Unless you've stopped your IT team from watching TV, reading newspapers and using the internet over the last year or so, you have a problem.
More and more IT workers are being enticed away from bricks and mortar companies by the promised freedoms and potential fortunes that can come with joining an internet startup. In the face of sharpened competition and an increased focus on technology, mainstream companies need skilled ebusiness staff more than ever.
That's why UK companies from British Airways to Arcadia are transforming their IT departments dramatically. They are spinning off ecommerce divisions in the hope that some of the dotcom magic will rub off on them. These new units offer preferential salaries, flatter management structures and specialised assignments. The risks are high - creating 'special' divisions within a company can create culture clash and resentment - but companies don't have much choice.
"Spinning off ecommerce divisions while still keeping ecommerce staff internal is a good way to address a big problem," says Henrik Giertz, a research director at analyst firm Gartner. "There is a shortfall of about 20 per cent of IT staff generally, and the problem is doubled in ecommerce."
Creating an internal startup can tip the balance between staying put and jumping ship for IT workers.
IPC, a UK publisher of more than 100 magazines, including women's monthly Marie Claire, saw staff turnover in the IT department fall from 20 per cent to less than two per cent after spinning off its ecommerce staff into a separate company, IPC Electric. The reduction was possible thanks to the culture and remuneration package now offered to ecommerce staff, says Craig Pendleton-Browne, product development director at IPC Electric. "Unless you get the right environment and incentives, the best people won't want to work with you," he says.
"Money is rarely the sole motivation for changing jobs," says Paul Wright, head of ebusiness at recruitment agency Robert Walters Intellimark. "If done in the right way, changing the culture and environment of your IT department can help you keep the people who would otherwise be headhunted by dotcom startups."
For the 50 staff working at the IPC spin-off, there is the opportunity to match the financial rewards available at an internet startup. The company offers a 'share in valuation' scheme, which will pay out if the company is sold or floated. "We are a privately-owned company, but we can still offer some kind of carrot," says Pendleton-Browne.
IPC Electric has also tried to stimulate the relaxed working environment of a dotcom, with airy offices and flexible working hours plus an informal dress code. "It means we can demand a degree of flexibility from the staff in return," says Pendleton-Browne. "They attend a lot of evening events and meetings because that's often the only time people in this industry have free."
While IPC Electric is ultimately responsible to its parent company, the management structure is far flatter, explains Pendleton-Browne. "It lets people be more creative, and helps to counteract the pressure of the work," he says. "The office has to have a team spirit, and stripping away layers of management is one way of doing that."
This type of culture can be crucial for organisations trying to attract and retain quality IT staff. "It's just too bad it took someone slapping them round the head to make this sort of thing happen," says Ron Shevlin, a research analyst with Forrester Research.
Increasing numbers of large organisations in the US have spun off their ecommerce divisions, and the tactic's popularity in Europe is set to increase. European companies facing a shortfall in ecommerce staff should adopt a flexible approach and adapt to changing business conditions, Shevlin advises. "Face it. A plush couch goes a long way," he says.
Employees at Zoom, the ecommerce division of high-street retail group Arcadia, get a lot more than a plush couch. Since Arcadia spun off its ecommerce team in 1997 under the stewardship of ecommerce director Eva Pascoe, perks have become a way of life for IT staff, with the result that turnover is less than one per cent. "Salaries needed to be different to reflect the state of the market," says Pascoe. Staff will also receive stock options when Zoom eventually floats as an entirely separate company.
But Pascoe is keen to point out that working for the spin-off is not an easy ride. "We don't give staff more money just for being here," she says. Employees at Zoom work longer hours than their bricks-and-mortar counterparts, including many weekends and evenings.
Placing a strategy
Creating an internal startup is not without its problems, as staff left behind at the parent company may well resent the perceived good fortune of former colleagues, says Giertz. "Companies must have a strategy in place to deal with that resentment, because the two units will need to work together," he says.
This is particularly pertinent if the organisation wishes to re-integrate the ebusiness department later. "You will have two different cultures, pay scales and perhaps buildings," says Giertz. "Without a strategy from the start, you will lose the innovation you have worked so hard to achieve."
Mindful of these risks, some advise against the spin-off altogether. "Ebusiness should be at the heart of everything you do as a company," says Alan Boxer, managing director of ebusiness consulting firm the E-Centre. "So the creation of a sub-culture is counter-productive."
There's always been a shortage of skilled specialists, says Boxer, and companies should reward people as an incentive. "But not by treating them as if they come from another, rather precious planet," he adds.
