stunned…

I just read an opinion piece in computerworld that just stunned me. Tony Stewart of Intergen wrote about… contractors, and how they are making the IT skills shortage worse.

To summarise quickly, Tony states that “The proliferation of contractors is actually helping to create this shortage.” He also suggests that contractors tend to have little ability to learn.

When an IT worker steps out on their own and becomes a contractor (…) more often than not, their learning curve diminishes to a horizontal path since they are generally no longer in a realm where they experience ongoing training, mentoring and the opportunity to learn”

He then suggests, because of this inability to learn, skills in general are lost, contributing to the (mythical) skills shortage. I wont respond to this claim, other than to say that I believe it is false, and to suggest that senior staff suddenly lose their ability and desire to learn as soon as they become contractors is… not reality.

He also attributes falling margins for vendor companies and reduced training budgets at the contractors door. And then suggests that because senior staff become contractors, they do not mentor junior developers to the same extent. Which therefore exacerbates the (mythical) skill shortage.

Let us look at the effect contractors have on the marketplace, through a quick example:

Vendor company A- Price of Project = X
Vendor company B- Price of Project=X+1

If company A and B are in all other respects equivalent, a rational buyer will always opt for company A. It is the most efficient use of resources. Company B therefore has a massive incentive to get its price at least to X.

Now, if we add contractors into the mix, the calculation is as follows:
Contractor team – Price of project = X-1
Vendor company A- Price of Project = X
Vendor company B- Price of Project=X+1

If the results of the three options are equivalent, a rational buyer will always opt for the contractor team.

Now, the price that vendors will charge is a function of fixed costs, variable costs and profit margin.
Fixed costs are costs that cant be modified easily, such as rent, electricity etc. Variable costs are things that may be varied without much effort, such as training, travel, bonuses, etc. Wages are generally considered fixed, especially in a highly mobile industry such as ICT. So Company B has a major incentive to reduce its variable costs to match or beat the price of Company A, since it cannot reduce its fixed costs very easily, and it wont want to decrease its profit margin.

Nothing to do with contractors. There is significant external pressure on the training budget without contractors being involved.

Now, Tony argues that the ability of staff to become contractors will drive price down even further, to X-1, which is correct. This is an ideal market situation, ensuring the most efficient distribution of resources. If 3 products are identical, the cheapest one should and must win.

So, in order for vendor companies to prosper, they must differentiate their product, by establishing some sort of added value to encourage buyers to pay X (or X+1). The only alternative is to lower fixed and variable costs to the point where their price approaches X-1, which is obviously uneconomic since the fixed and variable costs of a contractor will always be lower than that of a company.

Therefore, the availability of contractors operates similarly to speculators in a stock market, or no-frills airlines. They allow more efficient allocation of scarce resources, rather than prices fixed by partial oligopolies. Higher cost models can co-exist, but must show add value. It is not the fault of contractors if a buyer chooses to use them as the cheapest option, because that means that a vendor company has not established their added value. If the vendor company is forced to cut training budgets, it is simply because they not justified their value to rational buyers.

So we have established that contractors are innocent of eliminating training budgets. To suggest otherwise is misleading. Is it contractors fault that rational buyers will not pay more for an undifferentiated product? no, of course not.

Now, we can consider whether contractors are stripping the ICT market of mentors, as Tony suggested. There maybe some truth in that, although I suspect it is highly variable by company. Contractors certainly operate as mentors on-the-job, but will tend to move in slow periods, rather than spend time around the office. Does this have a significant impact? its not clear. I would doubt it, because in IT, I believe the majority of learning takes place on the job, as in most jobs. If you are working in IT, you are learning. Graduates and junior staff are still given work, often overseen by a senior contractor. I have never heard it suggested previously that a lack of mentors was hampering skill uptake.

High wages/rates will tend to encourage people into the industry. Imagine the industry today if rates/wages were suddenly halved. Many people would simply leave. Rates are simply a function of demand and supply, where demand is capped by the utility of IT spending. Supply is obviously capped by the number of people entering ICT. Contractor bashing is not a constructive way to encourage more people to enter ICT. The image of ICT needs to change, and vendor companies like Intergen need to become sexier. The silent office floors, with no social interaction, headphones on needs to change (I believe agile environments are keys to this). ICT needs to be seen as fun, without understating the difficulty. We need to target people from all sectors with skills applicable to ICT, and vendor companies such as Intergen need to clearly show how they add value to a product. And they also need to show how their working environment is preferable to contracting, in order to encourage people to stay. To lay the blame on contractors, who are simply making a perfectly rational decision, for a variety of reasons is not helpful. Neither is encouraging rational buyers to use vendor companies, simply to help the industry out.

What do you guys think? Are you contractors? Employees? Employers? Let me know!

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stunned…

5 thoughts on “stunned…

  1. Falafulu Fisi says:

    Tony Stewart said…
    When an IT worker steps out on their own and becomes a contractor (…) more often than not, their learning curve diminishes to a horizontal path since they are generally no longer in a realm where they experience ongoing training, mentoring and the opportunity to learn.

    This is a misguided and bullshit statement. I am one of those contractors, that I learn more in contracting than working in one environment. I learn things that non-contractors or those who work for a company don’t even know or heard about, because I manage to grab a copy of one of the many regular computing peer review journals (IEEE, ACM, Elsevier, SIAM, etc…) available from University of Auckland library and read about the latest technologies or algorithms that have been published from researchers around the world. This is something that I do weekly , spend at least 2 hours in the library scouring the weekly newly arrived journals looking for interesting items to read.

    Perhaps Tony Stewart meant that contractors missed out in ongoing training about cutting & pasting HTML codes or AJAX or something like that. I agree with him that I missed out on those things, however these technologies don’t need serious learning, you just grab a book from Borders bookstore or Amazon and read about it and you’re on your way. You don’t need to have an ongoing training about those things, because even a Black Power member could understand those things easily without serious training.

  2. Hi Falafulu,
    I have to agree with you. As I said, I was stunned when I read this, from a leader in our IT industry. I would hate to know what the contractors in Intergen think when they read it.

    Like you said, learning is about so much more than ‘mentoring in a nurturing environment’. Its about drive and enjoyment and passion and intelligence and desire. And its what you, and I and a lot of contractors I know do, in their own time, with their own effort. Its not about being drip-fed the latest from the nurturing fold.

  3. Thanks for the comment on my blog Greg. I think we’re all in agreement. General discussion with people in my office goes along a similar vein. Even the permanent members of the team laughed when they read Stewart’s… fantasy piece.

  4. Risky theme. I think you’ve hurt someone’s feelings, but what’s for me – I like it. No matter what they say if your opinion is true.

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