In last week’s episode of Forrester’s What It Means podcast, Marc Cecere and Jeffrey Hammond discuss today’s real and potentially dangerous gaps in talent — and how companies are making fundamental changes to strengthen their position in the market.

Podcast Transcript

Victor Milligan:
 Hi, I’m Victor Milligan.

Jennifer Isabella: And I’m Jennifer Isabella.

Victor Milligan: Your co-hosts for Forrester’s podcast What It Means, where we explore the major changes in the market influencing executive priorities. And we have two guests today on the phone. Forrester Analysts Marc Cecere and Jeffrey Hammond to discuss the battle for talent. Welcome, gentlemen.

Jeffrey Hammond: Thanks for having me.

Marc Cecere: Great to be here.

Victor Milligan: You know, in a lot of our podcasts in the past, we explore different issues. And one of the items that continues to come up is that as the market flexes its muscles on digital and moves towards CX, there is an excruciating scarcity of talent in some areas. And so I wanted to just baseline this conversation. Where are we in the talent gap?

Marc Cecere: I like the word excruciating. I think it’s a good one in this case. We have some data on this as well as we have a number of anecdotes on this from talking with clients on this very same issue. Just to give you a feel for some of the data that we have. We have a survey that we do on a yearly basis called the Global Business Technographics Priorities and Journey Survey. In that we found, when asking CIOs about this issue, 65% of them said that the skills shortage was holding them back. That’s up from last year quite a bit. And we then asked, “Okay. Of all the initiatives that are important to you,” – and there were 17 initiatives that we asked about – “where was the need for skills in that list of issues?” And it came out an astounding second. So it is a significant issue and CIOs, in particular, are feeling it profoundly.

Victor Milligan: Wow.

Jeffrey Hammond: Just to pile on that. There was a survey that the Technology Council of North America fielded a couple years ago. And in that survey, 83% of US and Canadian respondents agreed that there was a shortage of software development professionals in particular. So in some areas, it is even more extreme than the general lack of talent across the board. And then you also have the issue of can you find the people, but are they local? Because a lot of times we see the organizations want to hire wherever they have offices. So even if the talent is out there, whether or not you can get the talent where you are, becomes a secondary concern as part of that.

Jennifer Isabella: So Jeff, just coming off of your response there, can you describe maybe the top three or four skills or roles that will be scarce today or tomorrow?

Jeffrey Hammond: Well, certainly the role that I write for here at Forrester, development and application, development skill sets. If you look at just the sheer numbers– let’s take the United States as an example. Over the next 10 years, the Bureau of Labor Statistics estimates that we’re going to need about 500,000 new developers to replace those who are retiring or net growth in more and more companies wanting to build software as part of their go-to-market models. If you look at the graduation rates for computer science professionals. If you assume that those computer science professionals are exactly distributed around the US where they are needed, we just about have enough supply to meet demand. But that just isn’t realistic because what we find is that software developers, millennials, in particular, want to congregate and flock to certain cities. They want to go to the coasts. And so this issue of local demand versus local supply once again rears its ugly head for developers in particular. But it’s not just developers.

I recently completed a piece of research with a peer of ours, Julie Ask. And we were looking specifically at delivering mobile solutions. And we went out and we asked about 40 Fortune 500 digital organizations, among other things, what roles they had trouble hiring for. And I thought development and design would be certainly on that list and they were. But the first thing that came out of their mouths, many of the executives there, was good product management, software product management. The ability to take what the business needs and translate it into a form that developers and designers can create. Certainly, design talent as part of that. And as we see more and more organizations begin to try to blend elements of experience design and agile delivery, there’s a real shortage in the knowledge and the types of people who know how to do that well. And then finally, it may almost seem counterintuitive, but we’re seeing some spot shortages, in particular, older technologies. Perennially, we see clients asking about mainframe skills or skills to manage that existing technology plan as those older workers retire. And they can’t find folks that have those skills. That’s what I see out there.

Victor Milligan: Yeah. It’s interesting because you’re focusing on the technology part of it. And what we’ve learned in this podcast is that as you go across industries whether it’s banking or retail, or what have you, that more and more companies are grounding themselves to be software companies. And so these technology skills are not unique to the CIO and the tech organization. But to your point Jeff, these are often the product developers of the products they’re bringing to market.

