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A Sea of contractors.

Over the past couple years I’ve seen a lot of enterprise IT departments. Most of them are filled with contractors. In some of these companies there are only 5 or 10 technical employees. The rest of the people in the IT organization aren’t actually employed by the company. That means that the majority of the people who build, maintain, and manage their infrastructure and applications are contractors.

Most of the companies are “IT” companies. These are software companies, hardware vendors, and financial services companies. Software and hardware are their business. Without technology and engineering these companies don’t exist.

(One financial services company I saw with more than 400 employees had about 8 employees in the entire IT organization: the CTO, the VP of Engineering, 2 Directors, and 4 managers. The other 50, or so, people who worked in the department were contractors.)

A company over 50 people can’t function without some sort of “IT” department. Someone has to manage email accounts, desktop hardware, office WiFi, and the mix of SaaS applications most companies use. With almost all of the company’s business being done electronically it’s impossible to not have an “IT” department.

I have spent a long time trying to figure out why a company would do this. I have a few ideas:

  • Maybe the company bought into the “IT is a cost center” mentality brought on by CFOs and people with MBAs. As if there is a single part of the company that can function without IT resources. I’d like to see a breakdown of the marginal cost/revenue of engineering vs. accounting employees.

  • Maybe the engineering teams were really behind schedule and adding more project managers didn’t get the software shipped. Having a product owner for every component didn’t work. So now, it’s time to throw engineers at the problem and hope that helps.

  • Maybe it is financially motivated. Spending $150,000 a year, total, for a competent contractor is a lot less than a full time employee would cost. The team of contractors can always be supplemented with consultants. Plus, without all those employees the Director’s bonus looks huge!

  • Maybe it is the only way to get work done. If it is easy to hire and fire contractors but almost impossible to hire and fire full time employees contractors make sense. (Keep thinking about the government benefits if you do get hired full time!)

There are good reasons to bring in contractors: getting a specialist to set up a particular piece of software, building out prototypes without taking away from your core set of engineers, a contract-to-hire employment plan, and event services. These are all reasonable things for which to hire a contractor.

I don’t have anything against contractors. I’ve been one. It can be rough. Since they are not employees they have to provide their own hardware. They don’t have access to the same benefits (or maybe even holidays) as employees. They know that a bad quarter means that their contract might be terminated. (Cisco seems to be one place where actual employees have this problem.) Or Congress could have another budget showdown (all the downside of working for a government but none of the upside).

To mitigate these risks people have started companies that hire employees and then contract them out to larger firms like a “temp” agency would. This provides them with the benefits and stability of being fully employed and mitigating the risks.

As someone who has run a business I cannot think of a worse outcome than the people who my business depends on not having the same incentive to see it do well as I do.