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Without a brighter economic outlook, demand for IT contractors will fall as jittery organisations start to cut their short-term, highest and most visible costs. Top-rate contractors in banking and financial services will be the main victims of the belt-tightening, typically when their assignment can be brought in-house or delayed. The cuts to the most expensive IT staff, including IT consultants, will be implemented where practical, not where the technical work is essential, such as compliance. Though it’s not just financial institutions that will delay IT projects and associated staff until conditions improve, said Pierre Audoin Consultants, which delivered these predictions yesterday. “As the economy faces increased pressure from inflation, and knock-on effects from the banking sector, PAC expects this negative impact on IT contractors to expand out to other vertical markets,” Rajeena Brar, a consultant at PAC told CUK. “For example, [the] retail sector which is seeing a decline in sales and profit margins. Reduced profits mean reduced investment back into the business, including IT projects [and] IT contractors.” Having been among the hardest hit by the credit crunch, investment banks are cutting the cost of IT projects, and their supporting staff, which their executives deem a non-priority. Banks' trimming of IT budgets is why the UK’s IT and software services spending forecast has been cut to 4.6% in 2008, down from 8.4% last year, said PAC, an IT advisor to 200 clients. “IT contractors will be adversely affected simply because it’s one of the easier ways to cut costs in the short-term,” Ms Brar said. “Especially if [their] work...can be taken on in-house instead, [or] put on hold until banks feel more comfortable in spending again.” Analyst house Gartner has confirmed that IT spending for 2008 has, in fact, already seen significant cuts as a result of "macroeconomic concerns." After an April survey of 1,100 IT directors, the analyst said 23% of them suggested the initial budget they set for 2008 has now been cut, not marginally but by an average of 10%. Yet Mark McDonald, head of research for Gartner executive programs, reminded that overall, the majority of IT leaders reported no change in their 2008 committed budgets “This indicates that IT budgets are not the ‘target rich’ environment for cost-cutting they have been in the past,” he said. “However, there is some softness, particularly in the US.” This softness in the US, the source of economic pressures since August last year, will, theoretically, dictate less spending on IT contractors, John Longwell, a director at Computer Economics told CUK. His argument contrasts the popular belief that in a downturn, organisations look at temporary hires more favourably because they are the easiest staff to dismiss if conditions worsen. “In an economic downturn, the contract workforce tends to be the first casualty,” Mr Longwell said. “This cyclical trend, though, is overlaid by other factors that are driving long-term growth use of freelancers and contractors [such as]…independent agents to collaborate from remote locations at competitive rates.” Another factor in contractors’ favour is that niche technical work “still needs to get done”, pointed out Mark Roberts, the chief executive of the National Association of Computer Consultant Businesses. “Other than areas like Detroit which has been hard hit because of the auto industry’s decline, my companies in other geographic areas are not reporting a pullback [in IT contractor numbers],” Mr Roberts told CUK yesterday. “While companies exposed to specific customers such as a large mortgage bank experienced some headcount reductions, it was not as dramatic as one would have expected under the circumstances. “Work still needs to get done. In many cases, IT consultants are needed to fill the void in IT departments where the [client] firm has difficulty attracting or retaining IT workers on a direct basis.” The NACCB, which represents 350 US-based IT services firms, said that so far in 2008, technology employment remains strong; in particular February defied any wider downturn. “While there are certainly economic storm clouds that have many concerned, most of the companies I have spoken with have not yet seen any meaningful pull-back [in IT contractor numbers],” Mr Roberts said. “We remain cautiously optimistic for a good 2008.” In the UK, growth areas in IT over the coming months include offshore outsourcing – as businesses strive to address cost issues and maintain a competitive edge, PAC said. Capital One is emblematic of the trend: earlier this month its Nottingham HQ said it was axeing 700 jobs in IT and operations, as part of a strategy to move such roles offshore. The bank declined to comment whether IT contractors would be hired in the UK to fill the immediate gap. Other growth areas include the green revolution: according to PricewaterhouseCoopers, demand for green technology consulting services will increase “substantially in the coming years.” And although headlines just spotlight the negatives of the global credit crunch, the services giant said the IT-led merger and acquisition market is proving a “very resilient beast.” Numerous deals have been announced in this first quarter, including the pending bid for Yahoo! by Microsoft, and in the UK the $1 billion leveraged buy-out of Northgate Information Solutions by KKR, and the recently announced £190m recommended offer by 3i for Civica. Less positively, spending on professional consulting services has already contracted, PwC’s Graham Willie, an HR practitioner serving the IT sector, reportedly said. Like the pressures facing contractors' end-users, he said more of his clients are trying to save costs, either by carrying out projects internally or by focusing more on core maintenance works. Apr 23, 2008 Email this article Printer friendly page Previous Page
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