Jeffrey Hammond: Yeah, absolutely. And it’s funny because in some ways you can say, “Well, there’s lots of product managers out there.” But there’s not necessarily lots of really good product managers out there. Because it’s a really interesting blend of skills. It’s the ability to understand the dynamics of a business from a strategic perspective. The kind of thing that you would think somebody would get in an MBA class or with industry knowledge. But it’s also the ability to translate functional to technical and be able to form a rapport with those development teams. And it’s also a willingness to carry the responsibility of a business target.

Victor Milligan: Right. You made the reference to geography. And with all the ills of globalization, one thing it did provide is easier access to talent at the global level. And now we’re seeing different strains on that model. One is things like Brexit, the limitations of H1B, and then you mentioned earlier, which is in some cases there may be preferences by millennials to situate themselves in certain geographies and away from where the company actually operates. How much is geography putting further strain on supply and demand here?

Jeffrey Hammond: If we were still delivering these solutions the way that we were 15 years ago, maybe it wouldn’t be as big of a problem. Because you just move the work offshore and then you don’t have to worry about the visas. You send it to India or you send it to Brazil or you send it to Eastern Europe. But because we are seeing the pressure to deliver these solutions more quickly, to do new types of methodologies, minimum viable product, and agile delivery, and experience design type of cadence, it doesn’t necessarily work to have an eight-hour time difference between your development team and your digital organization or your product management team. If you’re trying to deliver a new mobile application every two weeks or create a connected product, or you’re trying to very quickly get customer feedback and implement that in your solution, you need your implementation team local. Or at least in the same time zone. And so that’s where issues like H1B or talent flow from the mainland in Europe to the UK become an issue because increasingly, we find these companies and these digital organizations want their implementation staff, if not in the building co-located with the digital team, they at least want them down the street. Or in the same time zone.

Victor Milligan: So does this mean that for some companies that may be existing, let’s say, in the Midwest, that they may be forced to open up offices where the talent is versus have the talent come to them?

Jeffrey Hammond: Yeah. GE’s a perfect example. They’re not even in fly-over country. But they’re in Connecticut which, I guess from a Northeast perspective, might as well be fly-over country. And they’re heading into Boston so that they can get better access to digital talent. Even IBM. When I was at IBM, Somers was Galactic Central Headquarters for software group. That’s where you went. And the Somers offices are going away because IBM is going into the cities, going down to Astor Place and going into San Francisco. They are going after the talent.

Marc Cecere: Just to add some anecdotal information to that. There were two of my clients I talked to a little in last couple weeks. One was an insurer and another was a shoe retailer. Both of them said some version of the following: their main offices were not part of the metropolitan area, so they decided that they would open up an office, the shoe retailer is going to open up an office in Chicago because they realized that the millennials, who they are looking for in particular, and those with technical skills, were living there and they wanted to live there. Another one was the insurer trying to be more modern, more hip, trying to also attract the millennials. They also are opening up offices in places where they see these people wanting to live, as well as doing a number of other things to try to make them more attractive to these workers, such as more flexible work hours, such as more hip-looking office buildings and open office concept, those sorts of things.

Victor Milligan: So basically they’ll be a big increase in foosball tables?

Jennifer Isabella: Or bean bags?

Jeffrey Hammond: Yeah. I’d have to say, Victor, I did a speech, jeez almost six, seven years ago at the Federal Reserve in Dallas, and I said I know that– and one of the things I told them, I know that my mission in terms of helping folks understand development teams will be done when I come into a building like this and I see a foosball table in the break room. And the reason for that is because I think one of the biggest problems when it comes to attracting technical talent and development talent specifically, is that a lot of organizations don’t fundamentally have the right model to create the culture to attract top talent, top technical talent. And that’s because we find the top development talent tends to be creative. Development is actually a very heuristic activity. And if you look at the type of work that heuristic workers do it’s very intense, it’s very demanding, and one of the things that you need to deal with that is space for creative breaks. So the foosball table is absolutely symbolic of one of the differences that we’ve traditionally seen between maybe culture on the coast, Silicon Valley or Silicon Alley culture, versus traditional IT culture. And one of the things that firms have to understand, that they have to adapt to, as the fight for this talent becomes more extreme and as the attractive nature of the coast, of these hotspots, becomes something that they have to deal with.

Victor Milligan: So the concept of a hotspot is important because you have these areas like Dublin, like Silicon Valley, like Boston, as you referenced, Jeff, where you have the existence of talent. You have non-technology companies coming in to get the talent. You have technology companies already there. And importantly, you typically have the VC community that’s spawning a set of start-ups. So it’s not that the talent is being fought off by the peer set, it’s being fought in different altitudes, including with start-ups. I mean, this is creating super hotspots.