Big companies believe there are lessons to be learned from the startup way of doing business. British Airways is spinning off its ecommerce division into a separate company and hopes to conduct at least 50 per cent of its business over the internet by 2005. With so much riding on its ecommerce operation, BA is offering incentives and attractive working conditions to attract the best people. "It's not rocket science, but we have to be able to compete with offers from internet startups," says Pat Gaffey, director of ecommerce with the airline.
Since the company is not in a position to offer stock options, these incentives take the form of premium salaries and the opportunity to work on cutting-edge projects. "We are fortunate that we are in travel, which has always been seen as an attractive career," says Gaffey. "We can offer the startup culture with the financial resources and big implementations of an international organisation."
These types of incentives can attract the best ecommerce staff, but it is vital to help staff adjust to new ways of working if the spin-off is to succeed, says Giertz. "The point of the new dress codes, salaries and so on is to make people more inventive and more likely to take risks. But the typical IT department values people who are risk averse."
In other words, you are asking IT staff, whose watchwords have been stability and reliability, to move into a role where speed and innovation are valued. "You're trying to combine a marketing man and an IT manager in one body," says Giertz. "And sometimes it just won't work."
This lesson was learned through painful experience at IPC Electric, where only 15 of the 50-strong staff came from the parent company. "You can't employ people here who need structure," says Pendleton-Browne. "The ability to be creative is absolutely essential." It was also difficult to persuade staff that the monthly and weekly deadlines they were used to no longer applied.
"It was incredibly hard to persuade people that these daily, sometimes hourly, deadlines were immovable,' says Pendleton-Browne.
A risky business
Zoom implemented a training programme for employees making the move from Arcadia to the spin-off, known internally as 'converts'. This was essential because the spin-off required an entirely new approach to risk, explains Pascoe. "People are used to assessing risk in terms of what can be lost," she says. "Here we have to analyse risk in terms of what growth can be achieved."
Employees at a startup also have to be able to deal with change, says Pascoe, something that proved a problem for staff who had spent many years working on similar projects within the same management structure. "With the internet, you have to be able to rework the model every 10 minutes if necessary," she says. "Some people can't live with that level of uncertainty; they can't manage chaos and they can't survive without structure."
The challenges facing spin-offs, then, are considerable. IPC, Arcadia and BA have had to look outside their organisations' walls for staff who could adapt to the culture and working conditions of an internal startup. But these companies report that the results - in terms of improved staff retention and productivity - have been worth the gamble. "I know there is a real shortage of ecommerce staff, but I am confident that it won't be a problem for us," says Gaffey.
The next question is what the organisations will do with their spin-offs in the long term. "The real dilemma is whether to migrate the capabilities back into the business or to create a new company by disbanding the old ideas of divisions and departments," Gaffey says.
At IPC Electric, the second of these options seems most likely. The company has received an additional £25m in venture capital, while Zoom has partnered with media group DMG, owner of the Daily Mail newspaper, to create content for its clothing retail sites. The flotation of both companies seems likely in the long-term, creating value for the parent companies and shareholders. "At the end of the day, that's what we're here for," says Pendleton-Browne.
Until then, the companies are relying on the combination of startup culture and big business expertise to halt the exodus of ecommerce staff. The strategy is a compelling one, believes Pendleton-Browne. "In the long term, the traditional companies will adapt to the internet," he says. "Even if it takes them a little longer to get there, they will be the giants of the market."
Pendleton-Browne has already turned down one offer of funding for a business plan he developed as part of his executive MBA last year. "Looking at the assets of an organisation like IPC, the brand equity and the infrastructure - how could I walk away from that?" he says.
That's the opportunity, and the challenge: to give a well-established company the appeal of a startup. It's the only way to compete in today's volatile job market.
|Checklist: how to keep your staff|
|Nothing short of relocating to Outer Mongolia will keep recruiters from approaching your best people - internet startups are having almost as much trouble attracting staff as you are. But there are ways to change your business culture for the better, so people won't be quite so tempted to accept alternative offers.|
Make the inclusion of the IT in company planning more than just lip service. Make people a part of strategy, making technology as important as finance or marketing.
Specifically, deferred compensation - stock options, bonuses and loyalty incentives are vital. People are less likely to leave if there is money at stake.
Don't let IT staff work in back office obscurity. Acknowledging people for jobs well done keeps them happy.
Remain on good terms with departing staff - they may recommend replacements.
Who wants to use the same systems and processes year after year? Give IT staff the new, tough assignments and let them work with new technology where possible.
Increasing staff skill levels isn't a threat, low skill development is. Offering long-tem learning and development contracts shows staff they have a future with the company.
Abandon the idea of rigid pay structures. Your best people are worth what the competition is prepared to offer them, rather than what the company pay scales say they should be paid.
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