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Information Week
August 23, 1999

TechView:
CEOs Offer Sympathy For Soviets

By Jeff Angus

Jeff Angus W henever I read about an American executive complaining
about the high-tech employee shortage, it's a reminder of just how
anti-free market most executives are.

Not too long ago, a VP told me how impossible it was to hire the staff
he needed for a big 18-month project. I asked him if he could get
enough qualified folks if he offered $5 million, excellent benefits,
and an 18-month no-cut contract. His first reaction was contained
outrage; his second was to do the accounting. "We could easily find
those people," he said. "But the returns wouldn't be high enough."

That's the free-market crux of the staffing shortage--the willingness
to pay a dynamic market rate in a high-demand labor marketplace. Seen
from a less politically correct point of view, this staff shortage is
really a willingness-to-pay shortage.

Executives who pay lip service to free markets lose their enthusiasm
when they have to up the market-driven ante. These complainers would
do better in the old Soviet system, in which central planners would
have responded to the need for enterprise resource planning systems by
creating a five-year plan and marching hordes of people to C++ drill
camps in order to belch out cookie-cutter contributors who would be
universally available at a low price.

The reality is that sellers of skills have the same kinds of leverage
buyers do. In an imbalance of supply and demand, the price changes. In
this situation, either the willingness to pay a market-clearing rate
(the amount you'd have to pay to get talent) is lacking, or the
project doesn't generate sufficient return if you pay a market price
for talent.

One solution is obvious: Pay the going rate for the talent you need. I
see this happening more. My neighbor was offered more than $500,000 to
lead a financial company's enterprise application integration effort.
At that rate, the company will have its pick of qualified personnel.
If the project doesn't generate enough return with that kind of cost,
it's the market's way of telling you to delay, downscale, or deep-six
it.

The second solution is a bitter pill, especially among executives
who've made their mark in the "disposable employee" culture, and it
won't even solve the problems overnight. The dominant business culture
likes trained and experienced employees but doesn't want to invest in
making them. Training requires extra expense and gives the hired help
more salary impetus and career mobility. Better to follow a cuckoo
strategy: Let competitors do the spending and reap the benefits at the
back end.

The bitter pill is insourcing--train people and do what it takes to
retain them long enough to recover costs. And don't let the lure of
the Soviet model undermine your commitment to markets, even when you
have to open your wallet to get a high-return project going.