Despite budget woes, last year's consolidation bodes well for IT professionals in 2016

Martin Westcott, executive chairman of PE Corporate Services

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In 2015, IT companies restructured, right-sized and refocused on core activities, which augurs well for their employees in 2016.

This is the word from PE Corporate Services CEO, Melanie Trollip, and Martin Westcott, executive chairman.

Trollip said the HR consultancy, which runs a number of annual surveys, found this in a recent survey focused on IT remuneration and benefits. Respondents included professionals in IT services companies and also companies with large IT departments, such as banks and government departments.

The IT industry had already, in 2015, gone through its own "tightening of the belts", as called for from SA's government and private sector by finance minister Pravin Gordhan in his 2016 Budget Speech, Trollip said.

"During 2015, there was a strong consolidation of the ICT sector. There was some merger and acquisition activity, as well as right-sizing," Trollip said.

"As a result, companies have had a really hard look at their businesses and how to run them. Also, the IT industry reacts fairly quickly to changing market conditions, because so many of them have global head offices. This means they quickly implement salary freezes and fairly strict measures to contain fixed costs, as had been evident over the past two to three years.

"Couple that with the fact that there are still skills shortages in the IT industry and some categories of employees will get up to 7%-8% increases. These include, for example, system architects, senior specialists who manage IT platforms, those who work in the digital space, and jobs in big data and analytics, which are becoming increasingly prominent," Trollip said.

Independent IT consultants, or companies offering specialised IT consultancy services, could also expect an uptick in business. Among the trends identified by the survey, Westcott said, was that 48% of participants confirmed they had outsourced some aspects of their IT to minimise overheads. "Thus, a large chunk of organisations are choosing to focus on their core competencies. We found that 61% of organisations employ contractors in some areas of their business. Again, they want to address skills shortages by contracting people in, only when they are needed, and in the process don't increase their overheads."

Staff turnover has been significant in the IT space itself, Trollip said, pointing out the national turnover was around 12%, but that among IT staff was about 19%.

"Some of that is due to retrenchments (13% of companies confirmed some retrenchment activity). But, we also found anecdotally that a lot of the people with key skills are forming their own businesses and selling their services to larger corporates. As those businesses get to a fair size, larger organisations often want to incorporate them into their fold, which brings certain complexities around reward. As part of the process of acquiring those smaller businesses, acquiring companies need to look carefully at how they can structure reward packages effectively and in a way that will still retain key people.

"The IT space is a creative environment where entrepreneurial professionals design new things, which can be deeply exciting, and leave people very enthusiastic about the work they are doing. That's why you find people building businesses around their own skills. However, they are not always good at building effective business structures, even if they are good at developing the products and services. It becomes incredibly important for them to acquire financial and administrative acumen."

Trollip said another key trend was the centralisation of IT: "A huge number - 77% - of organisations we surveyed have centralised their IT, for cost-cutting. Centralisation reduces head count, is all about efficiencies and means that IT departments are running at low cost and maximising efficiency."

However, she said in the process, companies sacrificed responsiveness: "It can take a long time to get a decision out of a centralised solution."

In terms of cost-cutting in the public sector, Westcott said two issues affected cost containment: political will and timing. "Political will has not yet really been proven, and the government is way behind the private sector when it comes to implementing cost-cutting. Companies were doing that sort of thing five years ago." He said Gordhan's hands were tied, to a large extent, by the need for spending on social grants, minimising unemployment and other community-building initiatives, but that if he were "running SA Inc as a company, there would have to be a lot more meaningful cuts to expenses", such as those seen in the IT industry in 2015.

"Growth in public sector employment increased by 44% over the 10-year period from 2005 to 2014. Private sector employment increased by 17% over the same period, providing an overall increase of 24%. However, if one takes the seven-year period since the global economic downturn in 2008, private sector employment has declined by 3.7% over this period, whereas public sector employment has increased by 27%. (The overall increase in total employment for this period was 2.5%)."

This table illustrates the growth in the number (in thousands) of individuals employed across the public and private sectors in SA since 2005.
Source: Institute of Race Relations, based on StatsSA data

He said centralised government procurement would improve cost control and cut back on corruption. "In turn, this will provide business with a more level playing field, particularly if the tenders are open and published results include who tendered and what the price was."

"Good governance isn't necessarily industry- and growth-friendly, and that is our biggest risk. This budget certainly won't increase employment. A lot of employment growth in the past decade has been in the public sector, which is reflected in the public sector wage bill. It has grown enormously, not just due to increases in headcount, but also relatively generous increases which have been above average rates for most of the past decade," Westcott said.