Brazil IT management needs transparency

Stefan Stern is director of strategy at marketing giant Edelman. Stern is an experienced commentator on management issues and until recently was a management columnist for the Financial Times. He is a visiting professor at Cass business school and contributing editor of Management Today. IT Decisions talked to Stern about how IT bosses should approach Brazil’s booming economy.

We have recently been running stories about the fastest economic growth for 25 years, the shortage of skilled labor, and even the short-lived IT strike in São Paulo, but what does all this rapid change mean for IT  executives? Stern began by acknowledging some of the benefits of rapid growth, and how growth changes some accepted wisdoms.

“Scaling up fast enough to deal with demand and keeping costs manageable can be difficult for leaders. There are rising expectations. But the rising tide is lifting all boats. The cost arbitrage written about by consultants and strategy gurus is being eroded faster than we thought it would be,” he said.

As might be expected, the problems get multiplied when the IT industry is analyzed.

“In IT, it can be even more difficult as you are looking broadly at staff with an average age of under thirty who have far less old-school loyalties compared to older workers. Employees used to be asked for flexibility, but it looks like it is now the bosses that will be required to be flexible with their employees.”

We want what they have

Sindpd union president Antonio Neto issued a quote weeks ago that was nothing short of fascinating. He said that the union and its members could see the wage expectations of workers with the same skills in other countries – and they felt that they should be getting similar rates. If this became a standard expectation then surely it spells the end of offshoring to lower-cost economies – the end of offshore outsourcing for cost alone.

“When the business books and gurus tell you that something is true forever, they are almost always wrong. The theory that always said there would be a cost arbitrage by locating offshore and in emerging markets was a short-term outlook,” explained Stern.

“Look at the rising rates of pay in India. The claimed cost advantage won’t be there soon. Gradually this process of circling the world looking for a lower cost region will eat itself. There is no single currency or single labor tariff, so of course there are differences, but the easy wins are vanishing fast.”

Easier to tell the truth

According to Stern, one of the most important ways to achieve genuine employee satisfaction is to promote a culture of transparency and information sharing. This allows employees to see how their own actions influence the generation of profit for the firm.

“Companies have traditionally wasted a lot of time and effort by keeping information secret. They could do a lot more by being open with employees about the business and how it stands, especially if you want to create discretionary pay, so people can be bothered to try harder,” he said.

“Being transparent is the right way to go. You need open-book accounting so you can create a high-trust environment at work. If you trust your employees then they usually turn out to be trustworthy. Look at what Ricardo Semler did with his company, Semco. By creating peer group analysis of your own actions, employees won’t travel business class if it is not essential because their peers will review their expenses,” Stern added.

One of Semler’s key methods was to incentivize employees with variable pay. Their pay was directly linked to the performance of the company, encouraging each of them to always do the right thing, but Stern sounded a note of caution for IT firms thinking about jumping from a traditional HR model to an inclusive, transparent one.

“You need to be careful with variable pay. If you look at the example of bankers and their annual bonuses then the concept has been polluted in a way, people expect the bonus automatically, so it really is just a top up – automatic extra cash. What is more sustainable is a profit share and rewards that are linked properly to what the employee has done,” he said.

This is an important point. Creating a culture of transparency is a good start, then ensuring that every employee shares in the good times is also important, but it is important to have some individual component to the variable salary too, so individuals who really put in a high amount of effort know that they will be rewarded even above the standard profit-share agreement.

If you want us, you pay the rate

Stern went so far as to suggest that IT workers with good skills and the ability – in theory – to move job should not be afraid to defend their right to higher pay.

“The deal always has to be seen as fair. For a long time bankers have defended their bonuses by saying the best people will leave if they don’t get that kind of reward. Now people with transferable and mobile skills are going to be asking for the same kind of treatment.”

I know what Stern is talking about. I once worked for an American bank where every employee could track how much we had made that day using a standard-issue Excel spreadsheet. The openness about how much was coming in encouraged people to contribute all they could so they might see the Excel figures change because of their own actions.

Smaller, more agile, IT firms are probably engaging in many of these initiatives already. I recently spoke to one Brazilian tech CEO who scoffed at the recent IT strike. He told me that his team is not interested in a union that fights over a single percentage increase in pay, when the personal effort of his team members can increase their annual income by twenty or thirty per cent.

Will there soon be a Ricardo Semler for the IT industry? When he or she stops coding, let’s hope they start building the Brazilian IT firm of the future, based on the principles outlined by Stefan Stern.

Click below to listen to Stefan Stern talk about the main challenges in a fast moving economy

Click below to listen to Stefan Stern talk about new global options for skilled employees

Click below to listen to Stefan Stern talk about the end of the low-cost offshoring model

Click below to listen to Stefan Stern talk about keeping employees happy

Click below to listen to Stefan Stern talk about open-book accounting and profit-sharing

Click below to listen to Stefan Stern talk about variable pay and bonus payments

Click below to listen to Stefan Stern talk about cultural differences and expectations at work

Photo by Liz licensed under Creative Commons