2010: The Future of Jobs and Innovation

This year’s final issue identifies and analyzes today’s trends in technology employment and innovation, security, the software industry and IT governance, and spins those trends out to 2010.

Scenario One: U.S. Stays On Top

Even though some IT jobs will continue to move overseas by 2010, the United States will still have a sizable population of IT professionals doing high-level work on strategy, implementation and design

By the year 2010, Intel CIO Doug Busch envisions himself managing an IT staff that’s all over the map, literally. Not only will his employees be working in places ranging from Rio Rancho, N.M., to Parsippany, N.J., in the United States, they’ll also reside in Beijing, Leixlip, Haifa, Penang and a host of other locations Busch has never even been to. Each spot will specialize in a particular area of expertise for the company’s IT department — call centers in Manila, business analysis at company headquarters in Santa Clara, application development in Mumbai. And a full roster of career opportunities — from entry level to senior leadership — will exist at each and every location.

“Talent will rise to the top, wherever it is,” Busch predicts.

Busch’s scenario may sound a bit like corporate IT’s version of “It’s a Small World.” But the CIO of the world’s leading computer chip maker already oversees IT workers in 27 countries around the globe. And most CIOs (to differing degrees) are headed in that direction.

The part of the picture that strays furthest from Disneyland is what this means for American IT staff. Even without offshore outsourcing, U.S. IT staffing levels were never going to return to their prerecession highs. The automation of tasks, increased productivity and a reluctance to return to the unfettered IT budgets of yore pretty much guarantee that the demand for American IT professionals is destined to decline. But, incendiary conjectures to the contrary, the entire population of IT workers in this country will not be replaced by counterparts in emerging economies.

Instead, even as 2010 will see a further movement of some IT activities — application development, legacy maintenance, call center operations — overseas (Forrester Research estimates that the cumulative number of IT jobs heading abroad will grow from 27,171 in 2000 to 472,632 in 2015), U.S.-based companies will keep work here that requires close contact with the business: strategy development, business process improvement and the actual application of IT to the business.

The net result: There will still be a future in IT for smart young Americans. But the higher-level IT positions that remain stateside will require new skills. Today’s CIOs would be wise to encourage broader business education in U.S. IT degree programs. And increased government and corporate support of IT R&D will be critical to retaining America’s position as the world’s IT leader.

“In the best-case scenario, IT will become a core competency and economic engine in emerging economies, and these emerging economies will complement the U.S. IT industry,” Busch says. “A strong investment in education in the U.S. and intelligent U.S. government policies will produce aggressive investment and innovation, and the U.S. will benefit along with the rest of the world from the economic benefits of IT.”(For a different future, see “Americans Need Not Apply” below.)

What Jobs Will Go

When it comes to the future of American IT staff, past is prologue. The current trend toward sending some IT work offshore actually began a decade ago, when stateside outsourcing began to gain favor. Companies such as Xerox inked multimillion dollar deals sending their IT work out the door to outsourcers. Some believed that the rise of the EDSs and CSCs would mean the fall of the in-house IT staff. That didn’t happen, but today, with offshore outsourcing, IT workers are not simply shifting employers but in many cases losing their jobs altogether. And at many levels — lower-end programming, call center tasks, system maintenance and help desk work — that trend will continue.

“Commoditized work will go overseas,” says Peter Cappelli, director of the Center for Human Resources at The Wharton School of the University of Pennsylvania. “Some more creative work — like non-commodity one-off and unique projects — will go overseas. But where interface with the business is important, that work will remain here.”

It’s hard to argue for keeping certain IT work stateside. The salary for a programmer with two to three years of experience averages $7,500 in India, according to NeoIT, an offshore consultancy. In Russia, it’s $10,000. In the United States, it’s $65,000. India graduates 75,000 computer scientists each year. The United States, 52,900. China, which currently brings 50,000 new IT workers into the world every year, could eventually provide 200,000 computer science graduates annually, according to Marty McCaffrey, executive director of Software Outsourcing Research.

Bandwidth costs have declined dramatically and should continue to dip, furthering the beneficial cost structure of transoceanic work.

