Peter Principle

Lately a lot of leaders in the IT industry have been talking about current or future shortages of skilled IT workers. Often this is cited as justification for increasing H1-B visa limits, and off-shoring to cheap labor markets like India and China.

The folks at Baseline review the evidence pro and con in Is There Really an IT Labor Shortage?

Recent research by economists and academics indicate that the USA might actually have a surplus of skilled IT workers. Prof Vivek Wadhwa of Duke University published a report in January that surveyed HR managers.

“It seems like every three years you’ve got one group or another saying, the world is going to come to an end there is going to be a shortage and so on,” said Vivek Wadhwa, a professor for Duke University’s Master of Engineering Management Program and a former technology CEO himself. “This whole concept of shortages is bogus, it shows a lack of understanding of the labor pool in the USA.”

Researchers at the RAND corporation came to the same conclusion.

“No one who has come to the question with an open mind has been able to find any objective data suggesting general ’shortages’ of scientists and engineers” said Dr. Michael Teitelbaum, vice president of the Alfred P. Sloan Foundation, in testimony to Congress last fall. “The RAND Corporation has conducted several studies of this subject; its conclusions go further than my summary above, saying that not only could they not find any evidence of shortages, but that instead the evidence is more suggestive of surpluses.”

The most convincing evidence is that salaries have not increased much in the past few years. According to Dr. Ron Hira from RIT:

“Wages have been basically pretty flat, and that’s where we would see numbers spike if there was any kind of shortage. You would see signing bonuses and so forth.”

So why do CEOs talk about labor shortages? The cynical view is that they are justifying their business decisions. The charitable alternatives is businesses assume that difficulty in hiring is caused by a shortage of workers. It might instead be caused by unrealistic expectations.

“I once had a manager talking about difficulty in finding a Java programmer with ten years Java experience and who he wanted to come into a mid-level Java position,” Salzman said. “Java’s been around for what, 12 years now? There are probably not a lot of these folks around who have that much experience and who are willing to work at that level.”

Every morning I get up, start shaving in front of the mirror and think about my day. And then with a cold shock, I remember:

“Oh my God! I could have been employee 15 at VMware!”

But noo… I had to go work for an IP company instead. This week I was reminded of what I missed:

Investors Flock to VMware on First Day of Trading

We all know that a lot of software development projects fail, in lots of different ways. But how many projects get killed without delivering anything at all? According to the Standish Group, these days about 20% of projects are flat failures. And that’s actually an improvement over the past 10 years or so.

How to Spot a Failing Project

In 1994, the [Standish Group] researchers found that 31 percent of the IT projects were flat failures. That is, they were abandoned before completion and produced nothing useful. Only about 16 percent of all projects were completely successful: delivering applications on time, within budget and with all the originally specified features.”

As of 2006, the absolute failure rate is down to 19 percent,” Johnson says. “The success rate is up to 35 percent.” The remaining 46 percent are what the Standish Group calls “challenged”: projects that didn’t meet the criteria for total success but delivered a useful product.

BigBand Networks, founded at the height of the bubble in 1999, went public in March. They are one of the few companies initially funded in 1999-2000 to ever go public. This has prompted speculation by some VC firms that other bubble children might make it over the line.

Venture-financed survivors of Internet bubble hope to go public

Venture firms backed 4,757 companies during the hectic years of 1999 and 2000 but only 128 of them, or 2.7 percent, have staged an initial public offering, according to Dow Jones VentureOne.

Nearly 38 percent of the companies that got their first venture capital in those years went out of business, but not before getting a total of $35.6 billion in equity. Another 30 percent have been acquired, some for attractive prices but many for less than the amount VCs committed.

But that still leaves plenty of bubble survivors in venture firms’ portfolios – a total of 1,422 as of late April, according to VentureOne. These 1,422 companies have received a total of about $50 billion in venture capital and employ more than 150,000 people. Moreover, one-third of them are profitable.

M&A will remain the chief exit for venture investors. Even a robust public market won’t be able to absorb all VCs have to offer. Last year, 416 venture-backed companies were acquired, while 56 went public.

But the clock is ticking for the bubble survivors. Venture funds are typically 10-year affairs, and investors will be looking for ways to exit from companies they backed seven or eight years ago. Companies that can’t go public or find a suitable corporate acquirer might wind up getting sold to other private equity firms, although examples of this so far are limited.

