SI Review: November 2012

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The Star Burns Bright

A look at what is driving IT staffing’s growth

By Sona Sharma

This decade’s star performer is IT staffing. Information technology staffing firms have not just experienced record sales and revenue but IT employment growth has widely outpaced that of total U.S. employment. The IT staffing segment was relatively unfazed during the recession and picked up pace sooner than others. Most corporations had cut to the bone in the IT-driven recession of 2001, and did not have much left to shed in 2008. Now more than ever, IT has become all-pervasive in any organization and putting IT projects on hold is getting increasingly challenging.

Rapid growth in IT employment has been a major driver of increased demand for IT staffing services. While the post-recession boom has mellowed a bit, growth in IT staffing is expected to be robust through the next couple of years. According to Staffing Industry Analysts, IT staffing grew 15 percent to $20.6 billion in 2011. It is expected to grow 12 percent in 2012 and 8 percent in 2013.

Behind the Boom

If we look back over the past 30 years, annual U.S. purchases of computers have exhibited a strong, if uneven, upward trend. Data from the U.S. Bureau of Commerce show that in no year on record have computer sales actually declined (see “By the Numbers”). While growth did plateau when the economy was slow, between 2001 and 2004 and then again in 2008 and 2009, it rebounded 21 percent in 2010 and 32 percent in 2011. This enormous boom in the use of computers has been the principal driver of long-term growth in the information technology staffing market, as ever increasing numbers of programmers and technicians are required to install, program and maintain these systems.

Additionally, over the last 12 years, total IT employment has grown at a tremendous pace compared with the growth in total U.S. employment. From 1999 through 2011, IT employment rose 30 percent, versus a 0.8 percent increase for total employment. Rapid growth in IT employment has been critical for increased demand for IT staffing services.

While the demand has been going up, the supply of qualified professionals has not kept pace. Growth in U.S. production of computer science undergraduates, which had picked up in the early 2000s, has slowed down in recent years, which will likely create a diminished pool of qualified talent in the IT marketplace.

Based on forward-looking data from surveys of undergraduates, Staffing Industry Analysts projects a slowdown in the number of computer science undergraduate degrees awarded, at least through 2016. Computer Research News’ annual “Taulbee Survey” is a measure of undergraduate interest in computer science. This survey data reveals that interest in computer science has trailed off significantly since the Internet boom. Some 14,458 undergraduates in the United States declared computer science/computer engineering 0.2 percent from 2010. Trends in the Taulbee survey data track well with subsequent computer science degree production and an analysis of these two trends shows that the sharp drop-off earlier reported in computer science enrollments has started to play out in terms of current production of computer science graduates. As such, graduation rates will remain well below peak production for some time.

The good news is that staffing firms generally benefit from a shortage in workforce situation, as hiring companies must turn to outside recruitment to supplement internal hiring resources. IT unemployment rates have historically been in the range of 1 percent to 5 percent, rising to about 5 percent during recessions and then drifting back down during recoveries. In the most current economic cycle, the IT unemployment rate spiked in 2009 and 2010 to 5.2 percent but came down to 4 percent in 2011.

What’s Hot

Increasing growth, managing customers and reducing costs are some of the top business priorities of chief information officers in the U.S. These priorities are driving demand for IT professionals with skills in technologies such as cloud computing, mobile applications and social media.

According to the U.S. Bureau of Labor Statistics, the two occupational categories with the lowest unemployment rates in IT are computer network architects, with a 0.7 percent median rate over the four quarters ended in the second quarter of 2012, and computer systems analysts with a 2.8 percent rate. For comparison, the unemployment rate for U.S. college graduates was 4.2 percent for the same period.

Staffing Industry Analysts’ annual Buyer Survey reveals that within IT, buyers are having trouble recruiting niche skills or specialty skills. Some of the hard-to-find skills mentioned in the survey were mobile, ERP, Java, project management, architecture/infrastructure, Oracle and data skills. This is validated in trend data from IT job board Dice. According to Dice, as of June, the fastest-growing skills in demand were in ERP (such as JDE), CRM (Siebel) mobile technology, cloud computing and health information technology (EPIC). This is also in line with the business and technology priorities of CIOs.

Another impetus of growth in IT is the push for adoption of health information technology. The U.S. Recovery Act of 2009 (HITECH component) set aside $20 billion to help subsidize the U.S. health system to go from a paper to an electronic system. This has created some unique demand for IT professionals that have clinical experience. Another factor fueling growth in demand for qualified workers is the October 2014 deadline for conversion of diagnosis and procedure coding for reimbursement from ICD-9 to ICD-10. Respondents of a HIMSS (Healthcare Information and Management Systems) survey cited the IT staffing shortage as one of their key challenges. About two-thirds indicated they plan to increase their IT staff in the next year.

Looking ahead, IT employment is projected to strongly outperform — growing almost twice as fast as employment in general through 2020. According to the Bureau of Labor Statistics’ employment projections, IT occupations such as systems software developers and database administrators will continue to experience robust growth through 2020.

The Buyers’ Profile

According to Staffing Industry Analysts’ research, the top three markets served by IT staffing firms are tech/telecom, financial activities and healthcare. In general, buyers of IT staffing services are large corporations, leaving a big chunk of the small-to-midsize market untapped.

Buyers that primarily purchase IT skills typically have more than 1,000 full-time employees and spend a median of $80 million on contingent IT workers. This is higher than what overall buyers of all skills spend on contingent labor, which is a median of $65 million.

More than half of contingent IT workforce managers are in procurement and the development of the IT contingent workforce program is the most important factor used by corporations to measure the performance of these managers.

Most buyers of IT staffing services are generally satisfied with the performance of their IT staffing suppliers. According to Staffing Industry Analysts’ Buyer Survey, IT staffing buyers give their suppliers a 3.06 GPA, which is roughly a B. They use contingent IT labor because they have variable workforce needs, they are growing rapidly and are having difficulty finding quality IT professionals. But above all, buyers save money by using contingents. Buyers of IT skills reported a median of 13 percent saving by using contingent IT workers.

So, overall buyers are satisfied with the performance of their IT suppliers and would prefer to work with staffing firms to hire temporary IT workers with respect to cost, time to fill and availability of talent. However, it appears they are not happy with the quality of IT workers provided by their IT staffing suppliers. This is significant, as quality is the deciding factor for buyers when qualifying IT staffing firms. When buyers were asked to rank speed of placement, bill rates and quality of workers in terms of importance when considering temporary IT staffing services, 74 percent said quality was the key factor, time to fill was a distant second at 14 percent and price was cited by only 12 percent as a critical factor.

Going Forward

It’s clear that the IT staffing market is going on a steady trajectory of growth led by shortage of talent in specific skills, expected lower graduation levels and some relatively untapped markets. There is also some work that needs to be done to pave the path for continued growth in the long-term for IT staffing. If customers are not very happy about the quality of the candidates they work with, sooner or later this will come into play with their desire to work with IT staffing firms, especially if there is another recession and slowdown in demand.

Still, opportunities to grow in the IT staffing market are abundant. More and more buyers are looking for a strategic partner who understands their business and can help them plan and implement their IT projects better. They are also looking for efficiencies in managing cost and managing their contingent IT workforce, be it through a vendor management solution, managed service provider or master provider. Staffing Industry Analysts estimates there are 33 IT staffing firms that generated at least $100 million in revenue in the U.S., making up $13 billion, or 63 percent, of the IT staffing market.

Sona Sharma is a senior research analyst at Staffing Industry Analysts. She can be reached at ssharma@staffingindustry.com.

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