Are enterprises digging a hole by hiring techies to execute digital transformation?

Martin Banks Profile picture for user mbanks July 25, 2019
A survey shows that users are hiring more and more IT tech staff, at the same time IT vendors are shedding tech staff. This is a strategy which, if pursued for any length of time, is likely to cause them more harm than good.

digging hole

Sometimes bits of news come in that are interesting in their own right, but taken together can often point to something a bit more important. Take, for example, two announcements that crossed my desk recently.

One was the opportunity to meet up with Darren Norfolk, EMEA Managing director of cloud managed services provider Rackspace, The other was news of a survey conducted by US tech recruitment business Indeed, on jobs and employment trends for high tech staff. 

To me, the pair not only married up rather well, but also spoke to a subject I have addressed previously – the ability of Cloud Services Providers (CSP) to meet the operational needs of the total base of potential user businesses without the serious, extensive intervention of skilled niche players ie the cloud equivalent of the well-established  VAR community.

Norfolk spoke on both why this is important and how it can be achieved, and also uncovered some of the reasons it is not happening with any great speed. The Indeed survey, however, exposed some rather startling facts about tech employment trends which are, arguably, the early direct result of the slowness of the VAR community to address the potential market all these users represent. What is more its findings suggest a trend that can only end in tears for many business users.

A survey of future tears

The guts of the survey findings point to an interesting, if potentially destructive, trend - a distinct shift whereby IT-skilled staff are finding employment, away from the IT systems and software vendors themselves and towards the business users themselves. The data was extracted from the American community Survey, and based upon a selection of 15 tech occupations taken from the US Bureau of Labor Statistics’ Standard Occupational Classification in businesses with 1,000+ tech workers. The time range is from 2012 to 2017.

As might be expected, the tech sector itself is still the largest employer of skilled staff such as applications developers, both in brute numbers and in the percentage of staff they represent.  Computer systems design is top of the tree with 58.3% of all tech staff, while software publishing ranks next with 39.9%. Software developers rank by far the largest group of tech occupations, at 26.5%, almost double the next largest category, which is named`computer occupations: all others’.

But the percentage share of all jobs in tech industries is going down. Between 2012 and 2017 the computer systems design and related services sector fell from 61.7% of tech jobs to 58.2%, a 5.75% decline. In software publishing, the decline was 11.4%, while in computer and peripheral equipment it was 13% down. Online traffic services, such as internet publishing, wired telecoms carriers and online shopping services, saw any increase in their percentage of tech staffing.

But that, in itself, plays to the story unfolding here. That story tells of end user businesses as the ones now showing significant growth in tech staff employment opportunities. For example, the general business sector known in the US as `not-specified utilities’, the percentage of tech staff has risen 158%, up to 11.6% of the total staff.

The jobs movement is understandable, but fundamentally mistaken and the companies that are engaging with this are digging a big hole and in the long term this even applies to the largest enterprises. Tech staff in agricultural industries have grown 89.4%, to 5% of the total, while oil and gas extraction is up to 6% of the total with a 87.5% growth rate.  The lowest growth rate listed is non-depository credit businesses, which grew over 41%.

At face value, it is easy to see why this should be happening. With so many businesses now following the digital transformation mantra, and many more yet to follow them, it soon exposes the end user’s weaknesses in many things 'digital'. But at a time when the constant cry is the existing lack of staff with good tech skills, this just creates a buyer’s market, with all the dangers that so often follow.

For example, who within a company will have the expertise to sort the wheat from the chaff at interview time? And will it even help, for in a buyers’ market most of the tech staff will have moved on before any of the projects they have been employed to develop come close to fruition. There will always be a higher bidder to attract their attention.

Another factor is they may be 'tech’, but are they the right 'tech’? Will they actually have appropriate skills for tasks such as migrating on-premise production applications into the cloud, or developing distributed, multi-cloud, multi-application orchestrated services that operate with third party partners in real time? Will they know how to specify and draft a service contract with a cloud service provider that delivers both the resources needed and a competitive price? Or will they just work out what the (occasional) highest resource demand level is and simply contract for that over three years?

With the best will in the world, will there be people in the business capable of asking the right questions, let alone understanding the answers?

The bottom line here is that, by employing tech staff directly, enterprises are setting up a situation where they have to spend much time, money and aggravation building and managing an additional part of their business that is well beyond their experience. They should not be involved in building and managing tech, they should be learning what they can do with the tech and how it can expand their business potential.

And the alternative?

The work that business users are trying to fulfil is ideal suited to the capabilities of the MSP and VAR communities, if they are prepared to rise to the challenge. The problem is, it seems many aren’t. One company that readily claims that is now its primary goal is Rackspace, and Norfolk, pointed out why so many in that community are reluctant to get involved in providing and managing cloud services:

For end users, one of the key factors with the cloud is exploiting its ability to scale, and scale quickly and dynamically. Most of them cannot manage that process and that is where the really do need help. The trouble is that many of the businesses that could help them manage this, the Value Added Resellers, can’t scale their businesses either.

For many of them the reason is simple, but significant. They have a lack of funding and resources required to grow, and a pretty weak financial story to tell those that might consider investing in them. Most have operated on historically low margins of around 10%, often less. It is a financial story that is not immediately attractive to investors. And any move into the cloud obliges them to confront a major switch in revenue generation, from the upfront lump sum to the drip feed of annuity payments spread over multi-year contract periods. Here, they face the same financial issues that have driven several major IT businesses into the arms of equity management operators rather than stay in the stock markets.

Yet to take a piece of the new market it is Norfolk’s view that they will require serious investment to build up the professional services skills and resources they will require. And it is these businesses that should be soaking up the tech staff currently going to end user businesses.

Rackspace was, of course, into cloud service provision early and targeted the provision of managed services from the beginning. It has therefore built up the professional services that users need, and has moved them from its own resources to also cover the major cloud service providers, AWS, Google, Alibaba, and Microsoft Azure, as well as pan-industry services such as OpenStack and major applications-based services such as Oracle and SAP. `Management’ here not only includes the technology, but also the entire service, including unified billing across any mix of those services.

All these services are being pulled together as a broad platform from which users can specify and build the services they require. It is now moving to the creation of service blocks which bring together the tools and services a particular host service and business sector requires.

Norfolk sees this capability as an important option for the VAR community out into the future, for it can provide the technology foundations over which the VARs can layer their own IP tools and applications. He indicated that the company has started to develop contacts and conversations with some within the VAR community, and having them as the `outreach’ arm, giving widespread market coverage is a sensible option:

What is important here is that the VARs will play an important part in the `uberisation’ of IT management services and provision, allowing business users to pick and access the services and resources they need when the need it.

My take

The idea of `Uber-isation’ in the way that businesses consume cloud services is, in practice, some way off, but it is easy to see it as an achievable goal - dial up with your cloud service provider (probably a number of them) and order up what you need, when you need it. And the sooner business users shed the perception that they need the economic burden and operational drag anchor of having their own techies on board, the sooner it can be achieved.

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