SI Review: November 2011

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Wired to Win

The fastest-growing IT staffing firms follow a different approach

By Leslie Stevens-Huffman

Even the Great Recession didn’t discourage the movers and shakers in the information technology staffing industry. These brazen frontrunners defied conventional wisdom by hiring staff and investingin training and technology while their competitors were busy slashing costs; now, they’re cashing in on the boom.

“Instead of panicking during the recession, we made opportunistic hires and tapped our entrepreneurial spirit to create a competitive advantage in the marketplace,” says Amar Panchal, CEO and founder of Akraya, based in Sunnyvale, Calif.

So what’s the reward for being an avowed risk taker? The fastest-growing IT staffing firms have achieved compounded average growth of 15 percent to 46 percent over the last four years.

Vast and Dynamic Sector

Blink and you could miss the next wave in the IT staffing industry, where the only constant is change. More than 1,000 of the contract positions currently advertised on Dice.com require mobile proficiencies, which wasn’t a top request just 12 months ago.

And according to a survey by the CIO Executive Board, the top seven IT-related roles in 2015 do not exist today, while 16 roles that are housed in IT will transition into business units or multifunctional shared services.

When one door closes, it’s easy for resilient IT staffing firms to find an open window in this dynamic sector. If mature companies move technical services and infrastructure to the cloud, account managers can hunt for opportunities in emerging industries like green energy or robotics. Of course, some companies continue to offshore rudimentary jobs like coding and help desk, but the movement has actually created an insatiable demand for highly educated contract engineers, architects and project managers.

In fact, downsizing created a backlog of IT projects across Corporate America, and now companies are using specialized contractors to climb out of the hole, because they’re reluctant to hire regular employees until the economy stabilizes.

Flexible and Focused

It’s not surprising that entrepreneurial firms are growing faster than their larger, hierarchical counterparts. Having a flat organizational structure allows small firms to flex and meet customers’ shifting needs for experienced technical talent. Plus, owners say they’re able to continue making investments even when the economy slows, because they don’t have to worry about appeasing impatient shareholders.

But mavericks also attribute their success to sticking to a focused go-to-market strategy, because they insist that IT staffing firms won’t grow by trying to be all things to all people.

Dallas-based Pinnacle Technical Resources has been able to reach $200 million in revenue since its founding in 1996 by tailoring its services to meet the broad needs of a few enterprise companies. But according to Nina Vaca-Humrichouse, chairman and CEO, serving a limited number of customers has allowed the firm to control its growth and not exceed its resources or capabilities.

Meanwhile, Q Analysts’ business model features specific technical practices with an industry overlay. The firm supplies contractors in software quality assurance and testing as well as business intelligence and data warehousing to companies in just four industries. The firm has grown by penetrating existing accounts and finding additional customers that fit their tightly-focused model. Their success should come as no surprise to seasoned IT staffing executives, because 44 percent say that account penetration is the most effective marketing strategy.

“Many IT staffing companies don’t grow because they take whatever business comes along,” notes Stephen Graziani, senior vice president for Q Analysts, based in Santa Clara, Calif. “But having focused practices allows us to understand our customers’ problems, develop specific tools and solutions and differentiate ourselves from the competition.”

Mavericks don’t let recruiting boundaries or branch structures keep them from sourcing scarce IT contractors. Q Analysts relies on a centralized model, so the entire staff can work on open requisitions, and they also employ recruiters in India and the Philippines to tap overseas labor markets. Again, Q Analysts is slightly ahead of the pack — just 25 percent of IT staffing firms used outsourced or offshore recruiters in 2010.

Culturally Distinct

Graziani credits his firm’s success to its educational culture and being “maniacs” about training and development. Q Analysts hires diverse business professionals and puts them through a comprehensive training program that includes 31 hours of basic technical instruction and 24 hours of instructor-led sessions in their technical practice area. Employees then study sales and recruiting before tackling their daily staffing duties.

Although Q Analysts’ training regimen requires a significant investment in unproven employees, it’s really not a gamble. IT staffing firms that prioritize training have been consistently profitable over the last five years.

Conversely, Panchal says it’s easier to teach people recruiting than technology. He’s managed to lure professionals with degrees in computer science into the staffing industry by creating a Silicon Valley-esque culture that features a history of community support and environmental stewardship.

To make sure Akraya recruiters aren’t pilfered by the valley’s perk-laden tech giants and free wheelin start-up firms, Panchal offers top pay and lets employees avoid rush hour traffic by working from home. He also provides monthly house cleaning services, so his staff isn’t stressed by having to balance work responsibilities with domestic chores.

He boasts that he hasn’t lost a single employee to a competitor, but like any prudent CEO, he justifies his pay and benefits by noting that his firm’s average revenue per employee is higher than comparable staffing organizations.

“It’s hard to expand in the space if your staff isn’t technically proficient,” says Panchal. “Our fill ratio is higher than our competitors, because we understand the technical requirements and we don’t submit generic resumes.”

Tactical and Strategic

Many high-growth staffing firms offer IT solutions in addition to traditional services like staff augmentation, so they can be viewed as a strategic partner and interface with CIOs in large companies who control 80 percent of domestic IT staffing expenditures.

But being a strategic partner carries additional responsibilities, such as having the technical capabilities and systems to benchmark key deliverables and create balanced scorecards to share performance data. Large clients also expect IT staffing firms to support their VMS and MSP. In fact, almost 76 percent of IT buyers used a VMS to procure contractors in 2009 and another 19 percent said they plan to implement a tool by the end of 2011.

So high growth staffing firms have made significant investments in technology and tools, but the investment also allows independent firms to be a strategic partner by offering clients a proprietary VMS and program management solutions.

Because major companies are seeking a holistic solution to mitigate contingent workforce risk, nearly 51 percent of IT staffing firms now offer independent contractor compliance programs and payrolling services, while 61 percent offer SOW and IT solutions.

Bright Future

Although the IT staffing sector is expected to grow by 12 percent in 2011 and 2012, executives in the fastest-growing firms have higher aspirations.

“I definitely feel bullish about our prospects, especially when you look at the size of the industry,” Panchal says.

He foresees an opportunity to expand internationally by riding the coattails of the firm’s global clients, especially considering he’s established a proven track record here in the U.S.

Graziani expects Q Analysts to maintain 30 percent growth and achieve its revenue goal of $100 million by 2017. He says the firm is in a better position to sustain long-term growth, because it continued making investments and increased its capacity during the recession.

And while he expects 85 percent of the firm’s revenue increases to come from its core technical practices, he notes that it’s possible to add more specialties, but only when the time is right.

“Sometimes you have to be patient and things don’t happen on time, but we’ve been successful because we haven’t created goals that we know we can’t accomplish,” he says.

Leslie Stevens-Huffman is a freelance writer in Southern California who has 20 years’ experience in the staffing industry. She can be reached at lesliestevens@cox.net.

[SIDEBAR]

IT Staffing Sector Characteristics

  • $18 billion in revenue in 2010
  • Forecasted growth of 13 percent in 2011 and 12 percent in 2012
  • Sixty percent of fastest growing staffing firms are IT
  • Seventy-seven percent of top firms have market share of just 1 or 2 percent
  • Only 16 to 20 percent of IT staffing clients have fewer than 1,000 full-time equivalents
  • Finance/insurance and tech/telecom are biggest users of IT staffing
  • Offshore recruiting, strategic solutions, statement-of-work and independent contractor compliance programs are growing

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