Outsourcing rise leads to reduced spend on IT staff

ONE in 20 members of staff in blue-chip companies is an IT worker, according to Meta Group's Worldwide Benchmark Database.

The figures demonstrate that technology - and the people who know how to best use IT systems - are integral to global business processes.

'Even the most senior executives check their own email, and for more than five years, new blood in a company has been technology-literate youngsters who are used to PCs at home,' says Neil Barton, vice president of benchmarking and measurement at Meta.

Yet the pervasiveness of technology throughout the working culture of large organisations increasingly means that staff are sceptical about new systems.

'IT users today are both experienced and cynical,' says Barton. 'Most middle managers have been through three or four system implementations. So it's becoming harder to find someone at the operational level who's easy to convince of the benefits of a new technology.'

More workers may be involved, either directly or indirectly, in the use of technology, but companies expect to spend less on IT personnel. Blue-chip businesses expect to spend just 31 per cent of their IT budget on personnel in 2005, compared with 42 per cent in 2002.

Barton says the main reason for this fall is the continued rise of outsourcing.

Over the same time-frame, companies have increased the percentage of IT spend given to outsourcing from 11 per cent to 25 per cent. One in every four businesses is now outsourcing an IT function.

'Outsourcing is fashionable right now, and after a number of years of feeling disappointed by their internal IT organisation, executives are ready to give a chance to someone new,' says Barton.

'While outsourcers speak mostly about the transformations they perform, most of their customers are lured primarily by the promise of substantial cost reductions, a promise the outsourcers say they can achieve through economies of scale and superior management practices.'

As they enter a relationship with a service provider, users often outsource responsibility for their business processes. But Barton says there is a growing need for the personnel who remain at headquarters to manage the outsourcer to be re-skilled.

'Many are learning on the job that managing a contractual relationship is quite different from line management,' he says. 'Many customers are still spending too little on the retained function and governance of the contract.'

Robert Chapman, founder of training specialist The Training Camp, says learning how to manage outsourcers will be a staffing priority in 2005.

'It's about how companies keep control and maintain the quality of service. Companies still need people with project management skills in the UK,' he says.

But William Grubbs, chief operating officer of recruitment specialist Spring Group, says the increase in demand for IT professionals will continue throughout 2005, despite the recent trend towards outsourcing and offshoring.

'The past 12 months have seen a significant increase in infrastructure and software upgrades, as companies embark on projects that were previously delayed,' he says. 'This in turn has led to month-on-month increases in demand for both contract and permanent IT professionals, and is now beginning to result in pay rate rises and some skills shortages.'

Grubbs says one of the key issues facing UK IT directors will be the retention, attraction and motivation of staff.

'The pressures in the market mean that, to meet business needs, organisations must actively analyse their future demands for IT skills,' he says. 'Businesses will need to develop flexible staffing strategies, combining the use of permanent, contract, onshore and offshore resources as appropriate, to access the range of skills they require.'

Patrick Bossert, director of business transformation and outsourcing at Atos Consulting, says key focus areas for 2005 will include datawarehousing and analytics, application integration for business transformation, and information risk management, including regulatory compliance and security.

But Chapman says the biggest skills priority will be security. 'Everybody talks about it, particularly the social engineering side. Businesses need to educate the masses,' he says. 'And it's still about the simple stuff, such as not sticking your passwords to the side of your computer.'

Sandra Smith, head of IT at Toshiba, is credited with initiating the technology company's IT Innovation Programme, a scheme which has created a significant return on investment for career development in the company.

Smith provides a positive role model for women in IT at a time when the number of females entering the industry is in decline. Over the past four years, labour costs have decreased dramatically as a percentage of overall IT spending, falling from 42 per cent in 2002 to 31 per cent in 2005. Why might this be the case?

'This is an interesting statistic, but it doesn't apply in Toshiba's case. Staff costs remain at about 42 per cent,' says Smith.

'I guess it's because we're inclined to use outsourcing more on a project basis, rather than handing over entire functions. Once a system is developed, which may have a large offshore element, it generally comes back in-house for maintenance, small modifications and operation.

'I don't see a conflict between offshoring and staff development. What it means for us is that employees have to develop an additional set of skills. Most importantly, workers have to develop project management and the ability to communicate clearly.

'Our workers also have to learn to assess consultants and external resources quickly to weed out individuals that, frankly, aren't worth the money.'

Contractors and offshore labour now account for one in every six IT workers. What should be the priorities for staffing in 2005?

'We need, more than anything else, people with a range of specific attributes,' says Smith. 'Employees need to be able to learn and adapt quickly.

'They also need to be able to maintain a holistic perspective in their work and consider the environment in which systems have to work. When this is forgotten, system developments go down expensive blind alleys and fail to deliver what was promised.'

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