After a year of IT budget cuts, hiring freezes and layoffs, the IT staffing crunch of the late \u201990s has likely retreated to a dusty corner of your long-term memory. If so, get ready for some major d\u017dj\u02c6 vu. Opinions vary about precisely when the recovery will kick in, but when it does, the experts are unanimous: CIOs who haven\u2019t used the lean times to map out smart staffing strategies will be toast."Demand for IT is going to happen pretty aggressively and quickly?much faster than an IS organization can be prepared for unless it\u2019s already preparing for a recovery," says Diane Tunick Morello, vice president and research director at Stamford, Conn.-based Gartner. Her colleague Linda Pittenger, president and CEO of People3 in Bridgewater, N.J., Gartner\u2019s HR consulting arm, is even more blunt: "A lot of CIOs say, \u2019Well, we don\u2019t have to worry about this recruitment problem anymore.\u2019 Those CIOs don\u2019t have a clue."A recent CIO survey suggests that plenty of IT executives are already clued in?and are about to snap up the best available IT talent out there. Our April survey of 251 IT executives found that 19 percent are already hiring IT staff to handle increased IT activity, and 27 percent plan to hire in the third and fourth quarters of this year. Another 34 percent plan to add new staff in 2003. (See "Staffing for the Rebound: How CIOs Plan to Cope," Page 52.)It might be hard to believe right now that the IT labor market will tighten in the foreseeable future. As Jim Lester, senior vice president and CIO of Columbus, Ga.-based Aflac, points out, we\u2019re unlikely to see anything like the rare confluence of Y2K and the dotcom craze that sparked the IT staffing crunch of the late \u201990s anytime soon. But even Lester says he\u2019s "always concerned" about where he\u2019s going to get high-quality IT staff. Maria Schafer, program director responsible for human capital management research at Stamford, Conn.-based Meta Group, warns that "demand will pick up; then there\u2019ll be a scramble." Here are seven ways to avoid getting caught short when the economy turns around.1 Don\u2019t scrimp on your staff. In hard times, it\u2019s easy to forget the value of human capital. Faced with pressure to cut budgets, many CIOs scaled back on their efforts to attract, nurture and retain employees last year, according to Ellen Kitzis, group vice president of executive programs at Gartner. In Gartner\u2019s annual poll of CIO priorities, attracting and retaining high-quality employees slipped from the number-two key management issue in 2001 to number nine in 2002. The message CIOs are getting from their company is that people aren\u2019t as big a priority as getting cost out of the budget, Kitzis says.But scrimping on your staff can prove costly in the long run. Employees who feel neglected will be the first ones out the door when opportunities arise elsewhere, leaving you with the headache (and higher cost) of finding replacements in a tighter labor market. IT executives such as Ken Lacy, CIO of Atlanta-based UPS, know that taking care of your employees now makes good business sense. "To me, it\u2019s easier to keep the employees you have than to continually turn over and have to train new people. That costs a lot of money." Some CIOs are finding ways to reward their star performers?and increase the chances they\u2019ll stick around once the market tightens?despite current budget constraints. "You can\u2019t not give your son a birthday present. And you can\u2019t not give your top performers something," says recruiter Beverly Lieberman, president of Halbrecht Lieberman Associates of Stamford, Conn. CIOs may, for example, give bonuses or salary increases only to the staff they want most to keep. But what really motivates employees, says People3\u2019s Pittenger, are career development opportunities. Kitzis recommends that money-strapped CIOs who\u2019ve had to delay or cancel IT projects hang on to their employees by putting them on creative job rotations in business units.2 Take advantage of the buyer\u2019s market?while it lasts. Many IT workers burned by dotcom adventures?or burned out by working long hours as consultants?are more interested in long-term career potential these days than in the promise of stock options or huge salaries. CIOs who want to hire the cream of this crop should act quickly. "Don\u2019t wait until it\u2019s obvious that the market has recovered, or it will be too late to get the best hires," says Marc D. Lewis, managing director and head of the corporate IT practice at Cleveland-based recruiting firm Christian & Timbers.Bank One CIO Austin Adams was one of the first to recognize this window of opportunity. Last October he announced a campaign to hire 600 IT workers in Columbus, Ohio, and in