Offshoring's Toll: IT to Endure Jobless Recovery Through 2014

by: Larry Dignan

Offshore outsourcing in information technology, finance and other back office functions such as human resources has nixed 1.1 million jobs since 2008 and will result in another 1.3 million positions lost by 2014, according to research from the Hackett Group.

According to the Hackett report the job loss rate due to offshore outsourcing has accelerated each year.

Among the sectors taking the hit, IT is taking the brunt of the offshore hits. The good news for domestic technology workers is that growth in offshore IT outsourcing is leveling off. Now offshore outsourcing will hit corporate finance at a compound annual job loss rate of 20 percent. Hackett estimated that by 2014, the annual number of finance jobs lost due to offshore outsourcing will eclipse IT for the first time.

Hackett’s report is notable since it shows how career moves need to adapt. While some positions and skills will move offshore, other areas will have shortages and high demand. Hackett noted in its summary:

On top of 2.8 million jobs lost from 2000 to 2010 in finance, IT, HR and procurement, The Hackett Group projects that another 1.0 million will disappear by 2014 in North America and Europe, representing a total reduction of 46% of jobs in these functions since 2000. While the reductions were accelerated by the recession, they were driven largely by a structural, longer-term trend of ongoing innovation in companies’ Service Delivery Models, maturation of offshoring options, and increasing levels of automation. Nonetheless, looking ahead we see that several types of skill sets will be in high demand, including those in transformation, global management and relationship management. As a result, critical shortages and demand for skills in some areas will go hand in hand with large surpluses in others, putting a premium on companies’ talent management capabilities.

Here’s the job loss picture, according to Hackett:

The big question is what roles are least likely to get whacked by offshore outsourcing. Hackett analysts said change management, project management and global management skills will be in high demand. Commodity skills such as business support will either go to areas with lower labor costs or automated.

Hackett said:

Our experience in the trenches of strategic transformation in finance, IT, HR and procurement is entirely consistent with the picture of a jobless recovery painted in this research. Demand for onshore “commodity skills” will shrink as a result of innovation in the delivery model for business support services, offshoring and automation. Nonetheless, along with specialist roles, several additional skill sets will be needed to enable the scenario described in this research, providing possible new avenues for white-collar workers whose current jobs may be eliminated. First are “transformation” skills, including change management, along with program and project management. Also, management skills appropriate for globally distributed, multicultural and virtually integrated organizations will be in high demand. Finally, emerging service-oriented organizations will drive significant demand for skills in customer relationship management and service level management. This situation may be described as a talent paradox of the age of globalization: the existence of high demand for scarce skills in some areas, and low demand and large surpluses of skills in others.