The recent economic storm that has battered economies worldwide has sent
companies scurrying to take cover. Many have quickly turned to IT cost-cutting plans in an effort to staunch the flow of red ink. However, attempts to
drive down technology costs may be taking some firms in the wrong direction. The headlong
rush to reduce IT costs in the short term can compromise many companies’ ability to improve
productivity and profitability in the longer term. We believe that by focusing on talent management, CIOs can deliver higher value results at lower total cost.
The immediate challenge for senior IT executives is to redirect IT investment in order to
cultivate, reward and retain the most critical IT talent—the “IT
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Technology has long been heralded as a key to cost reduction and it is often assumed that a
greater use of IT will create a kind of virtuous circle of continuing cost reductions. In
fact, the search for ways to commoditize and cut IT costs actively discourages needed
investment in talent management structures that could help the CIO retain highly skilled
staff at the critical interface between IT and the business lines.
For that reason, companies must learn to differentiate between IT activities that are truly
“commoditizable” and where costs can be safely cut (such as infrastructure, hardware and
systems standards), and the specialized processes that create unique value for the firm
(such as risk management, new channel or new product development, and customer analytics and
Any cost savings from cuts in commodity activities should be candidates for reinvestment in
“specialist” areas where success depends on IT stars gaining a deep understanding of how
businesses create value.
This two-pronged approach to IT using both talent and cost management in equal measure is
important. Many complex technology projects are never satisfactorily completed and, far from
cutting costs, become a drag on profitability. Having the right team in place can help a
project avoid this fate. IT success depends on people, not technology.
Put the Spotlight on Talent
Haphazard cost cutting raises the danger of underinvestment and losing ground—and good
people—to competitors. (Read “How to Do a Layoff Right”) To
mitigate those risks, IT executives should concentrate on two talent-related imperatives:
1. Recognize that deepening business knowledge in selected IT teams is
critical to success. This will be especially true in any area where there is a build versus
buy’ decision, because the need to make this choice signals that customization and business
knowledge will be decisive in determining the project’s success. CIOs should put in place
opportunities for staff to increase their knowledge of the business: internal IT business
training courses, scholarship funding for professional qualifications in their field of
business, mentoring for rising stars and cross-training within the business when
2. Build the right talent
mix. The right mixture often turns out to be fewer, more skilled and higher paid local
staff, combined with lower-cost offshore workers who are also highly skilled. This shift can
deliver cost savings and a more concentrated investment in technology talent. Too often,
firms have focused on the shift to offshoring without commensurate enhancement of onshore
roles throughout the organization.
Rethink Your Staffing Approach
CIOs should abandon the idea of taking a single approach to IT talent. Hiring workers who
are capable of dealing with the complex IT and business interface is expensive. Instead, IT
leaders must pursue a differentiated approach.
Start by identifying tasks where traditional cost cutting, outsourcing and offshoring are
appropriate. Examine projects and processes where development requirements are closely
specified and fixed, and objectives and standards are clearly established. These could
include back-office functions, accounting systems, design and general processing support. By
identifying those areas where you can shift resources, you can focus on investing IT talent
in business areas with new or rapidly evolving products or methodologies, or where business
revenues are high.
Interestingly, a differentiated approach can sometimes deliver net cost savings, even in
areas where business practices and products are rapidly evolving and more experienced IT
resources are required to meet demanding business schedules. For example, we recently
estimated that the credit trading business of one global bank could employ more skilled and
higher-paid IT workers and still realize savings in excess of $300 million dollars over the
next five years. The math works by shifting the staffing mix, offshoring some key subsidiary
tasks, reducing the total head count and then paying more across the board to staff in the
future: both offshore and onshore resources will need higher skills sets to manage the
greater expectations of the firm.
Amazon, Ameritrade and Google are great examples of companies whose IT talent mix is skewed
toward the specialist end. Of course, the choice is made easy for them since their business
models depend on IT excellence. However, it is worth remembering that the question is one of
degree: While many IT platforms today can be purchased as commodities, their implementation
always requires such a high degree of customization that a significant level of investment
in talent to drive this customization is essential.
Getting the right level of business end-user know-how into the IT implementation teams is
critical for the success of these projects. There is no shortage of project failures and horror stories in software
implementation. Yet project risk in many could have been significantly reduced by enhanced
investment in the right business expertise on the IT project team.
Big Questions for IT Leaders
Talent management, then, not cost reduction, should be the number-one priority for
For CIOs, this means taking a fresh look at the mix of talent required, how to attract top
staff, and how to keep them busy and learning at the interface between business and IT.
When a firm learns to differentiate its requirements and skew its talent management in the
right direction, cost savings can accrue at the same time that success rates improve.
Big questions confront IT leaders in these turbulent times. Will lessons learned be more
widely applied as the spotlight turns to cost reductions and performance improvement in a
range of IT-intensive industries? Or will global economic worries prompt executives to
search for ways to cut back and put IT once more on the chopping block? We think fortune
will favor those brave enough to invest in the talent needed to lead.