Why IT Jobs Are Never Coming Back
The combination of more automation, increased offshoring, and better global IT infrastructure has taken its toll on the U.S. IT profession, resulting in a net loss of 1.5 million corporate IT jobs over the last decade, according to recent research from IT consultancy and benchmarking provider The Hackett Group.
The barely bright side for the American IT worker is that the total number of annual job losses will diminish slightly in the coming years, down from a high of 311,000 last year to around 115,000 a year through 2014, according to Hackett which based its research on internal IT benchmarking data and publicly available labor numbers. The really bad news? It's unlikely that IT will contribute to new job creation in the foreseeable future. "To succeed over the next five years, companies need to understand how to reposition existing talent; jettison or rationalize current jobs that have no place in the leveraged organization; and source, develop and retain still others to fill the need for new skills, both offshore and in retained onshore staff," reads the Hackett report, which itself was written in part by offshore researchers according to co-author and Hackett Chief Research Officer Michel Jannsen.
CIO.com talked to Jannsen and Hackett Global Business Services Practice Leader Honorio Padron about their predictions.
CIO.com: Your study looks at the decline in IT job growth based on private and public data from corporate IT departments at billion-dollar-plus companies, but ignores the jobs eliminated by IT service providers. How much greater would the figures be if the likes of IBM or HP were included?
Janssen: It would be huge. If you look at HP or IBM, India is their either second or third largest geography [in terms of hiring]. They have mammoth offshore organizations.
CIO.com: If IT is unlikely to contribute to U.S. job creation in the foreseeable future, what does that mean for America's standing in the IT universe?
Padron: Everyone wants to be like IBM, which started the strategy of having the right resource in the right place at the right time. Companies are becoming truly global. At the same time, IT is becoming more utilitarian and more standardized. And broadband is making all of this easier to do. When you put all of those things together, there's inertia in terms of creating jobs in the U.S. The jobs that you used to think of hiring in large numbers-help desk, network management, data center operations, disaster recover, programming-all of those are going to migrate or have already migrated to places other than the U.S. There's no need to be local today. You can work on anyone's problems from anywhere.
Jannsen: The whole bottom layer [of IT] has largely been removed from North America and Europe. A lot of the entry level roles are in India or China.
CIO.com: How will companies fill the mid- and upper-level IT roles at the top of the pyramid if that supporting base of feeder roles is vanishing?
Jannsen: Companies are still struggling with that, and it's going to become a bigger and bigger problem. It requires a change in thinking about how they build talent and where they will find the future leaders. Some will develop special training programs for the handful of folks they need. Others will take the easier route and hire ready-made leaders from the big consulting firms.
CIO.com: You're assuming the big IT service providers will continue to develop such talent in the U.S.
Jannsen: When I worked at EDS, we had big corporate training facilities-whole apartment complexes just full of people. Now those are in Hyderabad or Bangalore. They no longer have that kind of scaling availability here in the U.S.-the bulk may be in low-cost geographies-but they still have tens of thousands in the U.S.
CIO.com: You predict that IT job loss will level off at around 115,000 jobs a year, at least until 2014. What happens after that?
Jannsen: In the corporate world, it's going to be a grizzly picture here. [Net IT job loss] could continue until 10, 15 years from now.
Padron: Even longer. You know, the Chinese are now outsourcing to South Africa because it's cheaper. [U.S. IT job loss] is going to go on for a long time. It could be 50 years.
Jannsen: Companies have to understand the global marketplace. What we have is an asymmetrical talent war. In Asia or India the question is, 'How do I hire 500 people?' In the U.S. it will be, 'How do I hire 5, 10, or 50?' In the U.S., they will be hiring professionals with very specialized industry skills, the ability to manage in the global context, or experience in new technologies.
CIO.com: What happens to those hundreds of thousands of American IT professionals skilled in, say, programming or data center operations?
Padron: I was on a flight to Miami, and I met a 30-year-old QA auditor who had moved to Shanghai from Boise, Idaho. This isn't a high-level management job&mdsah;those jobs are going to some folks in Europe and North America. He was a mid-level manager. This is really becoming a global war for talent.
CIO.com: On the quasi-bright side, you say a weak dollar could mean transformational work will be done onshore. Is limited labor arbitrage really the only reason transformational projects would stay close to home? Are offshore IT organizations capable of handling major corporate change?
Jannsen: Labor arbitrage is still really compelling when you're trying to make your budget for next year. It's a challenge when people go back into growth mode to hire someone for $75,000 [a year] when they can get someone for $25,000. The weak dollar does play a role; it decreases the spread. If there's a violent retraction [in the dollar] for multiple years, we could see an end to this conversation.
