News
Analysis of results from IT Directors’ Survey
IT Directors are surprisingly bullish about the outlook for staffing and project levels over the next 12 months, with no signs that IT departments are expecting a repeat of the bloodletting in the 2001/02 downturn.
Over 45 IT Directors responded to this, our first survey of staffing trends, from a broad cross-section of organisations, including several global companies with IT departments in excess of 250 staff. Of the IT departments surveyed, the typical mix of permanent staff to contractors was 84% to 16%.
Headcount and pay expectations
The overall impression is that, despite entering a period of economic uncertainty, demand for IT skills is likely to remain reasonably buoyant over the next year, especially on the permanent side. 49% of IT Directors expect to boost permanent headcount compared to just 13% who plan to shed staff. The pressure on IT departments to drastically reduce headcounts, which was felt after the dot com and Y2K booms, does not appear to be exerting itself just now with the net result expected to be a gain in permanent staff over the coming year.
69% of IT departments are looking to increase or maintain their contractor levels over the next 12 months but 31% of respondents said they actually planned to decrease the number of contractors.
Contractors are a flexible skills resource that can be turned on and off with ease. It is sometimes the case that organisations reduce contractor numbers first during a period of uncertainty before putting in place hiring freezes on permanent staff if the outlook worsens.
IT Directors overwhelmingly expect staffing costs to rise over the next year. 55% expect salaries for permanent staff to rise; none are forecasting a fall in wages. Expectations for contractor pay are a little more modest. 22% of respondents are predicting a rise in contractor rates, just 5% a reduction in hourly rates.
It is generally easier to reduce costs by negotiating on contractors’ rates than wages for permanent staff, but with IT skills in short supply the opportunities to do so are expected to be fairly modest. During the last downturn contractor rates in the financial services sector were reportedly slashed by a significant number of organisations – we appear to be some way from a repeat of that scenario at present.
In summary, the temptation to make comparisons between the current economic climate and the 2001/02 downturn are premature. We had a number of factors coming together in 2001/02, which were unique and which are not being felt today. IT departments had a skills surplus following the dot com and Y2K booms. As demand fell away, 9/11 tipped the market over the edge. It is difficult to foresee events unravelling in a similar manner this time around.
Concern over key staffing issues
We asked IT Directors to classify the level of concern they felt for eight key issues facing IT departments over the coming year. Three key issues are of particular interest. An overwhelming 74% of respondents were in some way concerned about attracting high calibre candidates over the next year. This very much suggests that skills shortages remain a perennial worry for IT departments and there is little expectation of a significant outpouring of talent onto the jobs market .
An even greater number (81%) voiced concern about retaining key personnel over the coming year, indicating that competition among organisations for rare talent is still intense and likely to drive pay increases. We are still seeing an acute shortage of candidates with .NET proficiency, for example, and project management skills remain in high demand. With IT departments looking on balance to increase headcounts, finding and keeping the right skills may become even more challenging as the year progresses.
Interestingly, 57% of those surveyed were not at all concerned about non-compliance with employment law – suggesting a high level of confidence in existing HR policies and practices. Employment law has mushroomed over the last 10 years in scope and complexity.
Legislation making age discrimination illegal came into force in 2006, which at the time was predicted to cause problems for IT departments because of the typically young age profile of IT candidates. Despite this, after two years it is difficult to think of a single successful age discrimination claim against an IT department.
Offshoring – signs of a backlash?
A surprisingly significant proportion of IT departments are planning to offshore more work over the next 12 months. 19% said that offshoring was on the agenda, though perhaps of even greater interest, 6% claimed that they were considering bringing previously offshored work back to the UK - or ‘onshoring’ as it is sometimes called.
There have been questions raised about the rationale behind offshoring as double digit wage inflation erodes the cost advantage offshore IT hubs have in relation to the UK, and separate concerns about service delivery and data security have not been entirely resolved. On balance, the net flow of IT work is still offshore – but for how much longer?
IT budgets and project loads
IT Directors were fairly robust about their workloads and spending plans for the next financial year. In terms of project workload, 58% of IT departments expect to increase their output over the next 12 months, compared to just 6% who anticipate activity levels tailing off. 47% of respondents are forecasting an increase in their IT budgets, compared to just 19% who expect to have less to spend.
IT is often one of the areas organisations look at to make savings during difficult trading conditions. Projects which will not deliver an immediate return on investment are sometimes shelved as spending is reined in. A powerful counterargument has it that spending on IT during a slowdown can deliver efficiency gains and boost competitive advantage, which generates far greater cost savings over the longer term. For the time being, it appears this second argument is holding sway.
Conclusion
The survey has provided some valuable insights into how the current slowdown, in so far as it impacts IT departments, may differentiate itself from the sharp correction which hit the IT sector following the dot com bubble. Apart from a mild slackening in demand for contractors, the outlook overall is reassuringly positive, with staffing levels and workloads overwhelmingly expected to increase over the next 12 months. As a corollary of that anticipated level of demand, the issues of overwhelming concern to IT Departments revolve around acquiring and retaining key skills.
5 August 2008
