The Impact Of The Financial Downturn On IT Contracting

The IT industry has always relied heavily on contractors and consultants to manage the varying workloads and to provide specialist knowledge to support key systems. It remains to be seen what impact the current financial downturn will have on this highly specialised workforce. One thing is certain, the status quo will change.

The IT departments of large corporations have always faced a changing environment. On the one hand the technology is continuously changing and the skills and management systems need to change accordingly. On the other hand, the willingness of the business to invest in new systems and technology tends to follow a boom or bust mentality. At times IT is seen as the business enabler that will provide leverage to the organisation, at other times it is seen as an expensive drain on resources. Unlike staff employed in the core business, who need to be maintained in proportion to the amount of business activity.

Another trend is the rapid commoditisation of information technology and related services. This has not been a smooth process and has been marked by leaps in technology and changes to established paradigms. The market has responded with a rapid cycles for out-sourcing and then in-sourcing again. However, we are witnessing an increasing trend towards globalisation and the off-shoring of routine functions to developing countries such as India and China.

As the financial downturn bites deeper, most businesses are likely to react by adopting a cautious outlook, postponing new development work and delaying technology refreshes. Today we see the focus of localised IT services falling into four main areas:

(1) Senior client facing consultants

These include the business analysts, architects and project managers who can work closely with the business to understand and tailor a solution for a specific business need. Frequently they need to specialise in an industry such as banking or insurance and are critical to the success of new business projects. Typically their roles cannot be moved off-shore very easily.

In a recession the amount of new work would drop sharply and the need for the senior consultants will reduce. Where this group could command high payments in the boom times there is likely to be a marked drop in their rates.

(2) Mainstream technical specialists

These include programmers, analyst programmers and engineers. They may be very highly qualified and have a strong technical expertise but these days they face increasing competition from overseas. Over time more and more of these roles are moving to India and China, especially for current and emerging technologies.

In a recession there is likely to be an increased focus in reducing costs so the mainstream technical specialists will come under even more pressure from outsourced off-shore companies. However, the transition to off-shoring takes time so while the pressure increases, the realisation will be slow, several years at least.

(3) Client facing support roles

These include the PC support staff, the help desk operators and the general administrative staff behind the IT functions. Clearly these roles are changing rapidly e.g. the mass movement of call centres to remote locations and the improved automation of IT systems requiring less local support.

In a recession the client facing support roles are likely to come under pressure through the need to reduce costs. However, the real enabler is the introduction of new automation technology which could be delayed.

(4) Niche contractors

These provide technical services in a specialised field. Frequently the people have broad skills in a range of technologies that are rare or superseded and this rarity plus the business dependence on their services makes them invaluable. Most large businesses have a range of legacy systems that must be maintained despite aging hardware and unsupported versions of software.

In a recession these contractors are almost guaranteed a longer tenure as the old legacy systems have to survive that bit longer.

In summary, it is not an exciting prospect for consultants and contractors working in IT during a recession. These people enjoy higher rates of pay during the good times but form a buffer against changing workloads in the majority of IT departments. As things get tough, their positions become more tenuous. Clearly though, there are some opportunities for the more enterprising individuals. For instance:

o Develop specialised skills that are in short supply
o Work closely with the business to leverage IT systems
o Identify emerging trends for small business

The rate of change continues to increase whether in boom times or bust and the IT contractors need to keep pace it they are to survive. Technical skills sets are no longer sufficient.

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