Mixed Messages On Confidence

Recent polls of both CIOs and employees reveal a measure of surprising reactions to the economic outlook: CIOs are generally confident and yet sense a coming slowdown; employees are also confident, but exhibit a greater level of commitment to their companies. On this page, you’ll find the results of Forrester Research’s quarterly poll of CIO confidence; on the following page, you’ll find the results of Mercer Human Resource Consulting’s periodic poll on employee attitudes. How are you feeling about the health of your industry? Optimistic? Pessimistic? Or both? Don’t laugh. In Forrester Research’s quarterly poll on CIO confidence, covering the second quarter of 2005, CIOs remain positive about the health of their industry—70% report strong or very strong business conditions, and 77% have increased IT spending over 2004. But at the same time, CIOs are beginning to express doubt about the future. So the correct answer is … both. In this Q&A with Forrester analyst Andrew Bartels, he reveals that the second quarter brought both a decline in confidence about future business —to the lowest level since the poll began in first quarter 2004—and a more bearish IT-spending outlook for next year. Q: Let me get this straight: Spending is up; budgets are up; and optimism is down? A: It means that CIOs are feeling good about 2005. They expect to spend at or above budgets. But when they look ahead six months to 2006, they’re getting cautious. Q: Is that significantly different than last time you conducted the poll? A: Last quarter when we surveyed companies, fewer than 5% were expecting IT budgets to be lower. That number is now 11%. That’s still a minority, but the trend is going in the wrong direction. We’re seeing a shift from the “Everything’s going to be fine” camp to the “We may be cutting spending” camp. As I say, the level is still low, and most people feel they’ll increase spending next year. But there’s a small but growing proportion who say 2006 won’t look good.” Q: Is this happening across all industries? A: It’s hard to generalize too much, but it does seem to be representative. We’re seeing that certain segments of the economy have been doing well until now, but are beginning to look shaky. Take financial services. It has turned more conservative than it was a year ago; but that has a lot to with interest rates, the dollar, the equity markets going sideways, and scandals in the insurance segment. Retail and the airlines have also started to weaken. But other segments, like energy and manufacturing, are starting to look better. What we’re seeing, in part, is some of the normal variation in sectors that you'd typically see in an economic cycle. The sectors that have carried the economy are getting tired, and those that lagged are picking up steam. Think back two years ago, when the energy companies were in a different situation. Q: Financial-services firms are traditional early adopters of technology. Will its cutback have a cascading impact on investment? A: Yes and no. The percentage of IT budgets going to early-adoption technologies tends to be small and it’s getting smaller. In many cases, companies invest in early-adoption technologies when they’ve got surplus dollars to place bets. On the other hand, financial services are running so much ahead that what's early adoption for other industries is mainstream for them. They really can’t stop because they have competitors they need to keep up with. So though the tightening of budgets in financial services may reduce some discretionary spending, there are so many other pressures that drive them to invest that I don’t see major net impact. Q: Was there anything in these results that surprised you? A: In many ways, it’s the small- and midsize-market CIOs who are turning more pessimistic. That’s noteworthy because our survey research has found that small and midsize businesses (SMBs) have had bigger budget increases compared with enterprise over the last couple of years. They’ve been carrying a lot of the technology-spending growth. If they’re turning conservative, then that suggests that the segment may not be as vital as it has been. I don’t think there are enough indicators to say that’s a definite trend. It’s still noteworthy that this aggressive segment now seems to be turning conservative. But it’s also true that when the economy slows, it’s often the SMB sector that feels the effect first. It’s important to remember, though, that we’re not seeing actual cuts. We’re just seeing slowdowns in spending growth. We’re just seeing caution about the outlook, and what that may mean for company revenue and IT budgets. I don’t want to paint an alarming picture. There’s no risk of a spending downturn. We’re just facing a growing amount of caution. Feedback question: Tell us how you’re feeling about the immediate future in terms of both your industry outlook and your own IT spending.