I.B.M. to Show Stream Computing System

In stream computing, advanced software algorithms analyze the data as it streams in. Text, voice and image-recognition technology, for example, can be used to determine that some data is more relevant to a particular problem than others. The priority data is then shuttled off into a program tailored to work on complex, fast-changing problems like tracking an epidemic and predicting its spread, or culling data from electronic sensors in a computer chip plant to quickly correct flaws in manufacturing.

The initial system runs on about 800 microprocessors, though it can scale up to tens of thousands as needed, I.B.M. said. The most notable step, researchers say, lies in the System S software, which enables software applications to split up tasks like image recognition and text recognition, and then reassemble the pieces of the puzzle into an answer.

Private equity firms eye tech sector

Cadence Design Systems, a San Jose maker of the software used to design computer chips, is in talks with at least two buyout firms about a possible sale of the company, two people close to the matter said Sunday.

The San Jose company, which has a stock-market value of about $6.4 billion, has held talks with Kohlberg Kravis Roberts and the Blackstone Group, and other suitors may emerge, sources said. But they warned that a deal may not happen because of the complicated risks in the company’s business. Other private equity firms took a look at Cadence but passed.

A new survey from Game Developer magazine says the average salary in the video game industry is $73,000. That seems like a good wage, until you factor in location. Many of the companies are in San Francisco and LA. Given the cost of housing, it’s no wonder that only 36% of California game developers own their own home. Of course, the 80 hour weeks might have something to do with it too.

“The outdated American standard of having a wife and a kid and a house is pretty hard in the Bay Area,” says Dan Chao, a producer and designer with PlayFirst in San Francisco.

Christine Miller, a Seattle-based level designer with seven years of experience, agrees. “$73,000 sounds great until you realize you’ve just spent 6 months or more working 80 hour weeks, your friends forgot who you are and you haven’t seen your new niece or nephew yet,” she says.

It amazes me when smart, capable business people lose track of their own personal finances. The charitable view is that they are too busy building a business to pay attention to their own investments. Besides, we pay someone to handle that for us, don’t we? The cynical view is that a lot of paper fortunes during the Dot-Com mania were just illusions anyway.

The New York Times has a cautionary tale on The Perils of Being Suddenly Rich.

“Part of the bizarre but interesting psychology of the tech boom was the sense of hubris people developed, thinking they were impregnable to losses and defeats,” said Joan DiFuria, a psychotherapist who is co-founder, with Stephen Goldbart, of the Money, Meaning and Choices Institute in Kentfield, Calif., north of San Francisco. “They had a fantasy that things could only go up.” During the boom period, Ms. DiFuria and Mr. Goldbart coined the phrase “sudden wealth syndrome.”

“At what point does the person with the money have some responsibility to know something about what he’s doing?” Mr. Resnick asked. “If you’re smart enough to have made the money, you should be smart enough to figure out something to do with it.”

Study: There Is No Shortage of U.S. Engineers from PhysOrg.com

A commonly heard defense in the arguments that surround U.S. companies that offshore high-tech and engineering jobs is that the U.S. math and science education system is not producing a sufficient number of engineers to fill a corporation’s needs.

However, a new study from Duke University calls this argument bunk, stating that there is no shortage of engineers in the United States, and that offshoring is all about cost savings.

“Respondents said the advantages of hiring U.S. engineers were strong communication skills, an understanding of U.S. industry, superior business acumen, strong education or training, strong technical skills, proximity to work centers, lack of cultural issues, and a sense of creativity and desire to challenge the status quo,” wrote Wadhwa in the 2007 report.

“The key advantage of hiring Chinese entry-level engineers was cost savings, whereas a few respondents cited strong education or training and a willingness to work long hours. Similarly, cost savings were cited as a major advantage of hiring Indian entry-level engineers, whereas other advantages were technical knowledge, English language skills, strong education or training, ability to learn quickly, and a strong work ethic.”

Duke’s 2005 study corrected a long-heard myth about India and China graduating 12 times as many engineers as the United States, finding instead that the United States graduates a comparable number.

However, Duke’s 2005 study reported serious problems with the quality of Indian and Chinese bachelor-level engineering graduates, and predicted both shortages in India and unemployment in China. The current report finds these predictions to be accurate, with China’s National Reform Commission reporting that the majority of its 2006 graduates will not find work.