Chicago, the company\u2019s headquarters. Following a series of mergers, Adams was in the process of converting four deposit systems into a single platform. He also wanted to bring some outsourced systems in-house and convert a large percentage of contract employees to full-time equivalent (FTE). Bank One has since increased its hiring target to 996 IT workers (and will likely add another 150 to that tally). As of June, the bank had filled 745 new IT positions. Adams says he\u2019s been able to lure employees from some of the top technology companies?workers who two years ago "wouldn\u2019t have returned our phone calls." Both Deborah Beck, executive vice president of strategic planning and technology at Northwestern Mutual, and Aflac\u2019s Lester have also been "making hay while the sun shines," as Lester puts it. "We absolutely saw the writing on the wall that there would be people out there," he says. Lester estimates that he\u2019s already added about 16 people to his staff of around 396. This year\u2019s goal is to hit 433. At Milwaukee-based Northwestern Mutual, Beck says she\u2019s added 39 to her internal IT staff of 759 since January. Even in industries harder hit by the economic downturn, wise CIOs are taking advantage of the buyer\u2019s market for IT labor. At UPS which, in Lacy\u2019s words, suffered a "drop in volume," a companywide belt-tightening in spring 2001 led the CIO to impose a moratorium on IT hiring for everything but critical needs. Even so, he left the door open for hiring people with hot skill sets (for example, Web-based applications and ERP software). And early this year, Lacy gave the go-ahead to make more hires. "The downturn in the economy has given us an opportunity to selectively hire a few of these people in certain areas where before they were kind of untouchable," he says. 3 Identify your needs and close any skill gaps. To avoid getting caught unprepared when the CEO decides to loosen the purse strings, CIOs need to identify the specific business indicators that will signal an imminent spike in business demand in their particular industry?and demand for more IT services, says Gartner\u2019s Morello. When the S&P 500 hits 1200, CitiStreet CIO Barry Strasnick, for example, will take it as a sign that his resources at the Quincy, Mass.-based financial services company will soon be less constrained. IT executives also should be in close contact with key business partners to review business and IT priorities as their companies shift from cost-cutting mode to recovery mode. "When things start to show there\u2019s a recovery, you\u2019ll need to refresh the corporate strategic plan," says Lieberman. If there\u2019s no move afoot to refresh that plan, CIOs would be wise to initiate one. Once the company\u2019s post-recovery vision is clarified, CIOs need to identify what has to happen to support it and what skills will be needed to do the work. Then they must decide whether or not to fill any skills gaps by retraining, hiring or outsourcing?or some combination of the three. By thinking this through now, CIOs will be ready to act when the business gives the green light to pursue new IT initiatives. To stay ahead of the company\u2019s IT staffing needs, about four years ago Lacy created an IT workforce planning committee, which meets monthly in New Jersey and includes his six direct reports. Chaired by an HR executive, the committee reviews salaries and benefits to make sure they\u2019re within competitive ranges, and addresses issues such as how to improve the effectiveness of training in building employee skills.4 Renegotiate with a short list of providers. Now, before it gets expensive, is a good time to renegotiate favorable long-term deals with fewer consultants, outsourcers and other pro-viders of supplemental staff. In exchange for more of your current and future business, most providers will be willing to offer you a better rate. At Aetna, in Hartford, Conn., Senior Vice President and CIO Wei-Tih Cheng expects to save hundreds of thousands of dollars a year after renegotiating with major consulting companies and converting some consultants to FTEs. Part of the savings comes from funneling 80 percent to 85 percent of the project dollars the company spends on consultants to a short list of about 20 preferred vendors; the goal is to eventually use only the preferred vendors. Establishing more favorable relationships with fewer providers now will also afford you the flexibility to deal with a sudden surge in post-recovery demand. And worst case, if the recovery doesn\u2019t materialize, it\u2019s easier and less disruptive to can the contractors than to pink-slip your own staff. Many CIOs still licking their wounds after the last round of painful layoffs are understandably gun-shy about hiring more full-time staffers if