Offshoring Drives IT Job Losses

 
 
By Samuel Greengard  |  Posted 2013-09-05
 
 
 
offshoring job losses

By Samuel Greengard

A new research report released by The Hackett Group indicates that offshoring and a spate of new technologies are leading to more than 250,000 lost jobs annually in IT, finance and other key business service areas. At the same time, a war for talent is entering a new phase, with demand peaking for staff to support global business operations.

The report, "The End of Offshoring As We Know It and The Beginning of Global Operations," notes that while the actual number of jobs disappearing will decline over the next few years, by 2017 nearly half of all back-office jobs that existed at these North American and European companies in 2002 will have vanished. This amounts to a total loss of 3.7 million jobs.

"What we're seeing is a transition, a shift in mindset, toward an increasingly integrated global economy," points out Erik Dorr, senior research director for The Hackett Group. "Companies are no longer looking only at moving jobs offshore and increasing automation. More and more, they're starting with a clean piece of paper and making sourcing decisions based on the best place to put a capacity or service, without having to worry about where things were on a legacy basis."

Fueling this changing landscape, Dorr says, is the expanded use of Global Business Services (GBS) organizations, an evolution of the shared services approach. Unlike most shared services operations, which focus on a single function, GBS organizations strive to support an array of business services—including finance, IT, procurement and human resources—in an integrated fashion.

Businesses typically achieve an average of 20 percent cost savings during the first year of GBS operations, and 6 percent savings annually thereafter. They also see 7 percent improvements in quality and customer service, as well as a 9 percent improvement in productivity.

Offshoring could accelerate in the years ahead. According to the study, the International Monetary Fund and other organizations are now expecting shrinking short-term global growth projections, and more than half of the European Union (EU) countries have returned to recession in early 2013. So while The Hackett Group sees a growing "war for talent" and demand for knowledge-centric staff increasing, even modest job creation assumptions in its model may prove to be overly optimistic.

The challenges aren't going away anytime soon. "Companies need to realize that the current environment is still highly disruptive," Dorr explains. "Many employees may be in a state of high anxiety and uncertainty, and find themselves unmotivated. Long-term employees may be very insecure about whether their jobs will be there in two years, and what those jobs will look like."

Navigating this environment requires organizations to rethink priorities and how they approach staffing. Amid the turmoil, it's critical to manage this transition and help employees deal with anxiety.

"Otherwise, organizations may find that when something better comes along, employees with critical skills will be out the door," Dorr warns. "Companies that don't address this issue may end up with a mediocre talent pool."