IT offshoring is exaggerated and the IT labor shortage is real

IT offshoring is exaggerated and the IT labor shortage is real

Summary: IT departments are planning to increase offshore outsourcing in 2009, after two years of declines. Nevertheless, a new survey shows offshoring remains a very small portion of IT budgets, and U.S. IT leaders say they’re still grappling with an IT labor shortage.

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The fastest way to raise the hackles of most U.S. IT professionals is to mention offshore outsourcing. Among them, there is a common perception that U.S. corporations are cutting IT budgets by laying off lots of IT professionals and shipping their IT jobs overseas, and generally wrecking a lot of IT departments in the process.

This perception has been driven by two sources: 1.) the media, which has latched on to outsourcing stories, and 2.) by several large and prominent U.S. corporations such as Dell and Citibank that have outsourced much of their consumer customer support to offshore companies in India.

However, new evidence shows that the IT offshoring trend is greatly exaggerated. The Society of Information Management's 2008 IT Trends Survey shows that IT leaders are planning to increase offshore outsourcing in 2009, after two straight years of declines. Nevertheless, even with the increase, offshore outsourcing only represents five percent of projected 2009 budgets, and CIOs say they are still having trouble finding enough domestic IT workers with the right mix of skills to fill the open positions that they are keeping at home.

As you can see in Chart 1 below from the SIM survey, IT leaders reported that they plan to make offshore outsourcing 5.2% of projected 2009 budgets, a jump of two percent from the 3.2% in 2008 budgets and breaking the trend of two straight years of decreased outsourcing after it had previously peaked at 4.2% in 2006.

The global economic slowdown is obviously the most likely culprit behind the uptick. A lot of IT leaders will be trying to do more with less in 2009, or at least doing the same amount of work with smaller budgets. Thus, it's likely that many of them who already do some outsourcing will be shuffling some work to their overseas partners in order to trim budgets.

Chart 1

However, if you look at the big picture of projected 2009 IT budgets in Chart 2 from the SIM survey, you can see that offshore outsourcing is still is very small sliver of the overall budget. It is dwarfed by the 33.7% of the IT budget that is dedicated to internal staff - the largest item in the budget by far. It is also less than the 6.2% of the budget that is dedicated to domestic outsourced staff.

As for the color coding of Chart 2, yellow denotes items that are roughly the same since last year's survey, red denotes items that are decreasing, and green indicates items that are increasing. As for why Chart 2 shows offshore outsourcing as 5.6% of IT budgets while Chart 1 lists the number as 5.2%, that is unclear but I have appealed to SIM for an explanation and will update this article when I have that information.

Chart 2

Jerry Luftman, an IT professor and the SIM director who oversees its surveys, said that a number of factors are behind the exaggeration of the impact of IT outsourcing, but he called out the media as one of the primary culprits. He said, "Part of [the problem] is the press saying everything is going to India, which is absolutely not true."

Luftman, who is also a former IT executive, said that he's hearing from CIOs that they continue to have trouble finding enough candidates to fill all of their open IT positions. "There are more jobs than there are qualified people," he said.

Sunoco CIO Peter Whatnell, who will serve as the president of SIM in 2009, confirmed that he's one of the IT leaders grappling with the IT labor shortage. He said, "There's the attractive companies like Intel, Google, and Sun that have to beat people off with a stick, and [then there's] the rest of us who have to work to find people."

Of course, as an oil company, Sunoco is part of what Whatnell calls "the old heavy metal industries." He noted, "These types of industries have been unattractive since the turn of the century."

Bottom line for IT leaders

While articles like a recent one from CIO Magazine about the impact the U.S. recession will have on offshoring continue to talk about the offshore outsourcing as if it's a massive chunk of the IT budget, the data from this year's SIM survey helps put it in the proper perspective.

For the U.S. IT job market, there's a bigger threat than outsourcing. It is the lack of qualified candidates in the labor market. Even in the current economic environment, this issue is going to become more acute with the impending retirement of Baby Boomers and the smaller-than-needed numbers of math and science students that are graduating and looking for IT jobs.

There's no quick fix to this problem. Most of the SIM chapters do a variety of activities to help advocate for math and science and to help raise awareness among students about IT as a viable profession. College IT programs are maturing as well, as TechRepublic recently noted in its special report on the Top 10 IT College Programs.

But a big part of the solution is changing the perception that most IT jobs are being outsourced to India or China, or will be eventually. As recent data indicates, that is blatantly false.

Topics: Enterprise Software, CXO, Outsourcing

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  • We can fill their jobs

    I write frequently about why our corporations cannot fill their positions and even offer to fill them, but so far I have had absolutely zero takers from my challenge which tells me that they are not serious.

