Dramatic changes to the labor landscape for IT and finance people

Dramatic changes to the labor landscape for IT and finance people

The fortunes could be mixed for Europeans working in IT and finance according to new research by The Hackett Group. Large companies in Europe are now losing over 130,000 jobs each year in these disciplines as well as in other key business services areas. This, Hackett claims, is due to the combined impact of offshoring, technology-driven productivity improvements, and the low-growth business environment. While they reckon that the number of jobs being lost will decline over the next few years, they estimates that by 2017 nearly half of all back office jobs that existed at these companies in Europe in 2002 will have disappeared, a total loss of 1.9 million jobs.

But the picture gets worse when you factor in the latest IMF growth assessment.

Purchasing Insight logoThe IMF and others are now looking at shrinking short-term global growth projections, and more than half of the European Union countries have returned to recession in early 2013. So even the modest job creation assumptions in the Hackett model may prove to be overly optimistic.

But it’s not all bad news. The demand for knowledge-centric staff is increasing. While the need for transactional staff is decreasing dramatically, businesses are keen to secure staff with the skills to help enable global business operations.

Rashpal Hullait is The Hackett Group’s managing director: “For many people in Europe seeking jobs in corporate finance, IT, or other business services areas, our research offers a bleak picture to be sure,” he commented. “The evolving offshore job market and the maturing of Global Business Services operations has simply eliminated many of the jobs that used to exist in IT, finance, and other business services areas. But at the same time, new opportunities are presenting themselves. Staff that can develop the knowledge-centric skills that companies need to support their companies’ shift to Global Business Services, and overall globalisation goals, will find themselves in great demand.”

The Hackett Group’s research estimated that 137,800 business services jobs will disappear in Europe in 2013, in the tail end of a spike in job losses which began with the recession in 2008. In 2009 alone nearly 390,000 jobs were lost, and an average of 190,000 jobs have been lost each year since 2008. In 2014 and moving forward, The Hackett Group estimates that job losses will continue, but will shrink each year, declining to 59,000 jobs lost in 2017.

The Hackett Group’s research estimates that, of the baseline of about 4.2 million business services jobs that existed in Europe in 2002, 46 per cent, or 1.9 million jobs, will have disappeared by 2017, including 728,000 jobs in corporate finance and 780,000 jobs in corporate IT. All these estimates incorporate jobs lost due to offshoring and productivity improvements (which have remained stable at about 3 per cent each year), offset by jobs created due to economic growth. A similar story is occurring in North America and combined job losses across the two regions are expected to total 8 million by 2017.

But even these job loss estimates could be conservative, The Hackett Group’s research explained, given that economic uncertainty remains exceptionally high. European Union (EU) statistics published this past May indicated that 9 out of the 13 EU countries using the euro returned to recession in Q1 of 2013. The International Monetary Fund has also repeatedly made downward adjustments to its short-term growth projections, which have dropped by more than a third over the past two years. In addition, the main engine of growth has clearly shifted from developed markets to emerging markets in Brazil, Russia, India, China, and elsewhere. While corporate profitability is at historically high levels, companies are focused on reducing fixed costs, further impacting on job creation.

A major factor in the offshoring of business services and the overall job losses is the expanded use of Global Business Services (GBS) organisations, an evolution of the shared services approach. Unlike most shared services operations, which focus on a single function, GBS organisations strive to support an array of business services, including finance, IT, procurement, and human resources, in an integrated fashion. As GBS organisations expand and mature, many companies have found they can dependably be used to drive both cost and productivity improvements year after year. Typical companies see an average of 20 per cent cost savings in their first year of GBS operations, and 6 per cent savings annually thereafter. They also see 7 per cent improvements in quality and customer service, as well as a 9 per cent improvement in productivity.

According to The Hackett Group, the employment numbers are also tied to a fundamental shift in the nature of business services work and skills. Over the past decade there has been a dramatic reduction in the need for transaction-oriented jobs in these areas, and a commensurate increase in knowledge-centric positions. The Hackett Group sees a significant talent shortage emerging in specific classes of knowledge-centric roles, including those that: support the strategic transformation and globalisation of business services; enable global business operations; and support the transition from a transactional business services model to one focusing more on partnership.

In finance, The Hackett Group’s research finds that by 2017, half of all jobs will be knowledge-centric, an increase of over 40 per cent since 2003. In procurement, the trend is even more pronounced, with over three quarters of all jobs classified as knowledge-centric by 2017, an increase of over 46 per cent since 2003. The Hackett Group’s research finds that acquiring, developing, and retaining talent in these areas will be a major challenge for many companies over the next few years.

Pete Loughlin can be found on twitter @peteloughlin

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