Leadership

IT as an economic indicator

Patrick Gray finds some reason for hope -- at least as indicated by renewed hiring in IT -- in the midst of a chaotic economic landscape.

A good friend of mine who is on the development side of IT recently mentioned that he has been fielding an increasing number of headhunter calls and that IT hiring seems to be on the rise. As we discussed this, he mentioned that IT hiring seemed like a good leading indicator of the direction of the general economy, and as we delved deeper into the discussion, the correlation between IT spending and the larger economy seemed quite compelling.

While far more qualified economic gurus might dispute this "economic theory" developed over a couple of burgers in the course of several minutes, there do seem to be some strong indicators within the IT profession of where the economy is going, and despite the abundance of doom and gloom about the global economy, IT just might be telling a different story.

The axe man leaveth

On the negative side, IT seems to be one of the corporate functions that is first subject to cost-cutting once the economy makes a turn for the worse. It's easy to see why: IT rarely generates revenue directly from customers, it often accounts for a large portion of corporate expenditures, and the biggest numbers on the expense side of the ledger usually are the first to get cut. As anyone who has lived through the last few years can attest, as soon as companies feel an economic pinch, IT spending (and thus IT staff) are likely to feel the immediate pain as the axe man relentlessly thins the ranks. More recently, as industry surveys and my friend's anecdotal experience seem to show, this trend is reversing and companies are hiring, rather than firing, IT staff. If IT is the first to be culled when clouds appear on the horizon, presumably it is also the first to be restored as demand necessitates more capacity.

IT spending, and hiring in particular, is a vote of confidence

I would contend that IT spending is a vote of confidence in the future for two reasons. First, much of IT's work is future-focused; it's long-term projects like enterprise systems implementations, building technology-based products, data management and mining, or merger and acquisition-related systems integration work. With some notable exceptions like "burning platforms" or compliance-mandated systems, investing in these types of systems and technologies signals an expectation of future growth for the company as a whole.

The second vote of confidence is a bit ironic in that IT is so good at outsourcing and offshoring, making direct hiring seem even more applicable as a sign of confidence in the future. Most IT organizations are quite competent at using outsourced talent for short-term needs, reducing the necessity to hire staff. Therefore, when direct IT hiring ticks up, it stands to reason that companies see long-term growth ahead that is better served by a long-term hire than a short-term outsider.

More is more

In summary, more spending seems to be a strong indicator of more transactional volume within a company. If you need more hardware and staff to maintain your backoffice invoicing application, presumably you have (or anticipate) a higher volume of invoices. While the market gyrations of the last few days have been nothing but chaotic, an uptick in IT spending just might be the light at the end of the recession tunnel currently plaguing global markets.

About

Patrick Gray works for a global Fortune 500 consulting and IT services company and is the author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companion e-book The Breakthrough CIO's Companion. He has spent ...

15 comments
sklasing
sklasing

Having personally witnessed 10-20K people per year get laid off every year for last 5-8 years and an amount double that hired offshore during the same time periods I believe IT hiring is really only an indicator of local job prospects for customer facing IT positions where IT sales, lead architects assist sales, solution, and design before sending the volume of work off-shore. This country just pumped an approximate trillion dollars into our banks, financial services, etc and none of it translated to more jobs in this country. We know where the money went, their pockets. The money should have been put in to real constuction, infrastructure renewal projects that require a tool or hammer be placed in a real U.S.A citizens hand. Unitl something similar occurs there will be no demand to motivate significant hiring.

hippiekarl
hippiekarl

You ARE naive to think that isn't what you learn in any 'decent MBA program'.

marcus.darby
marcus.darby

Thats ridiculous, that assumes a high level of shrewdness and heartlessness call me nave but I cant and wont believe that those attributes exist in mass throughout the corporate landscape. If so who would wart to work for or invest in that type of leadership.

SamboG
SamboG

We could place 300 programmers (in the medical information processing field) if we could find them. We scour the landscape looking for interested people to take free training for beginning jobs - and find few takers. The work is there for those with the initiative to gain new skills.

nnagir
nnagir

In my opinion the increase in IT expenditure may also indicate companies seeking a means of simplifying tasks thereby reducing the need for highly skilled workers. As a result we get an increase in hiring workers at lower levels with lower salaries and unfortunately it can be viewed by some that low level workers are expendable. In the event of an economic crisis companies can reduce these numbers without having significant impact on its operations. The move really is towards being prepared in the event that the economy takes a dive.

