I once heard the head of a large ITC company say ‘We’ve got the right number of people – it’s just they have the wrong skills’. In more recent times many organisations could add’ ‘and in the wrong place’. At a time of great uncertainty for all the 19 million of us working in the ITC industry I want to provide guidance for those unfortunate enough to have to make hard choices about whether, when and where to cut resources.
First of All – my dad’s advice is for everyone – if you want to keep your job, make sure you’re on the board taking the decisions. There aren’t many examples of these groups laying themselves off.
Secondly – don’t make rash decisions. Employment trends are slower than revenue and profit changes. Figure 2 shows the annual change in growth rate for profit, revenue (both shown in $US) and employment. Layoffs are a sign of failure in your strategy – be brave enough to admit it. Wherever possible you should try to avoid cutting staff from the organisation.
For this and all subsequent charts I have taken 60 major ITC companies only, which I take as representative of the overall market. While profit and revenue have declined together in Q109, employment still had a 1% growth. These companies employed 5.7 million people at the end of Q109.
Thirdly – don’t assume things are easier in other regions. Figure 3 shows the net change in employment levels for the 60 companies I follow. It demonstrates that there is no great difference between the three world regions. The Americas and EMEA have been worse than Asia Pacific in 2008, but the Americas were a great place for employment growth from 2005-2007. Make sure you consider the fluctuation in exchange rates before making decisions. In the UK for instance the pound lost 35% of its value between the summer 2008 and January 2009. Salaries didn’t change, but expenses for a company working in $US have gone down substantially.
Fourthly – think about skills, not nationality or age. Some companies are trying to save money by shifting employment from expensive to cheap countries, or by replacing older with younger staff. However wage arbitrage usually gives only a temporary advantage and there may be big gaps in experience and skill between the junior and senior people in your organisation.
You’re almost certainly already an expert on the varied employment legislation of each country – but try not to make layoff decisions on how much the settlement will cost, or how difficult it is to get past the unions.
Fifthly – think about the category of offering your company is involved with. They naturally have different returns in terms of revenue and profit per head, as demonstrated in Figures 4 and 5. Clearly if you can deliver ‘software as a service’ you may be able to increase revenue per head and avoid the necessity of layoffs.
There has been a strong growth in productivity for the whole of our sample since 2003, with revenue per employee growing from $263k to $337k by Q308. It has since dropped back to $315k (Figure 4). Don’t forget it takes more people to make the same revenue in IT Service, and less in Telecom Service.
Profit per head is different again (Figure 5), with software clearly leading the other offerings.
Sixthly – adjust your expectations for revenue per head to your organisation’s size. You should be getting a better return the bigger you are. Figure 6 shows revenue per head for the 60 companies I follow split by annual revenue size. There is a broad spread of results – from $211k for the smallest (<$1b), to $356k for the second largest ($10-20b) suppliers.
Seventhly – if you have to cut staff, try to do it all at once. Many ITC companies are being crippled motivationally today because of the uncertainty over employment. In one the activity takes place once a month on a Tuesday morning with everyone waiting to see if they’re going to be called in to see HR.
Eighthly – be careful to think about on-going morale. Low morale created in a downturn may result in skills shortages in a recovery, when your employees decide to go work for someone else.
One of my friends works for a company which decided to layoff the department in which he worked, while he was in the process of negotiating a multi-million dollar deal with an industry minister in the Far East. His sales activities were punctuated by the need to return home to reapply for his job (which thankfully was successful).
Lastly – try to keep a sense of perspective. We work in a dynamic, flexible industry with a common infrastructure provided by the Internet. For many, you will be liberating entrepreneurs from the shackles of corporate life. It doesn’t make it much easier, but even now jobs in the ITC industry are easier to find than in automotive, retail, banking and other sectors.
…. and don’t forget to switch the lights out if you’re the last one out….
Hi Martin as always hugely insightful piece – do you see any shifts this time (like labour arbitrage, open source apps, more part time staff, fewer baby boomers) that might suggest a structural shift in the nature of tech employment? best george
George – many thanks for your comments.
If it doesn’t sound too mechanistic, a company’s employees are a bit like an ‘installed base’ in that the population is made up of people who joined at different times with different skills and at different rates. Some of the companies I follow have a very young profile, because they’ve not been around long; others are old, because (among other things) they have strong concepts of loyalty.
Of course there are a great many laws against discrimination on grounds of race, disability and age – so companies have to be very careful not to promote shifts to replace older staff with newer cheaper people. However I sense that a lot of organisations are using the downturn as an excuse to make big changes over which there would otherwise be big questions.
I would like to see big suppliers including employment rights in their CSR policies – harmonising protection in Europe for instance, or addressing ex-employees comprehensively as stakeholders. But of course current activities are mostly about cost cutting and ‘maximising shareholder (monetary) value’.
Some companies are adding large numbers of staff in emerging countries while simultaneously laying off large numbers in mature ones. Overall I think of this as ‘labour arbitrage’. Most company financial reports detail the total number, few give their location. Some of the Web 2.0 companies give part and full time numbers, although the established ones typically give ‘full time equivalent’ numbers. There has been a move towards more part time workers over the last few years, although it’s going back the other way for those shifting from mature to emerging countries, where flexible working is less well established.
The baby boomers (you and I) have boomed and become pillars of the establishment (Jonny Rotten and Iggy Pop advertise insurance companies now). There was some discussion about echo boomers and the need to make our organisations attractive and ‘cool’ (iPhones, Facebook, beer in the fridge, etc…).
Over all I think most of the nuances of the last few years have been swept under the big black carpet of the recession, with employees grateful to remain employed. My advice to ITC companies is to treat your staff well, because loyalty is a two-way street and we’ll have massive skills shortages again I’m sure. For me skills and experience are more important than cheapness and youth, but I would say that, wouldn’t I…..