The programmer as a commodity

As IT professionals, we tend to overestimate the impact of IT on a business. We believe that IT is fundamental to the competitive advantage of a firm. However, according to a Harvard case (and a study by the McKinsey Global Institute), this is not the case. Information Technology is a vital ingredient but not the primary driver of the growth of industries and individual companies. The primary factors in the productivity surge of the 1990s were competition and innovation. IT remained a tool, albeit a powerful one. Its success stemmed from being the enabler of efficient new business processes, facilitating an industry-wide diffusion of innovations, and strong scale economies.
Support and back office administrative processes like accounting, inventory management and so on got commoditized. Best practices diffused throughout industries and soon became common practices. Best practices went from being a competitive edge to being a hygiene factor. Along with all this the application software that implements and facilitates these processes has got commoditized as well. Companies no longer write applications for these processes in-house. Instead, they purchase COTS (Commercial off the Shelf) packages like SAP, Oracle Applications and so on. The consolidation in the ERP industry is serving to increase the level of commoditization especially at the low and middle tiers of the market. Having just one or two commercial standards is also very cost efficient, because of standardization and the concomitant increase in the availability of skills.
Outsourcing happened not because people wanted better applications or even cheaper software. The fact of the matter is that the bulk of IT simply moved from being a competitive advantage to a hygiene factor. It became commodity. There was a shift from innovation to efficiency. In fact Nicholas Carr at HBR suggests that IT management should now “become boring”. It should focus on reducing risks, not increasing opportunities.
The highest risk part of an application development or maintenance project is the requirements and process definition. Get this wrong and everything else follows. If you are using a COTS package the design and architecture is pretty much in place. So, programming is now the lowest risk part. Bugs, performance and good programming methods have lost their primacy: programming tools and testing tools are getting better and more idiot proof, hardware is getting more powerful. At the end of the day, its cheaper to throw more hardware at a problem or run ten more automated test scripts rather than hire highly paid programmers.
If you assume that programming follows an 80-20 rule: 20% of the programs bear 80% of the risk, it makes sense to give 80% of the programming work to people at half the cost to people with half skills. You can then pay good people, three times as much to ensure that the important 20% is done well. If you can get the 80% done at less that half the cost you (or your customers) are laughing all the way to the bank. Do the arithmetic yourself: assuming a pay rate of $100: 100 x $100 = 80x$50 + 20x$300.
Unfortunately when a professional service becomes a commodity, its the practitioners who suffer the most. The following rant is from an IBM Global Services employee in 2006:
“As part of the cost cutting, IBM cut some of its billable rates to help get business. The problem is, consultants are expected to bill more and more hours to make up for the lower rates. For some (including myself), we’re expected to bill 93.5% of 2080 hours yearly. The problem is, when you factor in vacation, a sick day or two, etc, that leaves almost no spare time. What’s happening is that IBM is no longer providing training to their consultants, expecting us to pick things up on our own. This is leading to a much lower quality of work on projects. In addition, the demand for more billable hours is resulting in some ethically questionable actions. Starting four weeks before the end of each quarter, we start get emails asking us to try and bill more hours. They always include statements saying “to help improve customer satisfaction and meet deadlines”, but with a wink-wink it’s implied that you add on an extra hour or two. The resulting billable hour crunch has also led to less people exceeding or meeting their goals, leading to an overall lower yearly bonus (called variable pay). Many people are quitting IBM, and IBM is now in a hiring crunch because it can’t fill projects. The result is that they’re stuffing anyone available onto projects (regardless of skill level), again lowering the quality of our deliverables. The lowering of bonuses and increased utilization has prompted many (former Price Waterhouse Coopers) people to jump ship. So IBM is sacrificing the long-term health of IBM Global Services, to keep up the quarter-to-quarter results. Delivery quality is down, employees aren’t getting trained in newer technologies because of the crunch to get more billable hours, and people are leaving IBM because of the impact on pay and overall low morale.”