IT salaries in ANZ: paying a premium for value

Australian companies are spending more on IT salaries than ever before and it’s going to cost a lot more as the skills in demand increasingly come at a premium.

Forrester Research

In Q4 2012, Forrester interviewed over 2,800 senior IT and business decision-makers across Asia Pacific, including 250 senior IT decision-makers with budgetary authority in Australia and New Zealand (ANZ). Respondents included a mix of small and medium-sized businesses (SMBs) and large organisations, with all major vertical market segments represented.

On average, six per cent of ANZ respondents’ total budget is currently spent on IT (including both operating and capital budgets). Of that total IT budget, an average of 26 per cent is targeted at new initiatives, versus 52 per cent targeting ongoing operations and maintenance and 22 per cent targeting capacity replacement & expansion.

While these findings are interesting, the expected spending on IT staff salaries is what really stands out. Spending on IT salaries in ANZ is rising far faster than all other IT-related line items. This is not an anomaly. In fact, it’s a sign of things to come.

There are several likely reasons for this dynamic:

The types of IT skills in demand continue to shift

Local organisations are increasingly focused on outcomes, which has shifted demand away from base level administrators and technical staff in areas like application development and support, or infrastructure and operations.

These capabilities are increasingly being outsourced or are sourced via as-a-service approaches. Instead, organisations are addressing a need for fewer, but more expensive staff with specialised, business-focused skills in areas like strategy, architecture, sourcing and vendor management.

Put another way, the cost per senior IT staff is rising in response to business demands for greater value and improved service delivery. So while the numbers of IT staff remains flat for many ANZ organisations (or even decreasing slightly), the spending on IT staff salaries is rising.

Major shift in contractor relationships underway

In the early 2000's we saw the use of high cost contractors in senior positions such as architects, project and program managers, strategists etc. Organisations are now increasingly likely to contract out lower paid positions and retain higher paid positions in preference.

This is largely a response to the recognition that high value contractors can potentially put organisations at risk with the loss of capability when they leave. This is particularly true where there is very little knowledge transfer or capability building, with consultants focused only on "getting things done" and then departing. This shift in priorities is illustrated in the figure above, with spending on contractors growing slower than any other IT line item.

Salaries on an upward curve 

Just like their counterparts in North America and Western Europe, IT organisations in Australia and New Zealand are facing strong business pressure to improve operational efficiency and increase responsiveness to business demands.

In many instances, this pressure is matched only by the demand to reduce spending across software, hardware and services.

To address this challenge, spending on IT staff salaries looks set to continue its rise, particularly as the skills in demand increasingly come at a premium.

Michael Barnes is vice president, research director serving application development & delivery professionals. Dane AndersonJohn Brand, and Tim Sheedy all contributed to this blog post. This post was originally published on Forrester Blogs. Republished with permission.