Outsourcing IT work to international markets will trigger a significant, inevitable and absolute decline in entry-level IT jobs across Canada, according to labour market analyst John O’Grady.
O’Grady, a partner at Toronto-based Prism Economics and Analysis, was addressing the recent Informatics 2004 gathering in Hamilton, Ont., on the implications of outsourcing for Canada.
He also presented the results of a new study, titled Trends in the Offshoring of IT Jobs, developed by Prism Economics for the Software Human Resources Council in Ottawa.
Unlike in the U.S., O’Grady said, offshoring will not cause Canadian IT salaries to decline, but will keep salaries here in line with prevailing economic trends. “This simply means our IT boom days are over and not likely to come back.”
He said in terms of lost jobs, business process outsourcing (BPO) will have the greatest impact, especially as half a million Canadians work in call centres. “However, the impact of BPO on IT jobs will be limited.”
According to O’Grady, offshore outsourcing affects Canada’s IT industry far more than outsourcing in general. “While outsourcing per se may have a constraining effect here on IT salaries, it has not radically affected IT employment and is not expected to do so. By contrast, the impact of offshoring is profound.”
He illustrated this by comparing IT employment levels with trends in the economy as a whole.
O’Grady noted that while overall employment over the past two years increased more than six per cent — despite Toronto’s bout with SARS, the loonie’s appreciation, and last summer’s electricity blackout — employment in IT occupations, in the same period, fell by around three per cent. “Had IT jobs grown at the same rate as the overall economy there would have been 49,000 additional IT jobs.”
It’s not all bad news, however.
O’Grady said in some instances, Canadian IT workers may actually benefit from offshoring. This is particularly true, he said, in one category: work done by a wholly-owned Canadian subsidiary of an IT company headquartered abroad.
Canada, he said, has a fair share of this market, which is dominated by India, Israel and Ireland.
O’Grady noted that while Canadian labour costs for intermediate IT skills — such as component programming for legacy applications — are higher than in places like India, they are significantly lower than the U.S. “Moreover the hidden costs and risks of outsourcing are substantially lower here.” He said when these factors are taken into account, Canada emerges as a very attractive location for certain types of IT outsourcing.
Indian-based outsourcing companies, he said, have picked up on this fact and opened offices in Canada to take advantage of this market. “They use Canada as a base for work outsourced by U.S. companies that isn’t allowed to go to India.”
According to Grady, cost savings for Canadian companies that outsource basic labour such as help desk work and support for standard legacy applications range from 60 to 70 per cent.
At limited risk, he said, are jobs involving support for specialized applications, application design architecture, and systems design. Offshoring of ERP application development, he said, is far less likely, though many of these jobs may be domestically outsourced.
O’Grady said with offshoring and shrinking IT budgets, non-technical skills will assume a greater career importance in the IT industry. “Technical competence will be the key to getting employment, but non-technical skills — such as understanding of basic business processes — will be the key to advancement.”
Speaking earlier in the day, Gartner Inc. analyst John Heine also emphasized the growing importance of non-technical skills to IS departments — even for securing new funding.
“For IT departments to successfully get new IT projects approved, they will need to really understand the business and how they can contribute to developing new products and services,” he said. Heine noted that when discussing benefits of technology there are really two languages — that of IT which is specialized and technical and that of business, which communicates company and customer benefits.
He said many IT departments have not been able to come up with a discussion framework that consistently engages business units about opportunities that take advantage of IT investments. T
echnology staff, said Heine, should adopt new discourse patterns and a non-technical way of communicating corporate and customer benefits of IT investments.
For instance, he said, risks should be portrayed in terms the business side can understand. “If the IS department says, ‘this production line may go down if our equipment is not upgraded,’ that’s an explanation the business folk will readily relate to. But if the argument is, ‘our infrastructure needs to be upgraded because it isn’t state-of-the-art,’ the response may be: ‘so what!’ Potential failures should always be linked to the business environment, as if the IS investment were a machine in the production line.”
Heine said a Gartner survey of extremely successful Fortune 500-type enterprises indicated the business organizations in these companies completely understand the value of IT.
“They realize that IP provides more than MIPS, gigabytes of storage and transmission facilities. It offers true business value.”