IT Job Losses Will Continue for a Long Time

By Allen Bernard

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In order to stay competitive, companies in Europe and US will continue to shed IT and other back office jobs, according to a new study of 4,000 billion-dollar firms by the Hackett Group. Over the next five years, corporate IT will shift an additional 583,000 jobs to lower-cost nations. This is on top of IT job loses totaling 1.36M since 2000. Overall, western companies are expected to shed a total of 3.57M G&A―HR, finance, IT and procurement―jobs in the 14 years between 2000 and 2014. To help put these losses in perspective, in 2000 there were some four million IT jobs in the US and Europe, by 2014 that number is projected to be cut by almost half.

The good news, as you can see from the chart, is the blood letting peaked this year. The bad news is the jobs are not coming back.

"From a big picture standpoint ... it comes down to a conversation of how do you export our brands? Export our innovation?," said study co-author Michel Janssen, Hackett's chief research officer. "How do we become part of the global structure and continue to be a player in that conversation rather than, 'How do we protect our four walls?' This is what's so hard about this conversation: if it's your job, this is a big deal. If you step back from it, we're taking advantage of the rest of the world just as much as they are taking advantage of us."

This is because most of the top line growth going forward―depending on your industry, of course―is expected to come from nations outside of Europe and the US. In order to sell into these markets and grow, companies need to do more than just advertise. "Business needs to operate globally if they want to be competitive globally," said Janssen.

One area the study did not look at was job losses or gains in the IT industry itself. So, how many corporate IT folks finding jobs with IT vendors or with the IT outsourcers who may be competing for their in-house jobs, is an unknown. Still, the writing is on the wall for employees that spend the majority of their time doing administrative, keep-the-lights-on type work: their jobs are very much at risk.

Silver Lining

While the report spells out doom and gloom for some, there is a silver lining: as more and more administrative functions are outsourced, the people doing those jobs will have an opportunity to move up the food chain into better paying, value add jobs. This is an oft heard mantra from IT anyway that if they could spend less time keep things running they would have the resources to throw at more important work.

"The IT professional maintaining a payroll system is inherently contributing less than the same guy working on an algorithm to get higher utilization out of a fleet of trucks," said study co-author Eric Dorr, a Hackett Group senior business advisor. "And when you look at all this back office work: a lot of this is inherently low value added so, if you make that more efficient and shift those resources into work that truly contributes to higher economic efficiency, that 's actually a good thing."

This efficiency is apparent in that 1.4M G&A (general and administrative) jobs were shed through 2009 yet technology enabled the remaining people to pick up the slack and actually become more productive―all at a progressively less expensive unit cost for IT. So, if you're wondering how IT will cope with greater demand for more innovative services with fewer staff, fear not, the trends say this is where IT shines.

According to the report, "Hackett’s analysis of close to 4,000 large (over $1 billion in revenue), publicly held companies reveals that as a result of efficiency gains made through automation, process improvement, outsourcing and offshoring, G&A functions cost approximately $333 billion less to run in 2007 than in 2000 for this group of companies."

"Clearly, that is going to continue to put a lot of pressure on IT," said Dorr. "But, first of all, there is still a lot of room for improvement; making things in IT a lot more efficient and effective than they are. So, therefore, if you look 10 years out, I don't think we'll be seeing people spending half a day with a bunch of discs trying to get a machine to work. You will have universal connectivity, you will have unlimited storage, you will have fundamental architectures that address some of these issues."

Of course, it will take years for all of this to play out and there will be pain in the mean time, acknowledges Dorr. But, change is inevitable and IT is nothing if not the enabler of change. In some ways, IT is the provider of the tools of its own demise. The explosion of reliable, high-speed global networks, open standards, and the export of technology around the globe are at the heart of the labor arbitrage global companies will have to embrace to stay competitive.

"The number of finance jobs are being reduced because you take something from being highly manual to being highly automated," said Janssen. "That's a very good news story for American business and America long term, but not such a good thing if you're an accounts payable clerk."