Marc Cecere: But one of the problems with that scenario is that the tech sector is winning when looking at the compensation that’s provided and comparing them to the end-user organizations. So you have the software companies, the high-tech companies, and then you have the end-user organizations, the insurers, the manufacturers, folks like that. It’s difficult for the end-user organizations to compete. One is the compensation is somewhat different. The other is that the software companies, the high-tech companies, can give the younger workers, can give the millennials and the very talented people, the thing that they are most interested in which is, one, interesting work, as well as the chance to learn constantly new things. Your average end-user organization, about 70% of that organization, is maintaining existing levels of service on their different capabilities.

Jeffrey Hammond: So we looked at this idea of hotspots a little bit. And the piece that we did last year, was called Designing Developers’ Spaces. And we looked at how you actually design a shop for a mixed co-located team, but also where you put that shop. And when it comes to urban locations, we find that millennials are drawn to those urban locations because they want to be close to work. They want to be close to play and entertainment right after work. They want to have housing that is reasonably inexpensive. San Francisco certainly does not qualify there. But then they want to have lunches, and gyms, and fitness studios nearby. They don’t necessarily want to own a car. And so, if you look at San Francisco, in particular, versus the valley, we see that fits. It fits in New York. It fits in Seattle. It fits in Chicago and Boston, but we’re also increasingly starting to see another set of smaller second-tier cities where that fits as well. Austin is a really good example. Raleigh, to some extent, although the idea for public transportation isn’t as strong there. But even in some of these midwestern cities where there is the potential to create the conditions that a millennial technology worker wants. Minneapolis. Even Omaha is a really good example. So if you don’t happen to be in San Francisco, or you don’t happen to be in Boston or New York, sure, you can take the option to move there if you want to compete in the big leagues with the big folks. But you can also look at making sure that you have the most attractive organization in whatever city that you’re in. Even if it’s a non-NFL city and make sure that the extent possible you provide these things.

Jennifer Isabella: So I’m going to move the conversation or maybe the topic a bit. We had a podcast with J.P. Gownder on automation and its effects on job loss or job creation. So could you, either Mark or Jeff, talk a little bit about, is this a separate topic? Or does this create new supply? Is this boxing out some firms? Can you talk a little bit about that?

Marc Cecere: Yeah, Jenn. I think it is related to the topic we’re talking about today. And I’ve seen really two areas where these effects are most noticeable. One is on the business side and the other is on the IT side. So on the business side, you see it in areas like mortgage approval or claims processing. On the IT side, today, mostly we’re seeing it on the infrastructure side. Not exclusively, but mostly. Now, I remember first hearing about this when talking to the CEO of Google who talked about bringing software engineers down into the infrastructure organization with the idea that no manual process should be done twice. So it’s done once, then look how you can use software to replace this. You see consulting firms now, SapientRazorfish, I was talking with the other day, and they now have a consulting package where they look at the infrastructure organization. They look at the processes within an infrastructure organization and they are relatively consistent and they feel that they can automate about 70% of it. So a lot of that automation using machine learning, using AI, using RPA, is done both on the business side in these very predictable, very regular processes, like claims processing, and the other is within the I&O organization.

Victor Milligan: But I guess going back to the first part of the conversation. This may be freeing up skills and freeing up people, but not the skills and people that are in scarcity right now?

Jeffrey Hammond: Yeah. I think that’s the case. But what it does do is it highlights a little bit of a social contract that needs to be in place between employees and workers. From an employee’s perspective, they need to understand that they have to keep their skills sharp. My father-in-law put tapes on tape machines in a data center for 40 years. That job doesn’t exist anymore and some of our ops folks are going to see that more sort of thing, as we see more and more of that work move to the public cloud. So they can go get a job maybe with Amazon or Azure or the other folks that are eventually going to win in that space. Or they can look to move further up the dev ops stack and do more configuration as coding. Now the other half of that social contract is from the employer because if you’re not going to provide those training opportunities, guess what? Your smart people, the folks that can see the writing on the wall, that understand that keeping their skills sharp is the only way that they’re able to continue salary growth and career opportunity advancement, they’re going to do that themselves, and then they’re going to leave you and go somewhere else where they’re going to have the opportunity to practice those skills. Mobile development is a really, really good example. I’ve seen many developers and QA folks that get skilled up in mobile dev, and if they don’t have the opportunity to do that in their own organization, well, there’s certainly opportunities for them to do that by moving to another company.

