Tony Hurst, head of business development at Professional Services Automation software author, SharpOWL, looks at the twin challenges facing IT consultancies: tighter margins and increased staff churn.
The IT industry's emergence from recession may have been greeted with sighs of relief across the UK, but the reality is a challenging marketplace with low margins and demanding clients. And now staff attrition rates have jumped to their highest level in years.
Companies simply cannot afford high recruitment costs or the use of external contractors to fit skills gaps. So if IT consultancies are to deliver the skills demanded by clients at the right price, they need to create them in house.
That means developing and implementing strategies that not only support continuing professional development (CPD) but also take into account employees' career aspirations.
To be achieved effectively and without adding overhead, these processes need to be automated. By integrating a resource management skills matrix into existing HR systems, organisations can improve the delivery of the right skills in the right place to improve customer satisfaction. This will also enable companies to flag up a change in an employee's aspirations and take the action required to mitigate the risk of attrition.
While IT spend is once more on the increase, after years of recession, when it comes to consultancy services clients are extremely savvy. Organisations are no longer prepared to pay £800 a day for a junior consultant with limited expertise. Instead they are demanding specific skill sets both technology and vertical market and quantifiable experience before committing to any spend.
With the amount clients are prepared to pay for a senior consultant now the same as they would once have paid for a junior, margins have been stripped to the bone. For consultancy organisations fighting for business in a highly competitive market, this trend poses a major challenge.
To make matters worse, the industry is now out of recession and once-nervous personnel are beginning to feel confident to look for new job opportunities.
As a result, levels of staff attrition have jumped to 20 per cent in 2005 according to the Management Consultants Association. With recruitment fees at least 25 per cent of annual salary and headhunters' rates even higher this rate of staff churn is adding a huge cost to a business model that was already struggling with low margins.
Nor can organisations rely on that traditional backstop, the contractor; rates are simply not sustainable for profitable business.
Yet it is arguable that in many cases consultancies are exacerbating the situation by failing to exploit the skills of their existing workforce often because they have no coherent understanding of the extent of those skills.
How, for example, can a resource manager in the UK public sector have any viable knowledge about consultants in other vertical sectors or technology areas in this country, let alone other consultants - who could well be English-speaking in the rest of the world?
These companies are missing a trick. Not only are they failing to match the right skills to meet customer demands but they are also failing to develop those skills to meet their evolving business requirements or the hopes and career aspirations of employees. The benefits of taking a structured approach to Continuing Professional Development will be tangible. With the squeeze on margins, individuals are not changing jobs for a significant jump in remuneration. Instead, they are looking for organisations in which they can gain technology and vertical market experience, as well as the training to meet their career-development objectives.
It is also important that firms become more accommodating, recognising the unique requirements of employees. While an individual may have attained excellent experience working in sub Saharan Africa, a change in personal circumstances such as the arrival of a family may make long-term projects in this area extremely unattractive.
Failing to recognise these issues and persisting in a strategy that simply leverages an individual's experience will only result in one thing: a resignation letter.
One technique that can help is using a resource management skills matrix to give organisations visibility of their consultants' aspirations and specific demands as well as their expertise. Critically this should include job history, technical expertise and vertical market experience as well as other skills such as languages.
This technology can also provide an opportunity for employees to input their own requests for job experience, new skills or career development plans. While this information is invaluable for resource managers looking to match skills to customer requirements, it is by integrating this information into the core HR system that HR and resource management personnel can use a co-ordinated platform to support the development of employee specific CPD programmes.
A change in aspirations can also provide an organisation with visibility of an individual's lack of job satisfaction. Using automated alert technology or weekly reports, resource managers have immediate insight into such changes, enabling an appropriate response from new project to training plan, an approach proven to reduce levels of attrition.
Organisations can also use this skills matrix and structured programme to become far more agile to accommodate new areas of technology and vertical market opportunities.
Without it, consultancies will struggle to move rapidly into new, less competitive areas that offer greater revenue generating opportunities.
The IT world has changed dramatically post-recession: while attrition rates may be up, individuals are now on a constant push for ever higher remuneration packages.
Add in an increasingly demanding and knowledgeable client base and consultancies today need to start nurturing employees.
By creating excellent programmes for CPD and recognising each individual's aspirations, consultancies will be able to develop the skills in house to meet customer needs, achieve business agility and provide an environment that minimises staff churn.