    Problem 1 is that the manager needing the help has turned the search over to HR. HR has good people, but they don't understand the managers business so they use software that searches their resumes for buzzwords with a very broad range of skills.

    Problem 2 is that the IT business has become more and more specialized, so you will have a hard time finding people with a generic skillset

    Problem 3 is that most positions now require a degree which knocks a lot of us out because instead of choosing to go to school, we served our country in the military and then taught ourselves the skills to work our way up the ladder.

    Problem 4 is that the IT offshoring is NOT exaggerated and the their is NO IT labor shortage as there are plenty of us that are ready and willing and able to go to work and we can hit the ground running. Sure some of us may have some outdated skills as we have been out of the IT business for the last 6 years, but the Manager in your job title tells me that you are willing and able to mentor and train your staff as long as they have good fundamental skills. If you're not willing to do so, then perhaps you are in the wrong position and your company should replace you with somebody that does understand that managing a dept means taking good basic skills and teaching your people the specific skills that you want to see in your department.

    I write about these items and more every day at http://www.KeepAmericaAtWork.com

    If you can't fill your positions, take a look at my site, especially the article titled "So you can't find help ?" and I will fill them for you because I'm sick and tired of hearing how our corporations can't find help when there are so many of us out of work.

    Virgil
    http://www.KeepAmericaAtWork.com
    vbiersch@...
    • RE: We can fill their jobs

      I have to agree with Virgil. I'm an IT Manager/Project
      manager with over 25 years experience in the Fortune
      1000. I've been out of work for going on 8 months. I
      have a very current and relevant depth of skills.

      I submit my resume to some 25 to 50 positions online
      every week... I was at least interviewing occasionally
      until about 3 months ago, then all the positions that
      were at some stage of interviewing closed their job
      reqs until at least after the new year. I don't know
      if all of these jobs I'm submitting to are real open
      positions or not... I usually get an automated email
      response on the receipt of my resume. But I only ever
      hear back from maybe one in ten when I get a rejection
      email. I rarely ever get a chance to give my
      'pitch'... If I try to contact somebody at the
      companies I'm targeting, I get a "please use our
      careers web site" response.

      And of course, the 'magic bullet' of "Networking"... A
      good portion of my 'Network' is already in the same
      sinking boat or in fear of having to start bailing
      with us.

      I'd be interested to know about how many of the 11Mil+
      unemployed in the US right now are IT professionals
      with decent skills going unused.

      Doug
      http://www.linkedin.com/in/jddalrymple
      jddalrymple1
      • As of September...

        ... a sudden decrease in interest in hiring people is understandable. That's when many people decided to believe what they heard and the economy tanked.

        There's a question to what degree the banking crisis had to spread to other areas of the economy, and to what degree negative news created its own effect. I think both were significant.

        Anyway, when panic starts, new hires decrease in priority.
        Anton Philidor
        • A new batch(~140,000) of H-1B's started coming in Oct 1, 2008

          with the start of Federal Fiscal year.

          Good luck finding a new job.

          P.S. The H-1B's already have job offers, and many of them are here to displace US citizens from their current tech jobs.
          thetruth_z
      • RE: We can fill their jobs

        I took early retirement more than two years ago, because of worsening conditions. That allowed me access to a retirement account w/o tax penalties. I wouldn't want to endanger that access by working full time, but my skills are still current for part-time work, remotely (via broadband).

        I suspect there are many others (and know a fair number) who are also oddly situated (over 50, but nowhere near fully employed?) who could help ease temporary IT staff needs.
        AlterGeek
      • How many STEM workers are under-employed?

        How many software product developers are now pet-
        sitters, live-stock-tenders, yard-workers, retail sales-
        people?

        How many STEM workers are now coffee servers,
        mechanics, roofers?

        How many STEM professors are teachers' aides or post-
        post-post-docs?

        How many STEM workers are now dependents on friends
        and relatives?

        How many STEM workers who used to have full-time,
        long-term employment are now bodies shopped?
        Professor8
      • RE: We can fill their jobs

        Doug,

        You?re precisely on the beam. A year ago, I could have taken your reply verbatim and applied it to my own job situation. I lived your experience right down to the letter. My position was ?resourced actioned? to Bangalore.

        After a little less than a year of searching and several hundred resume submissions I am finally back at work. I think my age played a large role in securing a new job (and in probably losing my old one). I have the skill sets in demand and some of the job ads I responded to, I could have written as my ideal position. However, I?m pushing 50, though I could pass for 10 years younger. I could never get to a point to pitch myself face-to-face either. Age discrimination is illegal (isn?t it?), but I don?t think it is illegal for companies to ask you (as a required response field) the year you graduated high school on their ?careers web site?. A most fine example of pure, unadulterated bs.

