Last October, UK-based Vodafone announced that it was planning to hire 7,000 software engineers by 2025, almost doubling the 9,000-person staff of software engineers it had at the time. The move was part of a strategy to transform from a telecommunications company to a “new generation connectivity and digital services provider.” In other words, a tech company or a “tech-co.”
Vodafone is not the first to try this; it won’t be the last. It’s the approach du jour1 to revitalize telco revenue. Lots of telecom companies are in the same boat, looking to juice their revenue and thinking that pivoting to be a tech company is the way to go. Before your executive team decides to do this, take a hard look at what’s in front of you.
How Vodafone saved nearly 70% by moving analytics to the public cloud
What happens when Europe’s largest CSP moves its data analytics to the public cloud?
How do I know what I’m talking about?
Before becoming telco’s leading public cloud evangelist2, I spent 30+ years working for software companies. I spent a decade of that time in human resources (yes, *that* HR). I did almost everything, but most notably, I ran a killer recruiting group—both university and industry hires—and I ran all of compensation. For three years I was in charge of global and executive compensation for a 29,000-person, publicly traded semiconductor company in Austin, TX, Freescale (the Motorola fab spinoff, now NASDAQ: NXPI). I guess what I’m saying is, I know a thing or two about tech-cos, working at big companies, and what it takes to get top technical talent to work for you.
And so, I’m going to say it: telco, you have your work cut out for you. To attract the best technical workers—I’m talking the Computer Science majors from top universities like Stanford, MIT, and Harvard who get offers coming out of their ears from Google, Microsoft, Apple, and Amazon—you’re going to have to raise your game in three key areas: your culture, the work you offer them, and the overall compensation package.
First: Your culture
To attract the thousands of software workers you need, you’re going to have to start by changing your culture. When I ran tech recruiting, I learned how much top talent cares about the work environment and culture of the company they’ll be joining. Once they have a job offer, invariably the discussion turns to, “what is it *really* like to work here?” Culture is so much more than offering great kitchens and foosball tables; it’s about the day-to-day life inside the company and the type of people who work there.
Smart tech workers want to be part of a brilliant team that solves important, hard problems. They are usually attracted to smaller start-ups because of the impact they can have as an individual; conversely, accepting a position at a big, old company is decidedly Not Cool. Big companies are known for their bureaucracy and slow pace. It’s where you go to retire, not where you go to start your career.
Unfortunately, that’s exactly what some of the world’s biggest telcos are: old companies that move slowly and are adverse to risk. This approach kills the esprit de corps1 that young kids want. They want the freedom to experiment and innovate! They don’t want to be part of a company that has a culture of fear. So in order to successfully out-recruit the big tech companies, telcos are going to need to change their culture, moving from being overly cautious to being experimental and willing to take calculated risks.
Second: Give them cool stuff to work on
Next, you gotta excite your new hires with the cool stuff they’ll be working on. Unfortunately, the telco industry does not have a reputation for having a plethora of cool jobs. Telco companies are known to be filled with super boring, legacy, client-server tech. Some applications are still running on mainframes! When you hire kick-ass tech talent and tell them their day-to-day job will be end-to-end testing 50 crappy closed systems that were built and installed before they were born, that’s not fun *or* cool. It’s a total buzzkill.
The best and brightest technologists want to work on Big Ideas. They want to change the world! They want to work on cool shit. Recent grads from Indian Institute of Technology, University of Oxford, and other computer science powerhouses want to work on cutting-edge technology, like (wait for it) public cloud, artificial intelligence (AI), machine learning (ML), and big data. So in order to get the software talent you need into your telco, you have to design cool projects to work on and give the work to your new hires.
Yes, you read that right. Give the cool, new, strategic stuff to your new hires. If you put your new talent on the boring stuff, while giving your cool work to your senior tenured folks, well, it’s going to be really hard to get those Stanford grads to say yes to your offer. If you want the best, you have to both actively embrace new technology and give it to the newbies. You might upset the apple cart with your more senior engineers, but they’re already in your company (and while they might complain, they probably won’t quit over it). To get that hot new hire, you gotta entice them with your cool work.
Third: Competitive pay
The last thing you need to lock in that smartie-pants CS grad is a compelling compensation offer. To lure first-rate technologists away from the big tech companies, you’re gonna have to show them the money. If changing your culture wasn’t hard enough, and giving all the cool work to the new hires didn’t cause a revolt inside your company, jacking up new hire pay will be the pièce de résistance1.
Why? Because telco pay isn’t even close to tech-co pay. Let’s compare a typical offer from a telecommunications company with a typical offer from a tech company, both in total amount and in structure. We’ll assume a position for a newly minted computer science graduate from a top-tier university.
- Glassdoor has new grad software engineer salaries at Alphabet at an average base pay of $132,000, with an additional ~$18,000 cash bonus and $40,100 stock bonus ($190k total compensation, not accounting for growth in equity).
- Glassdoor lists a “typical” Vodafone software engineer salary at a base pay of $56,810. No mention of bonus or equity components.
- Deutsche Telekom, maybe a better comparison because most positions are in Europe, has a median package of $63,000 in salary with no stock or bonus.
- Singtel is coming in at $59,000 salary, no stock and $7,000 bonus; total compensation of $66,000.
Just for fun, take a look at the Levels.fyi page for Alphabet engineers’ salaries.
Ignoring the 2-3x difference in cash compensation, the key component to focus on here is equity compensation (usually given as a stock option or restricted stock unit grant). That’s where most top grads look to level-up their pay. The equity component of the offer is the huge opportunity to grow their wealth.
Not only do telcos forego equity as a component of pay, even if they did include it, the next problem is that their stock growth is headed in the wrong direction. I’m not advocating to start including equity in your offers; it would be a waste of money and wouldn’t entice anyone to accept your offer. See Picture 1, a comparison of Alphabet stock vs. Vodafone Group (and sorry to pick on Vodafone; I could pick pretty much any telco stock and it’s probably a similarly shaped graph).
Picture 1: Alphabet vs. Vodafone Group, last 5 years performance
For telcos to be competitive (since you don’t have exciting stock graphs to attract top talent), you’re going to have to shift more of the compensation to cash, and you’re going to have to increase it by 3-4x! Ouch.
Making this change will throw your comp structures out of whack with your current team, but if you keep offering what you’re offering today, you’ll get second- or third-tier talent. If you decide to go for it, it will likely require a change in your compensation structure across your company, which will get very expensive, very quickly.
It’s not going to be easy
Did I totally depress you? That wasn’t my intent. I am trying to make sure you realize that calling yourself a tech-co and hiring thousands of software engineers might be harder than you think.
At the DSP Leaders World Forum I spoke at recently, we talked about this issue in the “Clouds on the Horizon” panel at about the hour-and-fifteen-minute mark. Darrell Jordan Smith, senior vice president, TME and Industries at Red Hat, shared stories of operators hiring talent with cloud skills and paying them triple that of existing staff, only to have them recruited away by tech companies after six months for a 100% higher salary. The war for talent is real and it’s nuts.
What can you do about it? Upskill your current technologists through innovation centers and classes that teach cloud development skills. Check out offerings from hyperscalers, Red Hat, and other organizations. They want to educate people to speed adoption and push the technology forward. Or better yet: use the hyperscalers’ technology, which gives you access to their talent via their work.
It’s not going to be easy to out-recruit Amazon, Microsoft, and Google to get the tech talent you need. If you’re ready to embrace a culture of innovation, to leverage all the latest cloud technology, and you’re willing to pay for the best and brightest, you can compete. Good luck!
1 I may have been watching too much French Open lately.
2 A title I gave myself, admittedly.
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