IT leaders tackle the high price of talent

Since the onset of the pandemic, IT has risen in prominence as an engine for business sustainability and growth across all industries. The subsequent demand for enterprise IT talent has led to a sharp spike in salaries CIOs must pay to staff their teams.

“Demand for tech talent was up by 50% to 60% in the last two years, mainly attributable to industry-spanning hyper digitalization. Companies across verticals were ramping up digital functions with the increasing demand for innovation in products and service offerings, especially since the onset of the pandemic,” says Sachin Alug, CEO of talent solutions company NLB Services. “As companies strive to transform their business models specifically in manufacturing, supply chain, project management, and sales, the uptick in hiring IT talent was seen as a natural progression.”

While the rise in salaries for technology roles has bode well for IT professionals, it has posed challenges for CIOs in effectively managing their budgets with the increased demand on their IT departments.

“In response to the demands from business, the strength of our IT department has gone up from 20 to 50 in the last two years,” says Ranganathan Iyer, CIO at auto components manufacturer JBM Group. “The new resources have come at a 30% to 40% additional cost but there has only been an incremental y-o-y increase of 10% to 12% in our budgets.”

Iyer was expecting the massive layoffs taking place in the US to reflect in India too, which could have eased salaries. But while Big Tech in the US has retrenched thousands of workers since the pandemic as recession looms large over its economy, that hasn’t happened in India.

Describing India as a “bright spot” in the global economy, Kristalina Georgieva, MD of International Monetary Fund, has said the country will contribute 15% of the global growth in 2023. According to recruitment and staffing services company Randstad, Indian technology firms are expected to buck the global trend and start hiring in 2023. It is this Indian growth story that is causing high salaries to hold up, at least for the time being.

“Today we are getting resources with half the experience at the same salary as an employee with over 20 years of experience in the company. In such a scenario, it is tough to retain senior employees,” says Iyer, who has no choice but to hire when it comes to next-generation technologies such as AI and ML. “We can upskill existing resources in other areas but not in these.”

Iyer is finding it tough to get cost-effective resources even though he doesn’t hire from top institutes such as IITs (Indian Institute of Technology) and NITs (National Institute of Technology).

“We expect the situation to ease by October as the impact of the global layoffs will be felt by then. Indians being retrenched in the US could return home. But the new benchmark in salaries has already been set. It is 30% higher than pre-COVID levels,” says a senior technology leader from the travel industry, on condition of anonymity.

A top IT decision maker from the BFSI vertical is feeling the heat too. “Our outsourcing partners faced a lot of issues in the last two years. There was high demand for coders, and skilled resources left them at 100% to 120% salary hikes. Some of our contracts with them, which were very old, exhausted in months because of churn in these vendors,” he says, not wanting to be quoted.

With the situation reaching a climax, CIOs have no choice but to find innovative solutions to tackle the situation.

Managing talent costs through outsourcing

To control costs, most CIOs are taking recourse in outsourcing. As the CIO from the BFSI vertical says, “There was a 30% increase in salaries, but it was absorbable as we had already outsourced most applications such as mobile banking and internet banking. The freed resources were diverted to other areas such as infosec, VPN, and networking. They are also being upskilled on next-gen technologies as we look to set up a center of excellence in a specific technology.”

Similarly, the technology leader from the travel industry has outsourced both the company’s core IT infrastructure and its security operations center. However, he kept other areas, such as DevOps, inhouse. “Although we have hired 50%-60% more resources, our overall budget hasn’t exceeded. As a result of outsourcing, we haven’t disturbed the balance sheet. We have also entered long-term contracting to insulate ourselves from price rise,” he says.

Iyer has already outsourced 90% of the company’s IT — everything from the network to the hardware maintenance. Only the ERP and the AI divisions are inhouse. About five years back he thought of outsourcing the ERP division too but then realized it would end up costing more. “The outsourcing partner would only take care of the maintenance. For any new testing, development of business, they would charge extra. We also thought of setting up a shared SAP competency center with other big auto ancillary players, but it didn’t materialize,” he says.

Embracing skills-based hiring and upskilling

Eliminating role-based hiring and making skill-based hiring the mandate can be another approach that CIOs across verticals can adopt amid turbulent times.

“As technology continues to evolve and change the business landscape, the focus needs to be shifted to expertise rather than experience when it comes to hiring IT resources,” says Alug, of NLB Services. “Studies have shown that employers today are more inclined to hire skilled candidates rather than experienced candidates. Many high-tech organizations have resorted to hiring freshers in numbers higher than experienced professionals as the former comes with updated domain knowledge in the emerging technologies.”

Iyer too is banking on upskilling as he looks to implement SAP HANA by the end of the year. He is planning to upgrade the skillsets of resources within the company instead of hiring expensive ones from outside.

“Today, the list of IT and non-IT companies axing redundant roles is growing. In such a situation, employees must keep their skills in check to prove their indispensability within the organization. When it comes to tech and digital expertise, the most impactful means to raise productivity in tandem with the evolving technology is constant upskilling,” says Alug. “In a digital world, the list of certifications for IT courses is endless. However, there is an increased demand for skill building in certain areas such as cloud, data science, DevOps, AI/ML, and cybersecurity to keep up with the progressing technologies.”

Shifting IT strategies to curb costs

In another initiative, the technology leader from the travel industry has “reengineered his enterprise’s operations.”

“The travel industry has lots of legacy applications and APIs. We looked at those applications that were non-revenue generating and shut them down. Overall, 30% of the applications were done away with. With all these initiatives, we are today working at 60% less operating cost,” he says.

The CIO from the BFSI vertical says his enterprise kept costs down by shutting 30% of its regional offices and persisting the company’s work-from-home policy.

Meanwhile, his outsourcing partners have adopted an innovative approach to manage the situation. “Rather than laying off employees, their salaries have been cut and they have been given ESOPs [Employee Stock Ownership Plans]. As the company’s P&L moves, so would their benefits,” he says.

Vendors are also offering innovative schemes to help CIOs manage costs better. “Vendors such as Dell and HP have launched an innovative plan. Whenever a new employee joins, we had to give them new laptops. Now these vendors take back old laptops and return after refurbishing them by replacing their old parts such as keys and screen. This has extended the life of a laptop from 18 to 20 months to 64 to 70 months, helping us save 40% costs on a month-on-month basis,” says the BFSI IT leader.

Navigating what’s to come

Few IT leaders anticipated a spike in IT salaries to this extent. Still, as the business and technology environment continues to remain unpredictable, CIOs must learn from what is transpiring with talent costs today to be better prepared to handle such scenarios in the future — especially as the CIO’s strategic becomes increasingly more important.

“They must use their expertise to anticipate future changes and work towards keeping the employees up to speed,” Alug advises. “Times are uncertain with the looming fears of recession and the ongoing geopolitical scenarios. In such situations, there’s no specific blueprint for CIOs to follow to predict upcoming changes. That said, their reliance on data and emerging technologies does take the driver’s seat to make calculative steps that can stave off any impending challenges.”