IT offshoring is exaggerated and the IT labor shortage is real

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.