Energy Prices Harm IT

By Tony Kontzer  |  Posted 06-10-2008

Will IT Weather Stormy Economic Conditions?

Since the dawn of the computer age, information technology in the United States has held a certain air of self-satisfaction--and with good reason. IT has helped companies do business in a quicker, more efficient and better-informed fashion.

Technology has created a challenging and lucrative employment category, one that has attracted talent from around the world, most of them believing that anyone serious about IT needed to be in the United States. Indeed, other nations have looked to our cutting-edge IT departments and technology vendors for innovation and best practices.

But the country's dominant standing as the undisputed IT leader is in jeopardy, as the rapidly developing global economy has U.S. business-technology leaders glancing in the rearview mirror. Fast-rising energy and oil prices, the falling value of the dollar, and the emergence of new global economic powers such as China and India--not to mention Russia and parts of Latin America--are among the developments combining to test the mettle of IT leaders here.

Despite these daunting challenges, nearly 90 percent of U.S. corporate executives have accepted the inevitability of globalization, according to a recent study conducted by business process consultancy EquaTerra. "They understand that globalization is here to stay," says Stan Lepeak, EquaTerra's managing director of research. "The question is, How do you live with it, and what do you do about it?"

Sadly, many CIOs are taking a wait-and-see approach. Just 6 percent of U.S. CIOs want to take the lead in adopting new technologies, whereas 19 percent of CIOs in China seek such leadership, according to a recent survey of 500 global CIOs conducted by Accenture. Conversely, 54 percent of American CIOs said they're comfortable being a follower in adopting new technologies, while just 27 percent of Chinese CIOs were content to follow.

Admittedly, the challenges American CIOs face are numerous, starting with a shortage of IT talent. Not only are the overseas IT professionals who've traditionally flocked here finding more demand for their skills in their own countries, but as companies with global aspirations pop up in China, India and beyond, American IT pros also are finding more overseas opportunities. Those career options are made more attractive by the fact that the falling value of the dollar has led to increasingly competitive overseas IT salaries. However, from business's point of view, that makes offshore outsourcing more expensive.

This trend further aggravates an American market that's been stretched by immigration restrictions--many of them put in place after 9/11--that limit the importation of skilled IT workers. Pile on the declining numbers of computer science majors in U.S. universities, and it's easy to see why it's so difficult for IT execs to fill key positions.

Energy Prices Harm IT


Energy Prices Harm IT

As if that's not bad enough, rising energy and oil prices appear to be having a wide-ranging impact on IT in the United States. Many technology execs are being forced to react to fluctuating energy and oil prices by re-evaluating the power consumption and storage capabilities of their data centers, more closely monitoring the pricing of oil-dependent products or employing more Web 2.0 technologies to offset higher airfares.

Steve Canter is one such exec. As CIO of Chicago-based Berlin Packaging, a $1 billion-a-year designer and manufacturer of bottles, jars and other types of product containers, Canter was charged with helping the company get a handle on overseas energy and oil price fluctuations, which reverberate throughout Berlin's business. Because of its dependence on petroleum-based plastics, the company was watching rising oil costs eat into its gross margins. To help counter that trend, Canter's staff built an internal application that tracks energy and oil prices and then recalculates pricing on Berlin's catalog of tens of thousands of products--often on a monthly basis--in order to preserve its margins.

Canter chose to build the application in-house for a couple of reasons. First, it was unlikely Berlin would be able to find an off-the-shelf option for an app that's so specific to the container industry. In addition, the software required tight integration with the company's PeopleSoft enterprise resource planning system, so a substantial integration project would have been required.

As it turned out, Berlin possessed all the tools it needed for development, so there were no hard costs. Canter estimates that the team of IT folks and business users who collaborated devoted about 1,000 hours to the effort. He adds that it would have required three or four full-time employees to stay on top of oil price fluctuations manually.

Even the Peace Corps has been affected by rising oil prices and the falling dollar, which have inflated everything from airfares to food prices. The organization needs to ensure that it can effectively reach out to volunteers around the world, so CIO Ed Anderson began looking for IT alternatives that would preserve the mission while saving on travel costs.

His answer? More use of collaborative Web 2.0 tools, such as knowledge management, information sharing and social networking sites. Instead of having staff members visit a remote region of Africa in search of a local agricultural expert, the Peace Corps employs Cisco Systems' WebEx service to get word out to contacts around the globe, essentially conducting international searches without ever leaving home.

