More outsourcing reduces IT staff levels

With companies increasingly turning to outsourcers and other
service providers, the size of IT teams will fall. IT workers will therefore be more likely to work for these firms rather than end users

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By  Neil Denslow Published  March 13, 2003

|~||~||~|Businesses will replace between 35% and 45% of their full time internal IT staff by 2005, as they realise the benefits of outsourcing IT functions. According to Foote Partners, these workers will be replaced by a combination of job-sharers, outside consultants and contractors, offshore developers and other service providers.

Companies are turning to outsourcing because of the advantages it offers in terms of cost and flexibility. However, the reduction in staffing levels also reflects some companies’ over-investment in technology and IT staff during the 2001 tech boom.

“Flexibility and the ability to shift gears quickly is becoming standard, not optional, in core IT operations, so when the economic haze clears, companies will be more aggressively reconstituting their workforces, not simply going back to ‘as you were’,” says David Foote, president & chief research officer, Foote Partners.

A number of factors are making outsourcing a more feasible option. The fact that systems are now becoming more efficient and user-friendly, for instance, means that support can be more easily performed offsite. Systems and applications are also becoming easier to integrate, and the industry is getting better at developing customer-friendly online business models, which makes outsourcing more appealing. The main issue, however, is that aside from in a few technology dependant sectors, such as telecommunications and banking, companies can simply no longer afford to manage big slow moving IT departments.

“[This] is the silver lining and blessing to this recession — it has forced companies to end decades of behaviour that was completely inappropriate to the way things work today, practically ripping their white-knuckled, tightly gripped hands off the steering wheel and drawing blood. Old habits die hard, but they do die, and quickly when you run out of money,” says Foote.

Within the region, some companies are also beginning to adopt outsourcing, especially the use of outside consultants. As a result, a number of service companies are actively recruiting staff as they put a greater focus on outsourcing.

“Companies more and more don’t want to be hassled with having their own IT departments,” says Ewan Walton, sales manager, ITP Consulting. “Even though ASPs haven’t taken off in the Middle East, you are getting forms of outsourcing that have,” he continues.

In the future, IT professionals are therefore more likely to work for a service provider rather than an end user company. Therefore, while talk of 35% job cuts sounds alarming, workers need not necessarily fear the rise of outsourcing, which they often do. “We’re always perceived as a threat to the technical component of any business,” complains Tony Sparks, CEO of ASPGulf.

The switch from working for an end user company to a service provider can even happen directly, as staff transferral is often a key part of the discussions leading up to an outsourcing agreement being signed. Indeed, as much as 50% of a company’s internal IT staff will be transferred directly to the ASP, as the service provider needs both the people and the knowledge in order to support the end user company’s applications.

“Generally, we would prefer to take on key members of staff, especially in big ERP [enterprise resource planning] projects where you have the people who have been involved in the structure of the ERP,” says Sparks. “You can’t just pick up that knowledge overnight, so it’s very important to get those people onboard with you,” he continues.

The possibility of being transferred to an ASP may still concern some technicians, especially in regards to the impact on their salary. However, this is assessed on a case-by-case basis, which may see some employees getting a pay hike from their new employer if they were getting underpaid. Conversely, however, overpaid staff may also see their salaries fall.

Either way, just as IT professionals have to get used to working with new technologies, they will also have to accept changes in the way they work, as more and more companies are going to turn to outsourcing once they realise the advantages it offers.

“[This realisation] will drive changes during and after this recession, as smart managers begin to wonder how they could have ever existed in the old days with these big lumbering IT departments,” says Foote.||**||

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