Victor Milligan: So one of the predicted parts of the economy is this gig economy where you have much more of a free agent-like social structure, to your point, Jeff, where talent moves in and out of organizations freely, and there’s sort of this implied goodness to it, but there’s also this implied risk. Your argument is that that’s too risky and companies need to avoid the big dramatic impacts of the gig economy.

Jeffrey Hammond: Well, I think it’s a tool that you use. And if you’re lucky, you don’t need to use it that much because you’ve got your own talent on staff. So we certainly see companies that have nice stables of highly talented developers, big data folks, and that sort of thing, but guess what? They’re expensive. And so they’re going to cost you. And we see the same thing when companies employ design agencies to do mobile delivery or to do connective product development. You can absolutely fill your gaps that way, but I view that as the equivalent of being a team like the Yankees and going out and signing high ticket free agents and paying the luxury tax, as opposed to both developing your farm system at the same time that you are doing choice selection of free agents that are going to make an impact.

Victor Milligan: Yeah. So let’s talk about levers for a second because we talked about the scarcity of talent. We talked about the exacerbating effects of Brexit and other things that lessen the value of the global marketplace, whether it’s H1B, Brexit, or others. And this idea of geographies and the hotspots. So what are the levers that CEOs, people in talent acquisition and management, and just the business owner has to broker through the scarcity?

Marc Cecere: I think there’s a number of things that they’re doing today and a number of things in the future. One of them is, they’re just upgrading in their ability to find, hire, and retain talent. So far, it’s been fairly problematic. If you ask most managers about how well they do hiring talent or finding talent, they just don’t do it very well. Almost every survey that we’ve seen says there’s got to be a better way to do it. On the other hand, there are a lot of improvements, and we’re seeing those in a lot of the recruiting firms. There’s one firm I talked with recently, and they have developed a way so they can match the candidates out there looking for a position with the culture of the organization. If you can believe that. And they do so by looking over public sources. They also do a test. They do an online test of the candidates. And by analyzing keystrokes, by analyzing keywords, by looking at several hundred variables on that particular candidate they found that they’ve been able to match up the culture of their organization with that person that they’re hoping to hire. So there are some improvements made, but it’s still very much the early stages of this.

Jennifer Isabella: Does it change the thinking of insourcing and outsourcing talent?

Marc Cecere: I think it will more on a contingency worker category, less so the outsourcing or insourcing. When you outsource something, you’re outsourcing to another organization. You’re outsourcing a lot of people. When you’re looking for contingent workers, when you’re looking to bring in specialists, data scientists, cyber experts, then you’re looking for that high impact individual that needs to be able to fit within your company, needs to be able to stay there for a while. So I think it has some impact on outsourcing, less so on insourcing. But I think it makes a lot of difference when you’re looking for those highly leveraged specialists.

Victor Milligan: It’s got to be a complicating factor. I mean, Jeff, you brought up earlier that this idea that people are working in project teams and optimally in the same facility so they’re working on the same whiteboard, if you will. And does that change the very nature of outsourcing where there’s much more of an embeddedness to it within a geo? Or does it keep the outsourcing in the same way where, as you say, Marc, highly leveraged skills can exist in India or elsewhere, and still support the firm?

Jeffrey Hammond: One of the things I think you see is it– so many companies have used the words, partnering model, for years, and it’s been more or less lip service. But you do see a little bit more of a partnering and more highly tailored model. As an example, if you look at some of the projects that we see companies like a Pivotal or an IBM running these days, they may actually start in a garage that is near the organization so in San Francisco, or in London, or in New York City, but they start off-site. And the client’s developers, the client’s business personnel, go to those rooms, those war rooms if you will, and start work. Now, over time, some of that work may migrate offshore, or migrate back to the client. In the case of Pivotal, they’ll run multiple teams through their centers. Allstate is a really good example where they have I think over 100 developers and have kind of been through that process now, and they’ve drained their local talent pool. But it’s much less a, “This is the work we need to do and here’s the requirements and here’s the scope and let’s put this out to bid.” It’s much more a business transformation or a re-engineering type of project that is very high-touch. And I don’t see companies being able to do that if they’re not at least down the street from their clients and from their development shops. So I think it changes the nature of the types of engagement. I think it’s one of the reasons that you’ve seen so many of the large systems integrators buying agency talent as quickly as they can, because when you look at the sort of design experience techniques that are used, journey mapping, ethnography, those sorts of things, at least right now they still tend to be very custom – almost a manual process. You see sticky notes up on walls. You see war rooms. You see an environment that is kind of hard to capture from a remote, tool-based sort of delivery model.

