How talent management can help you improve productivity and lower costs

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 stars.”

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 predictive modeling).

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. 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 âÜbuild 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 appropriate.

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 technology professionals.

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.

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