Once IT spending begins again , companies in need of tech workers will likely turn first to consultants and outsourcing companies before they take on full-time staff. Whether this decision contributes to what’s often called a “jobless recovery” will depend on where the work is going — onshore or offshore.
This view is gleaned from surveys and analysts trying to understand what’s next for tech job market. In the hunt for clues about the future, some of the best evidence about what’s head may be with companies that are already doing well. Take Cognizant Technology Solutions Corp., for instance.
It’s been a miserable year for many IT companies, but Cognizant, in its most recent quarter, reported a revenue gain of 13 per cent to $776.6 million, boon growth for most companies. One reason for this can be explained by one of its customers, Emmaus, Penn.-based Rodale Inc., publisher of Prevention, Men’s Health, and Women’s Health magazines.
By hiring Cognizant, Rodale CIO Ken Citron was able to cut costs for infrastructure, hardware, help desks and networks by 15 per cent on annual basis. The IT savings was achieved, in part, because Cognizant remotely manages some of the systems offshore.
About three quarters of Rodale’s IT infrastructure employees became Cognizant employees, and the remaining either received severance or moved into some other role . While Rodale didn’t want to disclose the number of employees affected by the change, Citron said the change is allowing the compay to focus on its core needs, especially its customer-facing applications and services.
Cognizant, based in Teaneck, N.J., finished last year with 62,000 employees, 12,000 of whom were in the U.S., and 47,000 in the Asia-Pacific region. Another U.S.-based outsourcing company with rapidly growing operations in India, Affiliated Computer Services Inc. in Dallas, reported $1.7 billion in revenue in its more recent quarter, a 6 per cent increase. Xerox Corp. is buying it for $6.4 billion.
Will Cognizant and ACS help with a recovery or hurt it by shifting work overseas? The only IT spending category that is expected to finish 2009 in the black is outsourcing, with a 2.1 per cent gain, said Forrester Research Inc., in a report released Tuesday. If that increase seems scant, consider that Forrester is expecting IT spending to decline overall by 9.3 per cent for the year, led by a hardware spending plunge of 15.5 per cent.
Andrew Bartels, the analyst who prepared the forecast, expects IT managers will be conservative about taking on new staff and will rely on consultants and outsourcers to meet immediate need.
“You probably won’t start to see hiring for permanent staff until the middle of next year,” Bartels said, but employers will hire consultants.
Forrester sees an overall strong recovery next year, with 7.7 per cent growth, and it’s going to be led by IT consulting services, which it expects will increase by 11.4 per cent. Consultants can be, for instance, a laid-off Microsoft Cop. employee who is working independently or an offshore contractor hired through a consulting firm. Outsourcing itself will grow about 4.5 per cent. Software spending will rise 9.3 per cent, Forrester said.
Peter Bendor-Samuel, CEO of Everest Group, an outsourcing research group, sees “some bounce” for IT services coming out of the recession because companies won’t want to “grow back” the cost structure they had before the recession hit.
“You tend to look for cheaper and more flexible models, particularly offshore,” he said.
But Bendor-Samuel also sees a far more mature offshore market with slower growth that won’t see the same increases as years past.
Forrester isn’t predicting the effect on hiring, but the recession has delivered a pool of available workers. The industry group TechServe Alliance, in Alexandria, Va., which analyzes U.S government IT occupation data that includes software engineering, programming and systems analysts jobs, found in June that IT employment was at 3.8 million, for a year-over-year decline of about 5 per cent.
Fred Maidment, a management professor at the Ancell School of Business at Western Connecticut State University who has studied outsourcing’s impact on workers, said that when companies start adding jobs again, many of those jobs may be created in other countries.
The downturn in 2001 to 2003 was the first time the U.S. felt the impact of the shift overseas in highly skilled, well-educated workers jobs and that shift is continuing. “This is going to be even more of a jobless recovery,” Maidment said.