        Good hunting and good fortune to you, sir.

        dan
        zdlb07
    • Thisis good - you missed something

      I think you have hit the nail on the head, but I think you also need to look at:

      http://www.youtube.com/watch?v=QR1Jke2NWTA

      Which HR attorneys actually teach corporations how to not hire people for the positions.
      The Admiral
      • lawyers teaching how to avoid able & willing US workers

        Lawyers have been teaching how to avoid able & willing US
        workers, and actively running interference for their clients.

        http://www.ilw.com/articles/2000,0424-Stewart.shtm

        http://www.kermitrose.com/econ200706.html#Best2007
        and following, includes commentary, links to commentary,
        transcripts, 20 + videos...

        http://heather.cs.ucdavis.edu/Archive/
        HarrisMillerRunForSenate.txt

        http://www.cs.ucdavis.edu/~matloff/Archive/NAS04.txt
        http://www.kermitrose.com/econ200602.html#20060226

        http://heather.cs.ucdavis.edu/Archive/SpecterBill.txt
        http://www.kermitrose.com/econ200603.html#20060310

        http://www.dol.gov/opa/media/press/eta/
        eta20080752.htm
        http://www.kermitrose.com/econ200806.html#20080602
        and the materials which follow

        http://www.kermitrose.com/econ200807.html#20080704
        and following materials

        http://www.kermitrose.com/econ200808.html#20080812
        and the materials which follow

        http://www.kermitrose.com/econ200809.html#20080918
        and following down through 2008-09-24
        Professor8
        • Horse Pucky there isn't any IT labor shortage

          It comes down to a very basic decision. The company I work at is an excellant example they outsourced application developement when they found out they could hire a team of 3 developers and a manager for 4k per month in India, about what it would cost to hire a single developer here in the US. The fact is that companies don't want to pay for a US IT workforce. So many companies are shipping the jobs overseas to get a huge discount. You can get even cheaper rates from China and some of the Balkins countries. It comes down to dollars and cents and the US force is for the most part priced out of the market. I still have my job for now because it's too expensive to ship low end servers overseas for repair and configuration. If those prices drop then my job will go over seas or I'll have to take a pay cut.
          maldain
          • whole software development shops off-shored

            Yep. I heard that Vignette in Texas wiped out their whole
            software development staff.
            Professor8
    • Yes, we can fill their jobs!

      I agree, and also they require experience and will not give it to you. For the longest time I worked in the 90's trying to get said experience without much luck and to my frustration was relegated to the role of consultant or temporary employee. I would take any job related to computers to get experience in IT, but one of my biggest shortcomings was my lack of a Bachelors Degree. In 1998 or 1999 I got luck and landed a job with a major consulting company in the state where I lived and worked a few years in the role of "Network Analyst" where I was quite happy until I was let go the year after the 9/11 event in 2001. Even working as a Network Analyst the company I worked at had a hiring freeze and refused to allow their departments to hire anyone permanently.

      Due to the fact that I only had an Associates Degree many employers would respond to my attempts for permanent employment that, "I did not have a degree"... I thus sought after certifications in the early part of this decade and obtained my Network+ and A+ certifications through help from a state funded program known as the Work Force Investment Act or WIA. I admit that these certifications are minor compared to the big Microsoft Certified Systems Engineer and the Cisco certifications that are out there. However, at the moment I cannot afford the expense it takes to go after those certifications and hoped that these to certifications would at least add to my competitive edge and give me more or a competitive edge towards obtaining meaningful employment.

      I later found another contract job working for a major phone company, but than again my job ended when the union voted to take over the job that the contractors were doing.

      In 2006 I went back to school and completed my Bachelors Degree earlier this year. I now have a Bachelors in Computer Information Systems, which I just finished June of this year. I am not sure what job positions to pursue as employers are demanding such a broad range of skills with almost all job postings and quite frequently seem inflexible with their demands as to what they want in a candidate to hire. Most of the postings I see demand knowledge and experience in programs and systems that I either have never heard of or have not had the opportunity to get exposure to. I am quite willing to learn and in fact enjoy exposure to new systems, languages and such.

      I submit that employers want people with such vast experience as they are demanding they need to contribute to the education of IT professionals and be a bit more flexible in their hiring practices. Allow us to learn so we can become better employees and provide us the opportunities that we yearn for.

