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The times, they are still a-changin'

Brought to you by Staffing Industry Analysts Inc.

June 2006

IT Services Business Summit identifies key trends, technologies, challenges
New services, trends and technology are coming, as is a looming talent shortage in the $17.4 billion IT staffing business. The same is true for the IT solutions industry, a fast-paced line of business being pursued both by staffing and solutions-only companies worldwide.

That’s the message heard loud and clear by the nearly 250 participants at the 2006 IT Services Business Summit held last week in Boston. Chief Analyst Barry Asin, of Staffing Industry Analysts, said that while IT is not the fastest-growing staffing segment, revenue in that sector grew by 10% in 2005, and he sees no obvious caps on future growth.

“It’s important to remember that there is a tremendous potential out there,” said Asin. Usage will be determined by clients that seek to manage rapid growth and as variable workloads become a fact of life, Asin said.

CEOs BULLISH
The IT staffing market is bullish, according to four CEOs who spoke together on a panel.

“I’m very optimistic about this space,” said Dan Foley, president of Sapphire Technologies North America. He said Sapphire is happy to stick with the staffing business and isn’t considering a major foray into the solutions business.

Roy Haggerty, president and CEO of Ajilon Consulting and Ajilon Communications of North America, went further.

“If there was ever the right time in the last five to six years for a start-up or small company to find a niche, now is the time,” he said. That’s no trade secret, according to Haggerty, because “there’s plenty of business for everyone.”

Hiten Patel, founder and CEO of Global Consultants Inc., and Steven Shaw, CEO of Volt Information Sciences Inc. (NYSE: VOL), agreed that speed to hire, retention and better use of technology are the keys to success. Shaw mentioned regulations as a challenge but reminded the audience that they have the power to effect change.

TALENT WAR
The coming war for talent is one cloud on the horizon, Foley said. All four CEOs agreed that this problem is where crisis meets opportunity because the talent shortage means higher demand for IT staffing firms’ services, but will require them to answer the challenge of recruiting.

Speed and scale will help. But retention issues will become more important, as will hiring and retaining contract recruiters (who, several attendees anecdotally said, are earning $85 an hour in Boston).

“The core of the business is sourcing and recruiting,” he advised. “Pick your niche, focus on quality, and that will be your differentiator,” Patel said.

Asin agreed with the CEOs in his keynote address.

An analysis of unemployment data shows that among workers with at least a bachelor’s degree, the unemployment rate is at a remarkable 2%. “Your customers are valuing your ability to find and place these people,” Asin said.

THE FUTURE OF IT SERVICES
Strategies for facing the future all rely on actually managing change instead of being controlled by it, according to Daniel Burrus, a technology forecaster and business strategist.

Burrus encouraged executives at the summit to:

• Differentiate between “soft trends” – those that may come to pass – and hard trends – those that that will definitely happen. Paying attention to both kinds of trends is important.
• Be anticipatory so you’re not caught by surprise.
• Focus on making IT services less a commodity item by specializing and adding differentiation.
• Build and maintain key relationships to rely on in the future.
• While making changes for the future, remember that some significant portion of the universe is not changing. So, think about both those who want change and those who are not yet ready to change.
• Manage change, which is inevitable, from within. It’s easier to retain control this way instead of letting change happen, because being surprised could lead to a need for crisis management.
• Help customers see the visible future, and help them visualize the things they need to do, which could result in big opportunities.
• Use technology for its advantages because that’s always more important than the technology itself. In some cases, clients have enough technology but need IT firms to show them how to use it.
• Teach customers how to use the resources they have invested in as a strategy to engender loyalty.
  

TECHNOLOGIES ON THE RISE
Customers of IT services companies tend to invest in 20-year cycles, and 2008 will be the next big increase in innovation that companies invest in, declared Ellen Daly, VP and research director at Forrester Research. She sees “ubiquitous computing” as the wave of the future, as individuals demand the telecom tools to compute anywhere.

The seeds of the 2008 revolution are happening now, Daly said. Wireless, VoIP and other technology advancements are already connecting people and business around the clock. “Billions of endpoints await connection,” noted Daly.

HOT MARKETS, JOBS
Two skills repeatedly mentioned as “hot” are project management and Microsoft .Net developers. Asin identified application development, business process management, security and database management as key job descriptions. The common denominator between most of these skill sets is that they require technical skills combined with business skills – an ability to understand the business reasons for using the technology.

MERGER, SALE TIME?
With a year or two of good numbers posted, staffing firm owners looking to cash out may be in a good position, according to experts at mergers and acquisitions who spoke on a panel.

For the short term – 12 months – the panelists advised taking hard looks at accounts receivable and cosmetic and image issues. Solve obvious problems such as poorly performing employees and problem accounts now, they suggest.

For the longer term – three to five years – make sure a management succession plan is in place, along with plans for strong customer renewal. Make a thorough review of all company policies and metrics to remove problems. Professional advice and counsel is recommended at this time.

The four panelists included Alfred De Bellas, president of De Bellas & Co.; Chad Lincoln, founder and principal at Esprit Capital Advisors; Jack Lyons, president of Lyons Solutions LLC; and Bret Schoch, managing director of the business services group at Robert W. Baird & Co. Inc.

SOLUTIONS FOR GROWTH?
While staffing executives tended to tout ways to succeed in staffing markets, a panel of experts was asked to discuss opportunities in the solutions business.

Dave Munn, president of the IT Services Marketing Association, was joined on the solutions panel by Pete Pijawka, senior VP at CDI-IT Solutions, CDI Corp. (NYSE: CDI); Makarand Teje, VP of America’s banking, financial services and insurance solutions for Wipro Technologies, part of Wipro Ltd. (NYSE: WIT); and Michael Winwood, president and COO of Technisource Inc.

Major themes that emerged from the discussion included:

• A proactive move to the IT solutions business can help IT staffing companies go from a reactive business to more success.
• Differentiation requires specialization, niche marketing and making decisions about which vertical markets to enter.
• Selling IT solutions can only be successful by relationship marketing understanding clients and their business, identifying solutions and maintaining a relationship.
• Evolving into a solutions provider is a slow process and requires a change in perspective among salespeople. Sales needs to become collaborative through specialized training such as role-playing.
• Customers are savvier now. They are reading, going to conferences, consulting analysts and getting referrals for vendors. Find a way for these referrers to identify you as an expert.
• Selling staffing services is often done at an HR level, while solutions sales are made to senior executives and require thoughtful approaches.
• The customer is never the problem – the onus is always on the staffing or solutions company to fix things, even if they didn’t cause the problem initially.

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