there\u2019s even a chance that they\u2019ll be forced to lay them off if the recovery doesn\u2019t come?or last. 5 Decrease dependence on contractors. While many companies are willing to pay for the flexibility that using contractors affords, some view today\u2019s soft IT labor market as an opportunity to reduce expenses and increase internal expertise by moving staffing in-house. As Northwestern Mutual\u2019s Beck shifts from a 60-40 to a 70-30 ratio of in-house to contract employees, she\u2019s asking contractors to recommend good employees that they\u2019ve been forced to lay off. Bank One\u2019s Adams estimates he\u2019ll save at least $15 per hour for each contract employee he converts to an FTE. He\u2019s working on modifying portions of his outsourcing agreements with AT&T and IBM so that he can bring more of the network support and data center midrange processing in-house. And he\u2019s also looking to decrease his ranks of third-party application developers and project managers from 900 to about 300, which could mean a savings of at least $18 million annually. In addition to saving money, Adams believes Bank One will benefit from having more FTEs because they know the business better and can therefore add more value than short-term contractors. Although Strasnick will continue to keep contractors in the staffing mix at CitiStreet, he would like to have the option to convert them to FTEs after a fixed number of months. While many vendors were averse to that arrangement during the dotcom boom, he\u2019s finding some will agree to do that now. "I prefer that to paying an agency fee in hiring because it gives us both a chance to know each other better," he explains.6 Develop new labor sources. When the economy does turn around, CIOs with the most options in their sourcing pool will likely have an advantage. Karl Wachs, CIO at global chemical giant Celanese, planned to hire 10 interns in his Summit, N.J., headquarters this summer to give university students exposure to the business?and to let Celanese see how they fare in the work environment. Wachs believes that his former employer, BASF, saved almost $250,000 in recruiting fees during two years by hiring 20 interns in five years. But the savings itself, he emphasizes, is not as important as hiring good people. Nashville, Tenn.-based Gaylord Entertainment (a hospitality and entertainment company whose properties include Gaylord Opryland Resort & Convention Center and the Grand Ole Opry) is partnering with Vanderbilt University\u2019s Owen Graduate School of Management to hire MBA students as interns now that demand for interns from consultancies and investment banks has dried up. "They contribute at very high levels," says Karen Spacek, senior vice president of technology, HR and communications. "In a strong IT organization, you want a combination of really good technical skills and good business skills."Aetna is rolling out a new fast-track career path designed to attract star graduates from premier colleges such as MIT and the University of Pennsylvania. The fast-trackers will rotate through assignments in IT and the business for two or three years before getting what Cheng calls meaningful job assignments in IT. The intent is to get them into management positions in three to five years instead of the typical five to 10. When the recovery comes, those high-value employees will be less likely to jump ship because they\u2019ll already be on track to advance quickly at Aetna.7 Start renegotiating hiring constraints. Most companies have frozen hiring, pulled back on raises and bonuses, or had layoffs, says Gartner\u2019s Morello, and many have done all three. "If the IS organization is still tethered to an older, leaner budget, and is prohibited from hiring, you have an IS organization that\u2019s not able to meet the demands of the business," she argues. "The business will then circumvent IS by seeking out its own service providers or hiring its own people." To prevent that, CIOs must start negotiating with executive management to remove budgetary and hiring restrictions before the demand to ramp up IT hits. In other words, companies need to begin managing for recovery."Business demand will rise faster than the IS department can get permission for," Morello predicts. "You need to ask, How well positioned are we to turn on the tap again for the supply of people we need?"When the turnaround arrives, CIOs who have used the downturn to reassess their staffing needs in preparation for a surge in demand will be in an advantageous competitive position. "CIOs should view the \u201901-\u201902 economy as a time-out in a football game where they need to think about the strengths of their bench," says Christian & Timbers\u2019 Lewis. "When the time-out ends, the team with the best players on the field will win."