Ghost Writing - Trade Pub Analysis
IT Bundles Up for 4th Quarter
Just click your heels together and keep saying: “It’s not as bad 2001. It’s not as bad 2001.” Better?
Our uncertain economy continues to reluctantly unveil the damage that’s been done and employers are hoarding cash waiting for better times to spend it. Simultaneously, worker productivity is skyrocketing dampening any incentive to add to the payroll. Depending on to whom you pay attention, more layoffs than hiring are forecast for the fourth quarter as CIOs continue to play whack-a-mole with their balance sheets searching for greater efficiencies.
Meanwhile, CIO magazine did it's own research during the third quarter and concluded next year looks brighter. According to their results, fewer CIOs were planning staffing cuts than were in January. Roughly one-third plan to increase IT salaries and headcount in the coming year, while 35 percent expect to increase IT training budgets.
Obviously, they weren't included in the very long lists of the big boys who just announced or were finishing up their anticipated layoffs this past month. Among them Electronic Arts, Adobe, Microsoft and Nokia Siemens.
This time around it's the managers at the top of the food chain feeling downward pressure on their salaries as more IT pros delay or jump out of retirement to stay in the marketplace.
Concurrently, the folks in the trenches are simply holding their breath and in the process discovering psycho-pharmaceuticals en masse. In short, each morning the industry is taking one big Valium. The third quarter Harris Interactive poll reveals that, although, confidence of job market increased among IT workers, they were feeling worse about their own employers. Specifically, 57 percent say they are confident versus 64 percent in the previous quarter.
“It’s the stress of not knowing that can do you in,” explained a 12-year network administrator, who asked not to be identified because he is not authorized to speak for his West Chester based company. “They say it getting better and we still have our jobs, but new projects and some essentials are not being funded.”
Trying to manage your own career, when economic conditions on the ground seem to change almost daily, may be adding more trepidation than the actual impact on your resources. With the exception of a few troubled sectors and some corporate layoffs late last year, IT employees didn’t line up at the unemployment office as they did the first go round, when technology was booted off the mountain top and demoted to a business function as mortal as the others.
“I know of at least three situations in our department where people are being asked to expand their job responsibilities to avoid hiring someone. We can live with that. But, still, you wonder if this is a new normal or when things will improve,” he said.
The uncertainty is real for good reasons. If you scour the trades or pay close attention to the economists toward predicting the future, your head spins. One survey reveals declining IT salaries; another focuses on a dramatic shift in priorities, and still another reports the sound of screeching tires, as the breaks were applied around the country in the form of hiring freezes.
As Microsoft CEO Steve Ballmer circles the globe launching his new operating system, he insists IT spending will not come back as it was for many years. “While we will see growth, we will not see recovery,” he told his South Korean audience last week.
Meanwhile, back home, Cisco CEO John Chambers fell just short of breaking out into a rendition of “Happy Days are Here Again”, as he predicted the gas pedal would be pressed to the medal by the beginning of next year.
Yes, third quarter GNP was up, but reports of a surge in revenue don't exist at a sampling of local value added resellers who privately reveal plenty of struggling, as they wait for IT departments to open up the purse strings.
In 2001 many companies had excess network bandwidth, more data center capacity then they were using, and software applications that weren't maximized for productivity. "But, this time around, none of that is true," said IDC Analyst Stephen Minton told Network World.
"Today, bandwidth supply and demand is in check. There is high utilization of software applications, which are purchased in a more modular way and integrated much faster into business operations. Unlike in 2001, companies aren't waking up to find that they should be cutting back on IT spending. They're only cutting back on new initiatives because of economic conditions”, he said.
Others, who believe lemons are only designed for lemonade, are adamant that the current economy can actually be viewed as tough love that is forcing IT to operate more efficiently as they should, anyway. So, what’s the advice for you when times are so difficult to decipher? Even as prognostications are conflicting and contradictory, there is consensus on two things you need to do: IT professionals should be updating skills and taking on new responsibilities toward working to become indispensable to their employers. In other words, the same advice we were getting in 2001:
# 1. IT staff are being asked to the fill gaps that wasn’t in their original job description. If no one comes to you, go to them. Take the initiative.
#2. IT workers who fear they are in danger of losing their jobs should get back into the classroom and update existing skills. For instance, SQL experts should get up to speed on SQL 2008 and anticipate the skills management they might be seeking in the coming months. A .Net developer could learn Ajax, for instance, and network engineers could bone up on mobility and present the company chief with practical applications of the technology to help drive productivity.
And, for those of you who are members of Generation Y, and didn’t experience the last time things went south, allow us to officially welcome you to the real world. It could be worse.
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IT Grows Up
P&G Outsources the Future
This piece was written when the IT sector got its first taste of adolescence. The industry was maturing and faced the inevitable corporate scrutiny toward making technology more cost effective.
It's being billed as the largest outsourcing gig to date; an estimated $8 billion deal involving 5,700 P&G employees and a Technology Division that stretches from Brussels to Blue Ash. The industry is watching what appears from afar as high-stakes poker with changing rules, rotating players and a deck of cards that seems to have been stacked by an angry god.
While some view such dealings as great spectator sport, for many of us in the business of technology, it may be witnessed as a metaphor for the kind of risks both the outsourcer and the outsourced take when IT services are pushed out the door. Nonetheless, the future for the outsourcing segment is bright. It is exactly this kind of sluggish economy that motivates companies to consider alternatives.
Almost all North American IT departments will outsource at least one essential technology operation during the next four years, according to a recent forecast by the Meta Group. In short, CEO's are in the mood and are looking for better ways to define and implement the IT function. While such a wholesale strategy, such as P & G's, is the exception, corporations who are cost cutting are shedding those services they believe can be done better or less expensively, elsewhere.