Victor Milligan: I imagine if I take two parts of this conversation, part one said, “There’s companies that are going to go to hotspots, to where the talent is.” And part two is, “Even those that are outsourcing talent will go to those same places to go into those war rooms.” I imagine the net effect is there’s a significant impact to compensation here, a significant salary inflation to firms.

Marc Cecere: I think there’s some change in there. But I think there’s a delay between the increase in demand that we’re seeing today and compensation. Just from the data that we’ve seen so far, from a Glassdoor survey of the last few years, we’ve seen on average there’s been a 1.5% year over year pay increase for the IT roles that Glassdoor measures. So IT roles would be things like UX designer, systems engineers, folks like that. That’s really not that far off of what the average is for other roles outside of the IT org or outside of technology. So I think what we’re seeing is, is there’s a delay. Give it another couple of years or so. If we still have this kind of demand, especially for key roles like UX designer, like architect, like somebody who builds mobile apps, then I think you’re going to see a significant increase in the compensation expected.

Jeffrey Hammond: For some roles, it’s already there. I mean, if you look at the mean wage application developers, it’s about $95,000-96,000. I can tell you from personal experience, if you want to hire a top-tier grad from an MIT, or a UIUC, or a Stanford, you’re looking at 110 to 120 starting with additional benefits on top of that. So that is what top-of-the-market salary for new comp sci graduates are going to be, and that’s what you’re fighting against. Now, does that mean you have to pay that? Not necessarily. You do need to look at paying above market for wherever you are. That’s kind of table stakes. But after that, it’s culture and what you’re doing and the level of engagement that you can create.

Victor Milligan: I imagine that from a financial standpoint, one of the things you’re looking at is if I’m going to see the inflation of compensation, what I’m hoping for is what you described earlier, which is, I’m using technology to streamline my operations and getting funding from those streamlined operations to get the kind of talent that I need. I want to make sure, whether I need it now – to your point, Jeff, or to Marc – whether this is coming, I need a plan for some bump in salary. And what I’m hoping is I got my operations to fund that through, ironically, the application of technology.

Jeffrey Hammond: Sure. The other thing that you have to do is to make sure that you have a real mix of portfolio. Not every single one of your development hires to take a specific example needs to be a professionally trained comp sci graduate. How many people in your organization are actually going to build compilers? You may need some of that talent for your infrastructural work, for the really hairy stuff, but with some of the evolution of technology that we’ve seen, low-code tools are a really good example. My peer John Rymer has been writing a lot about those. You don’t necessarily have to have that same level of skill to use those tools very effectively. So in the same way that a professional sports team might pay Tom Brady $20 million a year and pay a lineman $1 million, you have to think about the skills mix and what sorts of skills you’re hiring and how you get the most out of the tools and the infrastructure and the automation, as you talk about, that are at your disposal.

Victor Milligan: So we started this podcast with this notion of a scarcity for talent. We’ve added the impacts of a non-global environment, the hotspots, the salaries, the different roles of outsourcing. Talent is now becoming a primary lever of how I compete as a firm, in a marketplace, and how I evolve my culture, my capabilities, and become much more digitally competent, and for some companies, actually become a digital company. So I think back to talent as a strategic lever, what does it mean for people who are planning for talent?

Jeffrey Hammond: Well, I’d like to leave you with three takeaways. First of all, I think that companies will win or lose based on their ability to find and retain the right talent. Secondly, some of the roles that matter, product management and development, for example, are also going to be the hardest to find. Which leads to the third, if you don’t have a strategy both to recruit and retain these roles and develop them over time and keep them around, then you’ve already lost the war.

Victor Milligan: Yeah. And I suspect we would turn back to this. This is a very fluid topic. Thank you, gentlemen, for both your time today. It was great.

Jennifer Isabella: Thanks, guys.

Jeffrey Hammond: Sure, my pleasure.

Marc Cecere: Yeah, my pleasure. Thank you.

Jennifer Isabella: If you like what you heard today, please subscribe to Forrester’s What It Means podcast on iTunes, Google Play, SoundCloud, Stitcher, or TuneIn. And don’t forget to leave us a review. To continue the conversation, follow Forrester on Twitter and LinkedIn. Thanks for listening.