In-Depth

Top-Flight Companies Pay More, Expect More from IT Talent

World-class companies tend to pay almost one-third more for IT talent, but their turnover rates are also significantly higher.

• By Stephen Swoyer
• 10/11/2005

How are you to know if your company is a world-class competitor or just an also-ran? You might start by comparing your salary with those of your colleagues in other organizations. Top-flight companies tend to spend significantly more on IT than their peers, and top-flight companies as a rule tend to pay more—much more, in fact—for IT talent.

That’s the conclusion of new survey data from business-process advisory firm The Hackett Group, which says that world-class IT organizations spend on average 10 percent more than their competitors. These organizations also have fully-loaded IT wage rates that are 32 percent higher than their competitors.

The Hackett Group performs research into the best practices of what it calls “world-class” companies, based on how they rank on Hackett’s Business Value Index—an assessment of companies in terms of both efficiency and effectiveness. To make the grade as “world-class,” a company must score in the top 25 percent in both efficiency (measured in terms of cost and productivity) and effectiveness (measured in terms of quality and value) output metrics in a given functional area.

Hackett’s research data is published each year as part of its Book of Numbers analysis bulletins. The company’s 2005 conclusions fly in the face of its conclusions from last year, when, for example, the consultancy found that top-flight IT organizations actually spent less than their peers—largely as a result of improved top-to-bottom efficiency.

What accounts for so fundamental a shift? According to Hackett, the increase in spending is a result of workforce restructuring. World-class IT organizations are enhancing the skill and experience levels of their IT staffs to improve their ability to deliver competitive advantage and provide strategic support. Hackett researchers found that "also-ran" companies are making only modest improvements in these areas.

There’s more sobering news in the Hackett research data, too. For example, while top-flight organizations tend to pay more for IT talent, they also tend to be much more heavily invested in shared services and outsourcing. In fact, Hackett researchers say, world-class IT organizations have moved the bulk of their technology portfolios to shared services, and as a rule spend significantly more than their also-ran competitors companies on outsourcing in key areas, such as infrastructure management (where spending has surged by 168 percent over the last three years) and application management (where spending has exploded, shooting up 400 percent over the same period).

“World-class IT executives are making major changes, building a smarter, more skilled workforce of managers and professionals that can deliver business value,” says Scott Holland, senior director of IT research with Hackett. “They are finding ways to control and reduce spending on routine operations, in part by moving transactional activities to outsourcers, and freeing up budget to increase capabilities in areas such as customer service, supporting new business models, and enabling interoperation within different parts of the business with end-to-end processes. In addition, the success they’ve had at providing real strategic advantage has in some cases helped them convince management committees to increase IT spending. Taken together, this is why we’re seeing a reversal, with world-class IT organizations now spending more than their peers.”

How much more is more? According to Hackett’s research, world-class IT organizations now spend 10 percent more than typical companies on IT ($9,617 versus $8,715 per end user). What’s more, IT organizations at top-flight companies rely on 28 percent fewer staff than do their competitors (26.5 versus 36.8 IT staff per 1000 end users), but also tend to pay much better. At $119,383 versus $90,766 per IT staffer, IT pros at world-class companies earn almost one-third more than their also-ran peers—and this wage rate gap has grown significantly over the last two years.

As Hackett’s data seems to suggest, IT pros at world-class companies are worked much harder than their peers: top-flight companies report turnover rates for professionals and managers that are 84 percent and 150 percent higher than those for typical companies.

Related Article:

Rx for Corporate Performance: Spend Less on IT, Leave Competitors in the Dust
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