Manufacturing firms cannot afford to slash IT budgets

The economic downturn will be a different experience for IT in manufacturing and engineering companies compared with the last recession in 2001 to 2003.

The economic downturn will be a different experience for IT in manufacturing and engineering companies compared with the last recession in 2001 to 2003. That is the view of Tom Bausemer, managing director of IT services marketplace OrderWork.

"Eight years ago, IT was a 'nice to have'," he says. "As a result, certain technologies and certain IT staff could be easily cut from the budget. Since then, CEOs have come to depend on CIOs to enable critical business initiatives, such as product lifecycle management, business process management, and supply chain management. IT has become ubiquitous in manufacturing and engineering businesses, and without IT, they will not survive now."


The importance of IT to manufacturing and engineering companies is confirmed by figures released by IT market research specialists Info-Tech in August 2008. Info-Tech found that while nine out of ten companies are affected to some degree by the economic slowdown, only two thirds reported that IT spend was affected. In fact, a third reported that their IT budget had increased in 2008, a third were spending the same as in 2007 and just a third had seen budgets cut, typically by 5% or more.

The question is: how should manufacturing and engineering companies spend that budget? Bausemer thinks they should concentrate on skilling up in-house with core strategic technologies such as supply chain management, business process management and product lifecyle management, and look to external suppliers for skills in generic cost-saving systems.

"Get these core strategic technologies implemented, and look to delay or outsource the non-strategic work such as virtualisation, desktop and server upgrades or new storage projects," he says.

Richard Earle, a director of IT services company Cirquent, which has manufacturers such as BMW and Lafarge Cement among its customers, thinks manufacturing and engineering companies should also be looking beyond the skills needed for the traditional set of applications that enhance core manufacturing processes.


In addition, he suggests, they should be acquiring staff with experience of customer-facing systems and asking themselves, "Am I talking to customers effectively and efficiently? Have I got the right process and technology in place to deliver enhanced customer satisfaction?"

Alongside technical skills in these specific applications, Earle says, manufacturing companies should be looking for people who have good stakeholder management skills and who will be able to help the rest of the business make the transition to new ways of working.

Historically, the sector has found it harder to recruit professional IT skills than other industries. SEMTA, the sector skills council for the Science, Engineering and Manufacturing industries, reported just last month that 14% of companies are experiencing a shortfall.

However, Andy Dunn, a senior consultant in the manufacturing and engineering team at CBSbutler, feels that, despite a natural urge to cut back in times of recession, now is actually a good time for forward-thinking manufacturing companies to get hold of IT skills that were previously out of their reach.

"We are seeing a huge influx of contract staff who want to go permanent because they are nervous about the contracting market, and that is pushing salaries down for a lot of permanent roles," Dunn says. He cites the example of a candidate who was made redundant from a role paying £40,000 a year who has had to accept a new position paying just £25,000.

More selective

Clearly, this is not good news for candidates. Dunn admits that employers have also used the glut of candidates to become more selective about who they take on, demanding top-notch academic qualifications and certifications as well as experience, for instance.

One bright spot seems to be for IT professionals with Oracle Manufacturing skills, especially in the contract market, where rates are booming according to IT Jobs Watch. The market for SAP skills, by contrast, appears to be stagnating at present.

However, Bausemer says the slowdown should be shorter and less severe in employment terms than last time around.

"In the lead up to the last recession, IT budgets in the sector were growing in double digits," he says. "This time around, manufacturing firm's budgets have increased in single digits in 2006 and 2007. CIOs have been much more prudent and have already cut most of the fat out of their budgets." So manufacturing companies are less likely to shed large numbers of permanent staff this time.

IT staff and employers should also be aware that not all parts of the manufacturing and engineering sector have been affected equally. While companies supplying the construction and automotive industries have been hit hard, government spending on defence and homeland security is holding up well. Going forward, signs are that government agencies will increase rather than decrease their spend in an effort to mitigate the effects of the slowdown, with Dunn predicting that Java and J2EE skills will be particularly in demand.

The danger for manufacturing and engineering companies hoping to exploit these opportunities is that they may find themselves constrained by a lack of skilled employees who have the necessary security clearance.

"It can take three months to get someone through the 'security check' level of clearance, and even longer for the kind of 'developed vetting' that is likely to be needed to work on solutions for projects such as the National ID card scheme," Dunn says.

Employers should, therefore, be thinking ahead and putting current employees and new hires through clearance if they do not want to end up paying a premium for vetted staff once they win a contract.

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