Despite being one of modern business’s youngest industries, the IT sector has some experience of economic turmoil having borne the brunt of the dot-com crash in the early years of this decade.
In some respects, therefore, it may be better prepared for what lies ahead than many other industries. However, the extent to which the sector has learned the lessons of the past – and to which those lessons still apply in this altogether different catastrophe – is open for debate.
It is fair to say that the economic shock waves that began in the financial services industry in 2007 have already had significant consequences in the UK IT
Even by August 2008, before the most catastrophic losses in the City occurred and before their impact began to be felt in the broader business ecosystem, the number of IT management jobs advertised in the UK had fallen by 30% over two years.
And the UK’s IT workforce was feeling the pressure. A survey conducted in August of IT contractors – often the first to go in times of trouble – found that 50% were concerned about the future of their jobs, up from 12% just six months previously.
This was before a tidal wave of redundancies – often focused in back-office functions such as IT – from companies ranging from Barclays to Woolworths struck in the last quarter of the calendar year. Telco and IT services provider BT made the headlines with plans to make 10,000 staff – mainly contractors – redundant before the end of the year, although it denied any connection to the credit crunch.
By November, confidence in the IT employment market was more or less shot. Just 9% of IT managers felt confident in their jobs according to research by the Chartered Management Institute. Over half of respondents (63%) said their work had become more stressful, and 40% reported having lost sleep over concerns for the economy.
That is proof, were any needed, that the current economic climate is cause for considerable personal concern for individuals working in the IT sector.
But it is equally worrying for the businesses and organisations whose very success depends on the deployment of information technology. That is because the already sparse supply of skilled IT workers is in grave danger of being substantially reduced.
People of tomorrow
More people work in the IT sector, or in IT within other sectors, today than ever before. According to government IT training body e-skills, just over a million people work in IT in the UK.
However, a report published at the start of 2008 found that the shortage of IT skills in the UK is at its most pronounced for ten years.
The report, conducted by IT management advisory the National Computing Centre (NCC), showed that 40% of organisations had encountered difficulties recruiting suitably trained staff, up from 29% just a year before.
It is reasonable to assume that, in the short term, mass redundancies in the IT departments of ailing financial services companies will help other employers find skilled candidates. And IT managers are not, as one might assume, digging in for the duration of the recession: the Chartered Management Institute’s report found that 66% of senior IT executives would switch jobs if an appropriate offer came along, and 37% were actively seeking a senior role.
But in the short term, it is unlikely that this surplus will be needed. The same survey found that 37% of respondents said their IT departments had already frozen hiring. And, without meaning to add to the gloom, it is fair to say more organisations are likely to follow suit.
It is in the medium-to-long term that these skilled workers will be needed and there is a risk that they simply will not be available.
One reason for this could be that people currently employed in IT look for work outside the sector, never to return. But one could equally argue that staff in other sectors might move into IT in search of more reliable work.
It is more likely that over the next few years, the UK’s IT skills base will be undermined by offshore outsourcing.
The downward pressure on IT budgets precipitated by the credit crunch will make the service offerings of the Indian IT providers, for example, all the more appealing. While it must be noted that businesses do not always find offshore outsourcing delivers the kind of cost reductions they may have initially expected, the combination of labour arbitrage and exchanging permanent employees with contract workers is almost certain to attract new customers.
Among the many consequences of the credit crunch has been a thawing of relations between the UK’s IT workforce and its employers, in some quarters at least, with offshoring the bone of contention. While economic conditions make offshoring more appealing for employers, they also make it more damaging for the employees whose jobs are offshored.
French IT services Steria was threatened with industrial action in October 2008 over a plan to move jobs under its contract with Co-operative Financial Services from Manchester to India. Earlier, the union that represents Lloyds TSB’s workforce called upon the bank to scale back its offshore workforce, not its home staffing, in the event of the proposed merger with HBOS. It argued that it would be more expensive in the long run to pay out redundancies than decrease UK staffing.
John Cotterell, CEO of IT services firm Endava which has its development resources in Eastern Europe, says that the recession bodes well for businesses like his – at least in the short term.
But he is less positive about the long-term impact that this will have in the UK. Firstly, sending low-ranking jobs offshore jeopardises the future availability of managers with hands-on experience. “And with all this money going offshore, are we not accelerating the recession?” he asks.
A further threat to the UK’s IT skills base is that the short-term view managers adopt in times of difficulty often leads to training budgets being cut.
Alwyn Welch, CEO IT recruitment consultancy and training provider Parity, argues that this is false economy. Investing in training is not just a cost-effective way to strengthen the organisation’s skills base, but also an indication to staff that they are valued as an asset.
“We would encourage businesses to invest in and retain their key staff,” he says. “They are going to need them more in the next two years than they ever have done.”
But are these arguments enough to persuade organisations against cutting their IT staffing levels? Perhaps not: the strategy of reducing IT employee costs has been voted as the least effective in the Effective IT Survey for two years in a row.
This year, however, only 20% of those respondents who had adopted the strategy, described it has either not very or not at all effective, down from 35% in 2007 and 33% in 2008.
Clearly, economic circumstances are leading some IT decision-makers to reassess the value of their staff.