Today, I'm hiring people with MBAs for $5,000 per year. They're tier two MBAs, so that would be about $55,000 in the U.S. And I do have to move them to $8,000 or $10,000 in two years. There isn't as much of a delta on the management side. For people with 5 or 10 years of experience, there's not a five to ten-fold difference in price points.
CIO.com: But what about management overhead and other hidden costs that can erode those labor savings-have those diminished?
Jannsen: It's gotten a lot easier to manage in terms of basic fundamentals. There are two parts to that-problems on the U.S. side [of the offshore engagement] and problems on the Indian side. They are both more mature. But if someone tells you they're having problems with their team in India, it usually means the problems actually exist on the U.S. side. The ability to work on a global basis is more challenging for U.S. [IT organizations]. I have a lot of my research written in India today. They used to only provide charts or data.
Padron: It's becoming a moot point, because you are going to have to manage a global workforce anyway.
CIO.com: You write that captive offshore centers are the dominant model for the globalization of IT support. In recent years, a number of large companies sold their offshore IT centers. Is that trend reversing?
Jannsen: A few years ago, a number of offshore players and some domestic providers were looking to expand their global footprint and the easiest way to do that was to buy someone's [captive] operations. Proctor & Gamble's [sale of its captive centers] was a big one. But there's not a lot of selling going on right now because there aren't a lot of new entrants that need footprints.
Padron: Global shared services centers have accelerated beyond IT to other functional areas. According to our research, 65 percent of companies are leveraging the P&G model and putting it all together-IT, finance, HR, procurement-as a global business services center. Captives are still growing and companies that know how to do business offshore prefer it because they get to keep all the labor arbitrage benefits.
CIO.com: Who oversees these global service centers-the CIO?
Padron: Some are under the CFO because they started in finance, but they're migrating away from that. Sometimes, the CIO is in charge, particularly in companies with a business-oriented CIO like Merck or P&G or Dow.
CIO.com: Offshoring isn't the only culprit in the loss of U.S. IT jobs; automation has also played a role. Which is having a bigger effect on employment prospect s for American IT professionals today?
Padron: Automation is still the preferred labor arbitrage strategy. Many companies have implemented great, new infrastructure and are saying how do we go to one instance of ERP, for example? How do we automate the next stage of work?
Jannsen: Automation has been the primary driver (of U.S. IT job loss). Looking forward, offshoring will have the biggest impact.
CIO.com: At what stage is U.S. corporate IT in coming to terms with the new global-and asymmetrical-war for talent you describe.
Padron: The first thing that went offshore was the help desk and the data center. The next thing was programming. That's lagged a bit because companies still have a lot of legacy code-spaghetti code, some non-standard thing unique to that company-and it doesn't make sense to send that somewhere else. But as the next wave of standardization happens in the next few years, those unique requirements are going to go away.
Jannsen: One other constraint is the scale issue. Companies that are $5 to $10 billion [in revenue] are ahead of other companies. Globalization is just part of doing business. But if you're a midsize company in the Midwest. it takes a lot longer. They need to go that extra mile to compete globally. The only other option is automation.
Padron: A lot of what's inhibiting companies that should be doing this is cultural. There's a lack of management team understanding of how to do business in a global setting. They're just doing things the way they've always done it.
CIO.com: What IT roles will remain stateside for now?
Padron: You have to separate the back office side from the customer facing capabilities. You'll see folks who can better integrate supply chains and do design and architecture. Customer and relationship management, those higher level strategic jobs will be retained.
We're not saying innovation in IT in the U.S. is dead by any stretch. A lot of innovation will continue to come from the U.S., but the masses of jobs will be elsewhere. We'll still see U.S. innovation in cloud computing create wonderful capabilities, but if it requires masses of programmers, they will be elsewhere.
Jannsen: Innovation will continue. It's an important part of who we are in the U.S. That combination of capital flow and entrepreneurialism is unique to America.
CIO.com: But aren't countries like India maturing in terms of IT innovation capabilities as well?
Jannsen: That's the scary part. They will get there. It's one thing to get cost savings from less strategic parts [of the corporate IT portfolio]. But at some point, Infosys is going to be just as innovative as IBM.
Padron: And some of the IBM innovation is not done in the U.S. anymore. The economic world is ahead of the geopolitical world.
CIO.com: Is corporate IT-and U.S. IT job loss-a bellwether for other corporate service functions like finance or HR?
Jannsen: Finance is catching up in a big, big way. IT was leading the pack. In three to five years, there will be just as many finance jobs lost as IT jobs. HR will take a little longer because it is a business-to-consumer function while finance and IT are business-to-business.
Read more about outsourcing in CIO's Outsourcing Drilldown.