GovRon
GovRon

First, are they hiring contractors or perm? The former is an indication they don't have confidence in a sustained recovery. Second, if we're going on anecdotal evidence (practically an oxymoron), I've noticed increased IT hiring, but it seems like much of it is in government or for government, as stimulus money is just now far enough along that some projects are "keyboard ready"; and projects driven by regulatory changes, such as HIPAA (the greatest welfare program for middleware developers ever devised). Third, I see some hiring from consolidation - companies are sitting on a lot of cash, and using it to acquire smaller firms, either to integrate vertically or to acquire market share. Now is a good time to buy on the cheap.That takes a lot of IT work to bridge systems, implementation work, etc. Its a sign of a weak economy, not a strong one. Real recovery comes from a return of consumer demand, and IT hiring demand is driven by entirely different forces. The only thing IT hiring is a leading indicator of is headhunter employment.

santeewelding
santeewelding

Your blithe wisdom about cyclical "recession" doesn't help, either.

Professor8
Professor8

"IT hiring seems to be on the rise" What gives this appearance? Are they shifting from bodyshopping to real employment (and from "IT"/"data processing" and "programming services" to real software/system product development)? Are they interviewing higher percentages of applicants? Are they placing more help-wanted ads? In more venues? In those ads, are they including e-mail addresses and telephone numbers answered by real, live hiring managers (as opposed to immigration lawyers and HR clones who have no idea what the buzz-words mean and which are really necessary vs. nice to have)? Or are they just mining their black-hole "talent management systems" slightly more? And the post by Arcturus909 suggests the question of whether they're actually hiring teams with over-lapping/inter-operating skills yet (or are they still trying to hire 1 person to do 3-4 jobs; or, conversely, 5 cheap, pliant guest-workers, to do what used to be done by 1 US STEM worker)? Or are they hiring more guest-workers to do work that would violate US professional ethics?

albayaaabc
albayaaabc

Economy class is large building that every feild want to be one Standup "tide" in it so great one is IT to rearrange all side of economy with little effort especilly in codification economic.

WasabiMac
WasabiMac

Headhunter activity also indicates that people are not eager to leave their current positions and/or that companies are hesitant to openly advertise positions because of the flood of applications they receive for any opening. IT is a funny thing, the more you use it, the fewer employees a company needs in general. We used to have dozens of people manning mass copy rooms in the early 90's. Now they are gone; The user just picks one of our Xerox MFD from the menu and picks up the bound copies at the end of the machine themselves. The auto industry has been struggling with the balance for decades now, robots do really good work and have very high attendance records. IT is probably one of the few fields with real growth (or at least a very strong future) since IT allows companies to really wring out every last Dollar they spend on an employee.

Arcturus909
Arcturus909

I'm not sure that IT hiring is neccessarily an indicator of your economy turning around. Headhunting could occur as companies scramble to replace 3 mediocre IT Pros with one awesome one (perhaps combining the 3 salaries and dividing them in half to provide one). Another possible reason for the trend is the tendency for employees to want/need to use their tablets and various phones to do company business. You need somebody on site that can configure these for use in the business environment - offshore or offsite will simply not work. I'd like to see your economy turn around, but at this point, I'm not sure that is even possible.

subhomoy.chakraborty
subhomoy.chakraborty

I have certain reservations and comments on this issue of IT being an Economic Indicator. At the outset, IT industry as a whole has made an impact from a common mans life to the biggest corporations. From carrying out huge super fast economic , defense, social modelling calculations to the replacing the snail mail with the electronic version. IT industry has changed the face of the world in the shortest span of time, and undeniably its a very very strong indicator not only of economic but also of social and political one. However, It is also true that this industry is driven by technology and research, which are the immediate cost to any organization or governments. The first to be axed in spending is the R&D, and then the resources associated with it. IT Co's went on a hiring spree last two quarters, now they will be grounded firmly. IT Hiring will see a midterm slowdown in the next two quarters globally. So would the service industry because of its recurring cost service model. However IT would remain and continue to be the white collar , indicator - Economically, and socially.

marcus.darby
marcus.darby

Of course the numbers are important, but any successful business leader realize that humans are a resource and in many ways a unique resource. Unlike commodity based resources human???s effectiveness and productivity is influenced by motivation and attitude. Therefore without the loyalty and commitment from that resource the companies final output would be derogated.

baggachipz
baggachipz

I'm getting headhunter calls left and right, for both contract and permanent positions. My salary is higher now than it ever has been. I'm simply a run-of-the-mill web developer. In my 15 years in the industry, increased developer hiring has preceded every economic recovery. Is this anecdotal? Sure, but that the article clearly states that. Every other economic downturn has also had a consistent pattern: People berating those who predict recovery using indicators, insisting that "it's different this time." This is simple pattern recognition, folks, and one's inability to divorce their myopic worldview from reality will render them consistently wrong.

hippiekarl
hippiekarl

You've just described the work conditions and corporate output of present-day America, where 'successful business leaders' measure their success by the number of employees they lay off and the size of their bonus/golden parachute. Bad times in the unemployment line and good times in the corner office. You have 15 minutes to clean out your desk, marcus; then you'll be perp-walked off the facility. Have a nice day......