Report Predicts Outsourcing will Further Cull European Finance and IT Jobs

Large companies in Europe are now losing over 130,000 jobs each year in IT, finance, and other key business services areas, due to the combined impact of offshoring, technology-driven productivity improvements, and the low-growth business environment, according to a research update from The Hackett Group.

The business advisory group estimates that while the number of jobs being lost will decline over the next few years, by 2017 nearly half of all back office jobs that existed at these companies in Europe in 2002 will have disappeared – representing a total loss of 1.9 million jobs.

It adds that even this assessment could be optimistic, as it factors in job creation due to economic growth. The International Monetary Fund (IMF) and others are now looking at shrinking short-term global growth projections, and more than half of the European Union (EU) countries have returned to recession in early 2013. This suggests that even the modest job creation assumptions in the Hackett model may prove to be overly optimistic.

While the total labour demand continues to shrink, the group’s research also sees the ‘war for talent’ entering a new phase, driven in part by the further globalisation of business. The need for transactional staff is decreasing dramatically, while the demand for knowledge-centric staff is increasing. The research finds a critical talent shortage, most clearly for knowledge-centric staff with the skills to help enable global business operations.

“For many people in Europe seeking jobs in corporate finance, IT, or other business services areas, our research offers a bleak picture to be sure,” said The Hackett Group’s managing director, Rashpal Hullait.

“The evolving offshore job market and the maturing of global business services operations have simply eliminated many of the jobs that used to exist in IT, finance, and other business services areas. But at the same time, new opportunities are presenting themselves. Staff that can develop the knowledge-centric skills that companies need to support their companies’ shift to global business services, and overall globalisation goals, will find themselves in great demand.”

Job losses to continue

The Hackett Group’s research estimated that 137,800 business services jobs will disappear in Europe in 2013, in the tail end of a spike in job losses which began with the recession in 2008. In 2009 alone nearly 390,000 jobs were lost, and on average 190,000 jobs have been lost each year since 2008. In 2014 and moving forward, the group estimates that job losses will continue, but will shrink each year, declining to 59,000 jobs lost in 2017.

Its research estimates that, of the baseline of about 4.2m business services jobs that existed in Europe in 2002, 46%, or 1.9m jobs, will have disappeared by 2017, including 728,000 jobs in corporate finance and 780,000 jobs in corporate IT. All these estimates incorporate jobs lost due to offshoring and productivity improvements (which have remained stable at about 3% each year), offset by jobs created due to economic growth. A similar story is occurring in North America and combined job losses across the two regions are expected to total 8m by 2017.

However, even these job loss estimates could be conservative, given that economic uncertainty remains exceptionally high. EU statistics published in May indicated that 9 out of the 13 EU countries using the euro returned to recession in Q113. The IMF has also repeatedly made downward adjustments to its short-term growth projections, which have dropped by more than a third over the past two years. In addition, the main engine of growth has clearly shifted from developed markets to emerging markets in Brazil, Russia, India, China, and elsewhere. While corporate profitability is at historically high levels, companies are focused on reducing fixed costs, further impacting on job creation.

A major factor in the offshoring of business services and the overall job losses is the expanded use of Global Business Services (GBS) organisations, an evolution of the shared services approach. Unlike most shared services operations, which focus on a single function, GBS organisations strive to support an array of business services, including finance, IT, procurement, and human resources, in an integrated fashion. As GBS organisations expand and mature, many companies have found they can dependably be used to drive both cost and productivity improvements year after year. Typical companies see an average of 20% cost savings in their first year of GBS operations, and 6% savings annually thereafter. They also see 7% improvements in quality and customer service, as well as a 9 per cent improvement in productivity.

The group notes that the employment numbers are also tied to a fundamental shift in the nature of business services work and skills. Over the past decade there has been a dramatic reduction in the need for transaction-oriented jobs in these areas, and a commensurate increase in knowledge-centric positions. The Hackett Group sees a significant talent shortage emerging in specific classes of knowledge-centric roles, including those that: support the strategic transformation and globalisation of business services; enable global business operations; and support the transition from a transactional business services model to one focusing more on partnership.

In finance, the group’s research finds that by 2017, half of all jobs will be knowledge-centric, an increase of over 40% since 2003. In procurement, the trend is even more pronounced, with over three quarters of all jobs classified as knowledge-centric by 2017, an increase of over 46% since 2003. It concludes that acquiring, developing, and retaining talent in these areas will be a major challenge for many companies over the next few years.


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