center (see “IT Undervalued,” below).

“Quantifying the business-case impact on our capital equipment and capital software purchases has driven the role of CTO closer to the CEO role,” explains Cliff Dutton, vice president and CTO of Ibis Consulting in Providence, R.I.

“Capital acquisitions can be done in such a way that they minimize their impact on the margin and that we only scale appropriately with capital expenses as the business grows,” Dutton says.

Because companies have flattened their organizational structures, managers — especially CTOs — must monitor projects more closely as they maintain their leadership roles, says Katherine Simmons, president and COO of Novato, Calif.-based Netshare, which provides a subscription-based job service for C-level IT executives (see “Who makes the call?”).

Executives closely scrutinizing IT expenditures serves the critical role of streamlining operations to weather the stormy economy, says Duane Ebesu, senior vice president and CTO of Housing Works, a New York-based human-services organization. “IT is being scrutinized as a department which spends money; at the same time, it is being looked at as a department that is going to save money.”

Ebesu’s view reflects a greater optimism and job satisfaction found among senior-level IT executives, but not among the midlevel and staff ranks. Whereas 69 percent of upper-level managers responding to the survey believe that executives do understand and appreciate the value of IT to the company, 46 percent of midlevel managers think those same executives undervalue IT.

The status quo

Because many CEOs are keeping tight reins on their companies’ ongoing IT projects, funding for new projects and hires has been hard to come by. Only 20 percent of survey respondents anticipate IT spending at their company will increase in 2003. Nearly 32 percent expect spending to remain the same, and 15 percent believe spending will decrease.

“Hiring managers are telling us there is much more of a reluctance to do anything new,” says James Wright, president of Radican Staffing in Providence, R.I. “We are finding CEOs across the board saying, ‘We can’t incur new costs. You tech-heads always want to put in new gadgets, but as long as everything is working fine, we don’t want to do anything new.’ Security is an area where we are hearing a lot of talk, a lot of concern, and ideas about how to approach it. But that is an area for the most part where CEOs are saying, ‘Let’s not pull the trigger except for the bare minimum.’”

Reluctance to invest in IT projects has increased the pressure on in-house staff who are struggling to maintain existing systems in desperate need of upgrades. Meanwhile, companies have been reluctant to commit to long-term projects, causing contractors and job seekers to also feel the heat.

Even in areas that have been expanding, new jobs have not necessarily been created. Federal government contractor GTSI, for example, has found its business actually growing in recent months because of the demands of integrated homeland-security solutions.

Amidst that growth the company is hiring, but there are limits on the number of IT positions available. Most hires are of high-end IT-planning professionals who can develop enterprise architectures, says Mays Nakashima, vice president of IT and CIO of Chantilly, Va.-based GTSI.

“We are largely hiring in sales and marketing, though not as much in internal IT,” Nakashima says. “We’re trying to keep our internal costs down. Our IT is growing at a much slower rate than the company is at a whole.”

Competition from foreign workers is keeping salaries for U.S.-based workers low, and that in turn is driving U.S. workers to take deep pay cuts just to get or keep a job. Sensing this shift in the market, some companies are capitalizing on it.

The fairy tale

Many IT workers toiling in this pressure-cooker environment are becoming increasingly enamored of the idea that The Emerald City is still out there — in the shape of another job. This IT fairy tale beckons, and moved by rumors of a better economy, many of those still employed are beginning to daydream about a future paved in yellow bricks.

But staying put is a better bet, according to recruiters, who are beginning to hear from the unhappily employed. Nearly 46 percent of all survey respondents are actively or passively looking for an IT job with a different employer.

“Now it’s been a year or two, and they are still stuck in their jobs, and they are getting no bonuses or pay increases, and they are finally starting to shop around,” Woolford says. “Many are thinking that the market is spotty, and they might as well have their toe in the water. People are pretty open to calls from a recruiter. If they’re still employed, unless they are facing a layoff soon, they are holding out for a lateral move.”

Those eager for a journey through Oz must calculate the cost of venturing far from home, says Radican’s Wright, who spends some of his time trying to help currently employed job seekers face the reality of the current IT job market.

In addition to receiving less pay than they may have been accustomed to, new hires are often securing a job title significantly lower than previous posts. According to the survey, 75 percent of the 182 respondents who stated they were currently unemployed would accept a lower-ranking job. “You’re seeing a lot more project-based employment — people going in and taking project-manager positions where their last job might have been a CIO or director of IT,” Netshare’s Simmons says. “Companies are more comfortable bringing people in to manage very special projects rather than [someone new] coming in as the head of IT.”

The hope

Despite their hopes, survey respondents believe the job market will remain soft in 2003 (see “An uncertain future for the IT workforce”). Only 15 percent predict their companies will increase internal IT staffing in 2003, up only marginally over those who actually did increase staffing in 2002.

The bigger story is in the numbers surrounding staffing decreases. Nearly half of respondents reported hiring freezes at their companies in 2002; 44 percent reported layoffs in that same period. For 2003 projections, the news still isn’t good, although respondents expect fewer cuts, with 27 percent predicting layoffs and 33 percent anticipating a hiring freeze (“Better Job Market Ahead?” below).

For those who are either passively or actively looking for new IT jobs, there are some pockets of opportunity, especially within companies that have weathered the recent turbulent economic conditions. Take Rexam Beverage Can Americas, a Chicago-based manufacturer of aluminum cans. During the past 16 months, the company has begun a massive overhaul of its business processes in preparation for a new SAP [Service Advertising Protocol] ERP system and e-business applications deployment. C-level executives at Rexam have been keeping close tabs on IT efforts, says Paul Martin, Rexam’s vice president of IT and CIO. That scrutiny, Martin says, involves looking at IT as a business enabler, not a cost center.

IT spending at Rexam has jumped from approximately $9 million to current spending of the same baseline plus an additional $23 million this year and next for projects tied to process re-engineering, Martin says.

Rexam is mostly hiring business analysts and employees with experience in SAP application and portal development. The company is also hiring developers to design customized Internet applications for customer and supplier communications.

Despite the economic downturn, some companies have boosted the role of IT to successfully weather the storm. IT participates in the business strategy meetings, Elkay’s Cerny says. As the economy has been going south, IT was important to the company’s cost-cutting efforts by ensuring that business and IT strategy and planning processes were synchronized, he adds.

“We helped them to come up with a sales-productivity inventory system that better merged our sales planning with our production facility capacity,” Cerny says. “We also looked at streamlining some of our freight programs. We might be heading into a period where we don’t hit our sales budget. … But you won’t find a program or a dictate that we need to cut headcount. … We’re not going to shortchange the future just to save some dollars in the immediate period.”

With myriad pressures on every level of the IT workforce, the next 12 months will prove crucial. Although layoffs and hiring freezes are abating, according to the survey, the current environment may prompt dissatisfied IT workers to leave their current jobs if there’s even a minute sign of a market recovery.