But many experts warn if saving at the bottom line is your first and primary motivation to outsource; congratulations! You have just made your first critical mistake.
P&G: A Primer: The Players, the Stakes and a Rotten Hand
Reportedly EDS continues to negotiate as P & G prepares to unload its IT. This is the second time the Plano, Texas company has anted up, since it originally folded and seemingly left the table in July, insisting then it was all getting too rich for their blood. The remaining player, Affiliated Computer Services Inc. (ACS) walked away three weeks ago, explaining the "financial, operational and cultural risks were too high. ACS believed there were too many P&G specific systems within the technology platform that they were unable to leverage. But, before ACS made its farewell public, EDS had already changed its mind and once again was talking privately with P&G.
Only hours before the company were to announce to Wall Street that EDS indeed had agreed to purchase the division - all hell broke loose. According to the Wall Street Journal, when EDS revealed that it would slash its third quarter earnings estimate by 80%, P&G was caught by surprise. Stock was a part of the deal. The press conference was hastily cancelled. Credit agencies immediately downgraded EDS's debt and the outsourcing companies stock began a free fall.
It was only the beginning.
EDS was forced to borrow $225 million last Tuesday to buy 3.7 million of its own shares at a price that was now well above the price of their plummeting stock. They had to purchase the $17 stock at four times its value because of the prior bets they had placed that were supposed to reduce the cost of its employee stock options. It didn't. In the meantime, Merrill Lynch walked into the room and downgraded EDS to a rare "sale" rating. Their analyst pointed out that the buyback would wipe out the EDS cash flow for the balance of the year and could impact the ability of the company to come up with the capital necessary to initiate large-scale projects- such as P & G's. What's more, EDS's method of accounting for those contracts is under increasing scrutiny.
While many of its competitors, such as IBM, apply the same balance-sheet practices; critics believe it leaves plenty of room for errors. Some shareholders claim it's more like outright misrepresentation of the facts. The lawyers are lining up. Lawsuits are now being filed and the experts say there is plenty more to come.
The battering EDS is taking adds to existing problems it has faced since two of its major clients quit paying their bills. The bankruptcies of WorldCom and US Airways add up to a $220 million tab. Not to mention, there will be the additional loss of an expected $600 million annually, if WorldCom eventually goes out of business. Although no one is predicting the demise of the company, at issue to those of us not privy to the details is why the house that Ross Perot built is still in the game at all.
Topic Verboten: Jobs & Credibility
No matter the final outcome, one thing is certain. Few in town, who have skin in the game, want to talk much about the process of outsourcing; much less the P&G deal. It's an age-old Cincinnati tradition to stay off the record when it comes to commenting on the business of the locally born and raised international behemoth. The attitude is built on the fundamental reality that a significant percentage of our resident companies do business with them. This includes a number of the neighborhood IT consulting companies who rely substantially on the cash flow the corporation provides.
Surprisingly, for those Cincinnati companies who have implemented or are considering some form of outsourcing, the topic doesn't easily roll of the tongue. There are those CEO's who don't want their customers to know they are going outside to get the work done. And, then there is the group in town who have tried outsourcing in varying degrees and failed, miserably. But even for those involved in an immensely successful effort (exemplified in the current Keane/Great American Insurance Company project), there is some understandable reticence.
Everyone appreciates that outsourcing ultimately means jobs, lost or changed. And whether its IT managers, their staff or the unemployed who don't gain a thing by playing victim - few will speak on the record about the subject. To date no one seems to have measured the job impact that outsourcing has on IT departments. Inevitability when you talk about sending out for work - you end up face to red face with those who believe outsourcing to cheaper labor pools is only a small part of the issue.
Recently, work shipped off shore is now receiving the attention of the General Accounting Office and the Department of Justice. The feds have begun to examine complaints about how Sun Microsystems' uses the H-1B program that allows US companies to import its IT labor.The accusation is that the visa program the tech companies begged for, when employee pickings were slim, does nothing to protect the American worker. Most employers don't have to hire U.S. citizens first or lay them off last. And, while many employees have been complaining all along, for the first time they have certain proof.
With plenty of US IT workers collecting unemployment checks, the mammoth loophole in the law is painfully relevant and increasingly obvious.U.S. workers are filing formal complaints with the government and in court, charging that foreign guest workers are replacing them with those overseas who will write code or support a network for half of an average American geek 's car payment. In an eerily familiar scene reminiscent of our IT glory days in our own Main Street tech corridor, companies such as Intel, Sun and Microsoft are sponsoring hiring seminars in India and elsewhere, replete with rock and roll, sexy promotions, plenty of incentive programs, not to mention, all the popcorn you can eat.The good old days, it seems, have been outsourced, as well.
Outsourcing the Future
Despite EDS's woes, analysts point out most of the company's specific problems is not representative of the marketplace. A new Meta Group survey released early last month concludes the trend is growing. Companies who have transported at least some of their IT functions somewhere else represent a growing majority.
Currently, more than 70 percent of North American IT departments outsource between 10 percent and 50 percent of their IT operations, according to the study. Spending on IT outsourcing in North America is growing at about 18 percent annually, according to the study. In 2003 and 2004 outsourcing engagements will be primarily focused on managing applications. Later, in 2006 and 2007, the focus will shift to industry-specific offerings, the IT research company concludes.
While an analysis by Cap Gemini Ernst & Young points out almost 9 in 10 large businesses have outsourced IT functions during the past ten years - it doesn't investigate how successful these projects have been. Not to mention, the kind of complete technology purge at P&G is certainly not representative of the business process and utility outsourcing practiced by most companies.
How the inevitable paths toward paring down internal IT support impacts the rank and file is an open question. One thing is clear. Everyone will continue to ask.