      Another reason that I might be being denied for employment is that over the years I have gotten a bit negative at being denied for employment that I knew I was qualified for and it has been quite a frustration for me, as I prided myself on the ability to solve problems that other IT professionals were not able to solve, and even now am continually expanding my knowledge base on software and hardware.
      Computer_User_1024
      • Your post belies the assertion of the article

        The fact is that there is a glut of IT professionals on both the US market and the world market. Otherwise companies would be asking for people who were expert in all programming languages and website design and a bachelors degree to even be considered.
        maldain
      • another body shopped

        That's another sad example of both hyper-credentialism
        and out of control body shopping.

        NSF reported a few years back that 40% of capable,
        employed IT workers did not have bachelor's degrees,
        about 20% of engineers did not have engineering degrees.

        Employment as a body shopped is huge as compared to
        full-time permanent employment developing shrink-wrap,
        pre-packaged, or commerical-off-the-shelf (COTS)
        software products.

        see the graphs:
        http://www.kermitrose.com/jgoIndustries.html
        Professor8
    • Or in my case

      I first fell in love with computer technology in 1980. Working in construction to pay for my toys when "IT jobs" were a small and esoteric part of the workforce, I taught myself programming languages such as C, I built and repaired God knows how many computers and computer gadgets, and still the best I could get job-wise was at the local retailer. Construction paid better.

      I'm constantly trying to learn new technologies; HTML, PHP, Java, XML, Flash/Actionscript, Photoshop, 3D packages such as Maya, I set up my own Apache webserver just to learn how to do it, as well as mail and MySQL servers (didn't even know what AJAX or LAMP meant until later). I've installed most every flavor of Linux from Redhat to Debian, even FreeBSD, just to learn them. I even bought an SGI O2 and an IMac just so I could learn how to learn the workings of their systems, and I've taught myself the intricacies of every flavor of Windows from 3.0 to Vista (even to programming obscure APIs such as WinG). I've taught myself to install and set up Novell and Ethernet networks.

      The closest I ever got was to become a registered Amiga developer in the early 90s, and my publisher went under before I completed my first project.

      When I finally quit working construction, I got a job as a dispatcher for a delivery company. My knowledge of computers and networking gave me the "privilege" of assuming responsibility for installing and maintaining the company's local office network hardware and software, training other people to use it, and creating and maintaining the corporate web presence. All for the salary of a dispatcher (I think I made it up to $9.50/hr). I'd probably still be doing it if the company hadn't gone under this year.

      But, I don't have any degrees or certifications, so I'm screwed in looking for any kind of an IT job. Screwed by my lack of patience for classrooms, I guess.

      I don't know how much it costs to outsource IT jobs, but how much would it cost one of these companies who complain about labor shortages to get someone like me certified?
      hiraghm@...
      • I forgot...

        I was to get a raise up to $10.00 an hour because I'd written a program to automatically calculate the company's byzantine pricing mechanism (in C++).
        hiraghm@...
    • Re: We can fill their jobs

      Amen brother! I worked for 20 years for one company, 8 in financial and 12 in IT. I got tossed out on my ear because their out-sourced to IBM...of India. That company is now out of business; I won't say the move to India did it because their management made a lot of bad decisions (including outsourcing), but it didn't help to have all the developers 10,000 miles away from the business owners.

      My next gig was at one of the Big 3 (they're doing real well too, aren't they) and they actively ramped up as much maintenance, production support and development to India as they could.

      My current gig is over next week, another Big 3 contract to a company on your "Wall of Shame" list that is getting moved to IBM-India yet again. As I'm such a nice person, I do wish them well...they need all the well-wishing they can get as I just don't see them cutting the mustard.
      sqr(cos(180))
    • Right on!

      You've said it better then I could. There is zero need to outsource IT. Businesses just want to get cheap IT at the expense of Americans and America.
      shanedr
  • The real shortage is qualified managers

    There are alot of talented, experienced IT professionals right here it the US. Try finding a decent manager, one who REALLY understands IT and is not just looking for the "magic bullet" to solve all IT challenges. True IT professionals understand what it takes to be successful. Hire talented people, respect them, pay them right and get out of their way. Instead we get crap like "Agile mentors" or "SCRUM masters", "Xplanner", etc, whatever the management dujour is. I know alot of really good IT people that are just so fed up with what passes as management today that they just give up.
    ddmattison
    • Totally Agree

      I totally agree that IT management in general is terrible. I actually recently applied for a position outside of IT because I am so fed up with crappy IT management. I have both IT and other skills and am so fed up I am willing to go use those other skills instead.
      msgrinnell@...