The U.S. agency that exports American volunteers to third-world nations also is looking at various ways to use social networking sites like MySpace and Facebook, rather than recruitment trips, to reach the 20-somethings that make up the lion's share of potential volunteers. "In the last 24 to 30 months, we've had to get much more creative," Anderson says. "If you can't travel, or your travel's being restricted, you have to find the next best way."

Shifting Talent Pool

Shifting Talent Pool

In some respects, what's happening to oil prices is similar to what's happening to IT jobs. Just as burgeoning economies in China and India translate into more cars requiring more gasoline, that same growth means more companies--end-user companies, not just offshore outsourcers--need IT pros to help manage their businesses.

It's not only Western companies that need database administrators, security architects and systems analysts to function. And there are plenty of numbers indicating that the IT talent pool is shifting out of the United States.

ECA International, a membership organization for human resources professionals, surveyed companies in 47 countries last year and found that the United States ranked in the bottom third in 2008 salary increases. India ranked first, Argentina was second, Russia was fourth and China was ninth. And a survey conducted by global management consultancy Hay Group expects Indian salaries to rise 14.4 percent in 2008.

What's more, the Computing Research Association says that the number of incoming U.S. undergraduates declaring a computer science major plummeted by 70 percent between 2000 and 2005. Even though the downward trend appears to be stabilizing, the number of new computer science majors at U.S. universities in the fall of 2007 was down 50 percent from 2000. In addition, the total number of bachelor's degrees awarded by computer science departments with doctorate programs dropped 43 percent between 2004 and 2007, the association says.

All that has led to an ominous conclusion: Rising salaries overseas and more demand for IT workers abroad, plus fewer IT workers coming out of U.S. universities, equals hiring challenges for U.S. IT executives. The timing couldn't be worse. The U.S. Bureau of Labor Statistics projects that five categories of IT workers will be among the 30 fastest growing occupations here between 2006 and 2016, including two in the top four: Network systems and data communications analysts top the list, with anticipated job growth of 53 percent, while jobs for applications engineers are expected to increase 45 percent, ranking fourth.

Adding to the mounting staffing difficulties is the fact that IT departments need employees with ever-widening skill sets that meet the needs of the global economy. IT staffs are expected to support businesses that sell more products internationally, acquire more materials from faraway locales and do business with more overseas partners.

CIOs, in particular, are being asked to understand how international business indicators affect their businesses and ensure that systems are in place to analyze such fast-moving targets. That means they need people who understand more than software coding.

Berlin's Canter, for one, expects to hire IT staff with more international business experience. Because the company has begun sourcing many of the materials it uses in its products from partners in China, where the plastics that go into bottles, tubes and caps are abundantly available at lower prices, Canter was asked to deploy systems for managing global logistics and to track the growing influx of new materials. But since his IT staff lacks expertise in international logistics, Canter was forced to outsource the development of the needed applications. That, he says, won't be the case going forward.

"As international business becomes a larger part of our portfolio, having the [global] expertise within our internal IT staff will become a core competency," Canter says. "In this way, we can work more closely with the business in order to deliver solutions that will allow growth."

CIOs will have to get used to searching for those international skills. Their companies will need to participate in the global economy, and that will require monitoring all sorts of business indicators that haven't been as important in a domestic business setting.

"When you weren't in five different geographies, you didn't have to worry about currency fluctuation," points out Fariborz Ghadar, director of the center for global business studies at Penn State University's Smeal College of Business. "Now, currency fluctuation becomes more critical.

"If you're importing food, now you're worried about national security. Does the food have to be checked? If you're just in Ohio, none of this matters to you. But if all of a sudden you have a supply chain that goes across four or five borders, this becomes a major issue."

Visa Crisis

Visa Crisis

Further compounding the IT talent shortage is what some are calling a crisis in the U.S. visa program for foreign workers. Visa categories such as the controversial H-1B, which was established to help American companies bring in foreign workers to handle jobs that couldn't be filled with U.S. workers, are increasingly being snatched up by foreign companies.

In 2007, according to a BusinessWeek analysis, eight of the top 10 recipients of H-1B visas were companies that either are based in India--Infosys Technologies, Wipro, Satyam Computer Services, Tata Consultancy Services, Patni Computer Systems and i-Flex Solutions--or have Indian nationals as top leaders--Cognizant Tech Solutions and UST Global. Rounding out the top 10: Microsoft and Intel.