There were surprises in Mercer’s poll of employee attitudes as well. During the last boom in the economy, employees’ commitment lasted only until the next great job offer appeared. Now, in this boomlet, employees not only are confident about the economy, but also committed to their companies. In a discussion with contributing Web editor Howard Baldwin, Rod Fralicx, Mercer’s manager of the What’s Working Survey, said the upbeat prospect for jobs is driving optimism among employees. Q: What surprised you about the poll results? A: I was a bit surprised that the overall results went up as much as they did. The one area that went down was benefits. Q: These results are intriguing. With the economy improving, wouldn’t employee commitment be going down? After all, they’ve been biding their time, afraid to quit a lousy job until things improve. A: That’s a good point. If there were more jobs, you'd expect people would be more likely to say that they'd leave. But the economy hasn’t been back long enough. There’s still a mentality that people have a good thing going; they’ve lived through the downturn and they’re not going to walk away. They need to see more of a track record of things going well. As the economy stays stable, and we stay on the path we’re on with both economy and consumer confidence, you’ll see more people looking for jobs. We’re just not there yet. Our data shows that a third of population isn't committed to their jobs, but 40% of those people say they have no intention of leaving. Q: How do you identify those people? A: If you’re watching people perform, you know which ones aren’t highly motivated. The people who say they’re not engaged are the ones you don’t want to keep anyway. There’s a continuum we see of people who are disengaged, not engaged, and engaged. The disengaged people are actively doing negative things. Not engaged means they’re doing enough to get by; they’ll comply but put in no extra effort. The ones who are engaged will put in discretionary effort to make the company successful. There are estimates that disengaged employees cost the economy roughly $250 billion to $350 billion a year. The cost to the economy of absenteeism alone is $40 billion. Q: How do you deal with people like that? A: A lot of it has to do with how you manage people, but one of the most overlooked processes of engagement is whom you hire in the first place. One of the questions that comes up frequently as a key driver: My job gives me a sense of personal accomplishment. If you’re hiring people who can get that feeling, they’re going to be engaged. If you can differentiate between who’ll fit and who won’t fit, you’re ahead of the game. People want to feel that they’re able to do their job well. Do they have the information they need? Do they have the tools they need? Do they have the ability to make decisions to do their job well? Those things have to be in place. Q: What’s the action item for employers from your poll? How do you drive engagement? A: It depends on the outcome of the analysis they do. It’ll change from company to company and by roles within the company. What drives engagement for IT folks is probably different than what drives engagement for a nurse. Going back to the idea of hiring the right people, different personalities with different desires are attracted to different types of professions. You need to figure out the drivers of engagement for your particular population. Gallup can tell you who’s going to win the election and by how much, but if you do the poll in a red state, you’ll get different results than if you do it in a blue state. If you go into a company to poll, you’ll get more specifics than you would if you did a national study. It’s also good to watch your trends to see which way they’re going. Different things drive engagement based on what the company is going through. For instance, one company we’re working with went through a lot of acquisitions, so the drivers of engagement there turned out to be communicating the vision of all these people who have come together. Q: What do you do with the people you determined aren’t engaged? A: Get ’em engaged or get ’em out. Sometimes it’s more efficient to just get them out. If you’re disengaged, how much will it cost to engage you? Sometimes it’s easier to start fresh. The only exception is if you can change the environment entirely. But it takes three to five years to completely change a culture. Do you want to spend three to five years to do that? If you want to change the whole population, possibly, but not if it’s an individual. Q: What about salary? Does that track to engagement? A: Almost never. It doesn’t mean it isn’t important. You have to have a decent wage for the type of work, but it isn’t what grabs people. In our field there’s something called the “poach rate”—it’s what percentage of your salary it would take to entice you to leave. When people are poached for less than a 25% increase of their salary, they're engaged. Whenever you have people getting enticed for 5%, you really have a problem. Then it’s not the pull of the money; it’s the push of the organization. They’re looking for an excuse to leave. Feedback question: Tell us if your employees are as committed as those in this survey, and why.