Issue 24

What’s wrong with the Romanian IT Industry?

Ovidiu Şuta
QA & Bid Manager


The development and direction of the Romanian IT industry - Cluj Napoca in particular - has always been an attractive topic for me. I am the kind of person who always looks for the bigger picture; I try to understand the system or mechanism, how it "operates", and then tweak it a bit.

Just to get an idea in the 1900"s the average lifespan of a company was 80 years, in the 1950"s the average dropped to 50 years and in 2011 that reduced to a merely 8 years. This shows the increasing volatility of the global market and the fact that companies need to make adjustments very fast in order to survive the rapid changes in the environment they live in.

This particular case, the software development industry, is a very challenging one. Just to get a feeling of what we are talking about in the 5 major cities of Romania (Cluj Napoca, Iasi, Timisoara, Brasov and Bucharest) around 80,000 employees work in the software development industry. I know Indian companies that have more employees than our entire country. And there lies a problem and our challenge.

It is becoming increasingly clear that further development of the IT industry cannot be achieved by volume alone. In the beginning, and even these days, most the IT companies relied on a growth of 2 digits per year in personnel. Since the type of work was mainly an hour-based approach (the "capacity", "near-shore" or "outsourcing" models), the growth simply meant, more people > more hours > more revenue. Simple enough, however that model has put a significant strain on the labor market, causing a severe shortage of skilled people to be available. We have all but exhausted that "resource" as the HR departments would call it. The over-use (or miss-use) of the capacity model has caused 2 major problems in today"s IT world in Romania.

The skilled people who work in this industry, or shortage thereof, is the first problem. Studies show that, in Cluj-Napoca, considering the rate at which universities are educating people plus those moving to the city, in 3 years we will be able to source only 52% of the demand coming from the local IT companies in terms of people (and that does not take into account new companies, just existing ones). The situation is comparable in other IT-centric cities as well. Given the high demand for skilled employees, the pressure on the salary costs has increased, increased and increased to a point where it is becoming harmful. In the battle to get good people, companies are constantly increasing wages. For employees, this means there is always somebody willing to pay more. A skilled professional can change companies rather quickly and with a significant raise each time. We appear to be starting a "bidding war" which has caused, among others, Facebook contests between employees, who will reach first the xxxx EUR milestone and so on. Now do not get me wrong, I have nothing against good wages or employee"s rights; having a market where the employees have the power is not bad in itself, but, when somebody simply leaves for a higher salary to another company, without having gained additional skills or knowledge, we have a serious problem. People are less and less interested in learning new things or further developing their own skills simply because with a small amount of effort they can get a better paying job. Not to mention that when an employee expresses his desire to leave, his employer will most likely come up with a "counter-offer". The practice is not restricted to the IT industry (or to Romania), but it gives a confusing image: we are basically telling the employee that "you are worth more, we have just been paying you less until now". Of course this is not a general rule, but the current state of "bidding-wars" encourages mercenary-type behavior. This has an impact on the so called "productivity" (as well as creativity and efficiency). Having the costs go up at a higher rate than the knowledge and specialization of the employee means that overall the Romanian IT industry is becoming less and less attractive than other countries around us, or not just around us as the buzzword of this century is globalization, the competition is everywhere, not just Eastern Europe. Not so long ago, the race for higher wages without increased skills or knowledge led to the downfall of the IT industry in many Western European and North American companies, and led them to outsource their development to countries like ours…

The model is the second problem and the fact that it is based on hour selling or outsourcing. The more hours you sell the more revenue you make. It involves mainly development/coding and testing efforts and you hear very little of terms such as engineering, architecture, requirements and User Interface design. This is partially because the interest of developing these higher-level services was low. Until now. Again, do not misunderstand, there is nothing wrong with outsourcing, it is a valid business model for certain times, it provides a constant stream of revenue to a company, it is only when companies believe they can rely solely on it then the problem occurs. More and more companies are starting to realize that without development into areas that allow them to bring a higher added value to the customer they can never become a real partner for their customers. Companies are becoming to understand that being just a supplier is the quickest road to losing your customer: your customers will always find cheaper elsewhere. Without the ability to advise, understand the business needs, to lead and challenge your customer, you are, as a company, opening the door to redundancy. Companies are starting to move towards services, consultancy and products in order to develop themselves. This is the next step. If you look at Intellectual Property rights (of course there is no official statistic on this), but very little remains here in Romania. We trade hours for revenue and all the Intellectual Property rights of what we develop belongs to the customer / other party we are working with.

But how does a company change from a capacity model to a service / product model or a mix of those 2? That alone is a large subject and will be a matter for a future article I suppose, but in a nutshell one needs to invest the capital obtained by the capacity model into the development of these new services. Key word here is invest and this investment must be primarily in people. As people are the main assets of a company in our industry they are the ones that need to grow in order to fit the new philosophy. There is frequently a feeling that with the current staff turnover, there is no point training people if they are going to leave anyway. A wise man once replied to that with "what if you do not invest in their training and they stay?" The employees, their skills and abilities are the most important "merchandize" a company has. The development of a company is tied also with the development of its employees. Luckily even if there are cutting corners and "one-time-project" companies are out there, they are the exception and not the rule of Romanian IT.

I have talked a lot about problems until now and too little on solutions. Same as politics anybody can talk about problems, it is easy. Trying to give a solution is the hard part.

And then there was quality. That little nice buzzword that we hear around in most companies, most likely accompanied by statements like "Quality is non-negotiable", "Quality is key", "Quality is the most important", etc. But when one asks what the level of quality is, how it is measured, defined and what are the trends a lot of people are puzzled, they simply think that talking about it will make it happen (they will however keep a tight track on hours and budget). The answer to the problems above lies in quality: understanding, defining, measuring and tracking a company"s quality is the first step towards solving the problem. As once you have done that, additional services and specializations are easier to manage and implement. Companies, and individuals, need to understand that their level of quality is their own, it is potentially the most powerful differentiator from everybody else. It is what separates them from the "pack" and brings in new customers, better yet: it makes sure your customers come back to you and advertise their satisfaction. When you talk about quality, paying for functionality and not hours, that is the first step from getting out of the people->hour->revenue trap. You can always find cheaper, but the quality you deliver is your main asset in the battle with the competition.

One way to increase your level of quality as a company is an improvement program, as my colleague Tibor Laszlo pointed out in issue 22 of the TSM magazine in the article "Improving-why bother?" Whatever your choice is, quality focus is one of the most difficult endeavors a company can engage on simply because it is an organizational mindset change. And although there are some quick-wins you can get with low effort and high reward, a mindset change is one of the hardest things to pull off as it involves people, psychology and making a durable change in the way people think and work. It is a real company transformation.

So, in the end if you are an employee of a software development company ask yourself these questions:

• When the current cycle (or bubble) on the labor market finally breaks in what type of company do you want to be? An hour-type company that sees you as a resource or a company that invests in its employees, their trainings and sees them as assets?

• What have you done in your personal development to increase quality of what you deliver lately?

And if you are a manager or in a position to influence the future of a company:

• How are you going to ensure your company is still there in 5 years and what are you doing now to get there?



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