As a result, U.S. companies shut out of the H-1B program find themselves applying for other visa types intended to fill other needs. That's led Bob Meltzer, CEO of VisaNow, which helps companies and individuals apply for various types of visas, to suggest an overhaul of the visa system. The desperation he sees among U.S. IT employers trying to fill IT positions is all the proof he needs that something must be done.

"The clients who come to us to hire foreign nationals are not hiring them just because it's a better option," Meltzer says. "It's the only option."

Adding insult to injury, the very Indian outsourcers that have been snatching up visas also have benefited from the U.S. talent drought, with demand for their services growing as clients struggle to find long-term employees.

If business and IT leaders need additional motivation to find solutions to the IT talent shortage, they should consider the impact on innovation. While there's little evidence linking IT staffing challenges with a decline in innovation, some question whether it's possible, for instance, to expect much innovation from offshore outsourcers handling aspects of a company's IT.

EquaTerra's Lepeak suggests that the use of outsourcers, or even coordinating IT staff around the globe, could negatively affect the pace of innovation. "It's pretty disruptive moving work all over the world," he says.

In the long run, Lepeak anticipates that when the IT talent pool inevitably recovers and IT is given an expanding set of responsibilities, innovation may spike. In the meantime, however, the IT talent shortage is, at best, slowing innovation simply by slowing the pace of work.

Serving Up More Servers

Serving Up More Servers

Conversely, the evolving global economy is placing ever-growing demands on the data center to support more applications and more data. As American companies tackle new markets, build Web sites in new languages, manage more customer relationships and crunch all that new information, they're going to need more servers.

By 2010, predicts market researcher IDC, the 7,000 data centers in the United States will house 15.8 million servers--three times as many as a decade earlier. The growing number of power-hungry servers needed to run more apps and store more data is stretching energy resources to the limit in data centers, and the resulting power bills have gotten the C-level suite's attention.

Even power-efficient servers aren't enough to stem the tide. According to the Uptime Institute, a data center consultancy, computing performance is increasing threefold every other year, and those faster, more efficient chips require more power. Meanwhile, the power efficiency of servers is increasing just twofold every other year, leading Uptime to estimate that by 2012, a company purchasing $1 million worth of new servers will have to spend $6.5 million more in power and cooling infrastructure costs over the subsequent three years than it would have a dozen years earlier.

Moreover, the rising cost of energy in much of the world has forced data center managers, for whom the availability and expense of power has become a critical consideration, to adjust long-held strategies by making it possible to shift computing loads from one part of the world to another as conditions warrant.

"People are thinking about ways that data center operations can be moved around the globe because of changes in price, electricity, weather and the like," says Jonathan Koomey, a project scientist at Lawrence Berkeley National Laboratory and consulting professor at Stanford University. "You move loads to wherever costs are lowest," adds the author of numerous books and articles on energy efficiency, who has developed recommendations on energy efficiency and pollution prevention for the Environmental Protection Agency and the Department of Energy.

That's one reason Microsoft's new Chicago-area data center will employ 40-foot-long containers filled with ready-to-use server racks. The strategy, revealed a few months ago, reduces the cost and time required to bring a data center online and also prepares the company to shift data center resources in response to global economic changes.

"The container approach creates a modular data center," says Christian Belady, Microsoft's principal power and cooling architect. "As needs change in the world, it's conceivable--but still costly--to actually move some of the stuff around."

Clearly, global considerations make running a data center an increasingly complex pursuit, a reality that has some industry watchers expecting the cloud computing phenomenon to fill the gap. Koomey of the Lawrence Berkeley National Laboratory says companies trying to expand into overseas markets can use the subscription IT services available in the cloud to "follow the sun," tapping the service provider's data center resources that are closest to a company's overseas customer base.

Koomey also expects international offices that need more local computing power to turn more often to service providers to satisfy the needs their own IT departments can't meet. "Anything that allows you to put in a credit card and get the IT service you need is going to be very appealing," he says.

Unfortunately, the other challenges globalization poses for American IT departments won't be so easily solved. For example, a simple credit card transaction isn't going to help CIOs recruit IT talent, lower energy costs or monitor the expanding range of business indicators any global organization must watch over.

While the answers to the challenges facing IT departments remain elusive, the rewards for a proactive strategy are clear. Assemble the right talent, build the right applications and make the right strategic decisions for the data center, and you may win the gold: the potential for growth offered by the evolving global economy.

If that isn't sufficient motivation to act decisively, maybe this is: The future standing of American IT may depend on your actions.