Internal staff development and robust career paths will keep the pool of next-generation IT leaders flowing.

September 2008

Smart Insights by Peter Cappelli

While no one can claim to predict the future, it's a good bet that finding and developing IT talent will be just as difficult tomorrow as it is today unless we heed historical patterns and fix what's broken.

All executives acknowledge that finding, retaining and growing talent is one of the toughest business challenges they face because they must anticipate future needs and set out a plan to meet these needs while staying within budget. In the past, that challenge was manageable and predictable because business plans were stable and human capital or "talent" was purely an internal matter. Employers hired people at the entry level and then grew their own talent in-house. But new approaches are needed in today's uncertain world.

Nowhere has the old model been more thoroughly turned on its head than in information technology. Even as late as the 1980s, companies such as Digital Equipment Corp. and IBM operated some of the most complex and sophisticated talent-management practices anywhere, based on long-term planning and extensive internal development. But those ways quickly disappeared with the rise, and then the dominance, of Silicon Valley companies that valued intercompany mobility as opposed to advancement within firms.

The Rise (and Fall?) of Outsourced Resources

One result of the Silicon Valley-inspired approach was the abandonment of slower-paced internal skills-development practices: Why spend time and money to develop skills when you can hire them as needed? Eventually, most talent came from the outside as companies sought candidates ready to "hit the ground running" — able to contribute new software code as soon as they walked in the door. Now, two-thirds of all vacancies across the U.S. are filled from outside the company, and in IT the number is even higher.

Nevertheless, it now seems that this outside-hiring model may have hit a wall. Cheap labor keeps shifting to newer shores, and many businesses are worried about a worldwide shortage of IT talent. [see following Q&A article]

I believe that too few U.S. employers invest in the development of IT skills. When the U.S. IT job market bottomed out after 2001, students shifted away from IT-oriented academic programs. What keeps them away is the well-founded belief that IT careers are unrealistically short and without attractive incentives to keep them on the track. There is a fear, quite possibly overstated, that U.S. IT jobs will be offshored to businesses outside the country. At the same time, the concern over career longevity is quite possibly understated; in fact, IT careers don't last very long. Employers want to hire the latest skills, but those skills become obsolete quite quickly, in which case the employee becomes obsolete as well. At the Wharton School at the University of Pennsylvania, we develop students with a focus on managing IT, as opposed to technical skills per se. General business skills seem to offer better career options for IT as well as for other professional positions.

A Transient Career?

IT occupational retraining by U.S. corporations is virtually nonexistent, and employers churn through employees when requirements change. The number of openings that resulted not only from employees who left their current IT employer, but from those leaving the programming occupation overall, exceeded the net new programming positions in the 1990s.The National Survey of College Graduates found that although 52 percent of civil engineering graduates remained in that field 20 years after graduation (typically aged in their early forties), among computer science graduates, only 19 percent are still in the field 20 years later. The point is that IT is becoming a transient career — perhaps a stepping-stone to something better.

Numerous surveys over the past few years have shown that IT worker turnover is high. Overall, such workers are twice as likely to change careers in their lifetime compared with all other occupations, according to a study by George Mason University. Unless programmers are retrained to keep up with new trends, IT careers won't be attractive — even if new hires are compensated terrifically well for three or four years.

Developing IT Managers

When we look at managerial tasks in IT, the situation is not much better. We know that IT managers need excellent communications skills, industry-specific as well as general business knowledge, and people-management abilities — all in addition to their technical expertise. More requirements are being heaped on CIOs every day. Yet with few exceptions — such as industry associations and some specialized business schools — most organizations lack development programs to turn IT workers into IT and business managers, and even fewer to help managers become CIOs and corporate leaders. Career paths are uncertain. It is possible to be promoted from the ranks to the CIO position, but it is still difficult for CIOs to become general managers and then operating executives. Finding an IT manager with all of the right skills is a trial-and-error process at most companies.

In India, where IT companies face much more severe talent crunches because of the country's booming IT market, there's little hope that universities or the government will solve the skills shortage. Instead, many businesses have embarked on accelerated programs to develop their own talent. Comprehensive programs, such as the one at Infosys, hire graduates from other fields and turn them into IT specialists, with very positive results.

Clearly, changes will have to occur if the U.S. wants to compete in the global economy and if IT is a key to economic growth. In many developing nations, IT is flourishing and young people are eager to enter IT career paths.

Fixing the System

In my book, Talent on Demand: Managing Talent in an Age of Uncertainty (Harvard Business School Press, 2008), I consider how to meet the demands for talent in a cost-effective way. The most important conclusions for IT executives may be about ways to develop talent. I propose the following:

• Share the expense and maximize the returns on your talent investments. Funding for retraining efforts can be shared by employees. Tuition- reimbursement programs, where employees invest their time and effort to learn new material, are one example. Employees get virtually all the benefit from higher skills, so it makes sense for them to share some of the costs. Companies such as United Technologies use postsecondary education to develop most of their employees' skills for the future.

• Develop attractive IT career paths in-house. In more traditional companies, where management-development programs still exist, the easiest intervention is to get IT workers into training programs as soon as possible. Elsewhere, businesses should create career paths and environments for IT workers that attract better-qualified applicants and keep them longer. Doing this will also help a business more accurately match its staffing needs with the talent supply.

• Foster cross-functional collaboration. Work is more fluid today, and work-based learning programs, in which employees — and managers — collaborate on projects outside their functional expertise, offer opportunities for individuals to learn from their peers and from actual experience. These programs can be simple, short-term projects with immediate rewards.

When U.S. employers are almost completely reliant on outside hiring to meet their needs, they are vulnerable to finding only a limited pool of applicants that may limit innovation and growth. To improve the quality of the future IT workforce and to take back control, employers must ensure that careers are developed for the long haul.

Acknowledge that some uncertainty and risk is inevitable, but take action for the short term. One basic approach should be to train and develop internal IT staff, supplemented by outside hiring — that is, make and buy your talent. Somehow, this balanced approach has fallen out of favor, but it's clearly time for IT employers to reach back to the past to save the future.

Ask the Expert

Peter Cappelli, George W. Taylor Professor of Management at the Wharton School, University of Pennsylvania
peter.cappelli@smartenterpriseexchange.com

Peter Cappelli is the George W. Taylor Professor of Management at the Wharton School, University of Pennsylvania, and the author of Talent on Demand (Harvard Business School Press, March 2008). Cappelli's areas of research include human resource practices, talent and performance management, and public policy related to employment. He is currently completing a major study of worker characteristics and establishment performance with the U.S. Bureau of the Census.