“What will continue to go overseas are the repetitive activities, the things that will ultimately be automated anyway,” says Nancy Markle, president of the Society for Information Management (SIM) and former Arthur Andersen CIO. “We have to be able to continue to get the best prices, or else we’ll be growing companies offshore instead of competing with the rest of the world.”

What Jobs Will Stay

By 2008, the IT workforce situated in the United States will be 25 percent smaller than it is today, according to Gartner. But the workers who remain will be more important to the business than ever. They’ll be working on architecture, strategy, project management and business processes, predicts Lance Travis, vice president of outsourcing strategics for AMR Research.

“A standardized problem can be solved anywhere,” says N. Venkatraman, chairman of Boston University School of Management’s IS department. “But if you need to understand the business and create value, you must be here. It’s very difficult to understand the business context of IT remotely.” Supporting a new product launch, for example, requires close observation and fast response –both impossible if the work is done halfway around the globe.

“If it can be codified, it can be done remotely and supported by IT,” says Travis. “If it is still tacit and requires a lot of unstructured discussion, then it must be done here.”

That need to keep certain activities close to home is one reason why many high-level IT jobs will remain in the United States. Speed and ease of management are two other factors. “Offshore outsourcing ultimately represents a certain loss of control,” says Travis. “It is very dependent on the ability to manage relationships, and you always give up some agility.” When CIOs outsource development to India, for example, it’s much harder to make changes to projects. “Anything beyond the scope of the project is impossible, unless you want to pour more money into it,” says Travis.

Infrastructure, security, communication and project management issues already erode some of the cost advantage of offshoring, says Larry Pickett, CIO of Purdue Pharma. If CIOs try to go further up the value chain — sending high-level consulting services elsewhere, IT will be even more difficult to manage, he says.

The IT department at Sun Microsystems is a test case for the future. “I have a staff of IT people around the world,” CIO H. William Howard says, rattling off cities from Bangalore to Beijing where his IT staff resides. “Any large company is going to position their workers where the talent exists at the best price.” Howard employs about 75 percent of the IT staff he used to. By 2010, he expects to outsource 50 percent of noncore activities. He adds, “Does that mean everything will be offshore? No. The things that are core, that are tightly tied to business process and the local business community, won’t.”

However, John Watkins, CIO of Fairchild Semiconductor, views IT as an enabler of his business and only offshores on a limited, case-by-case basis. “It’s that intellectual capital we need to protect, especially when you’re as integrated in business processes as IT should be,” he says.

Similarly, Cingular CIO Thaddeus Arroyo sends 10 percent of his IT work (mostly maintenance work) offshore. But he retains a U.S. staff to keep “new and more complex development close,” from application development related to business process improvement to the integration and customization of off-the-shelf software. Arroyo makes these decisions project-by-project, considering such factors as capability and capacity of his U.S. workforce, the strategic nature of the work, and how closely tied a specific project is to other enterprise applications within the company. And by 2010, he says, CIOs will need to be even more judicious about what they send out the door.

“As we come out of the downturn, there will be even more potential for IT to become the business differentiator,” says Arroyo. “Offshore outsourcing simply allows us to remain productive so we can deliver innovation here.” In addition, the inevitable rise in labor costs in India, Russia and elsewhere could further reduce the cost advantages of offshoring.

Your IT Staff of the Future

If even 25 percent to 50 percent of offshore work does go overseas by 2010, what will the future hold for IT professionals here?

Diane Morello, a vice president and research director at Gartner, predicts that those who remain in the field will become “IT versatilists, equally at ease with technical and business issues.” Travis of AMR Research calls them 50/50 professionals. Fairchild Semiconductor’s Watkins brings up a similar picture: “The IT cohort of the future has to be a good technologist and protector of technology, but also be a savvy businessperson.”

Will the IT professional of today want the position of tomorrow? Some will and some won’t. “The content of jobs is changing and will continue to,” says David Foote, president of IT management consultancy Foote Partners. “A number of people I know who are really smart stopped working in IT when they realized what it would take to be this hybrid, versatile person. They’ve said, I’m not interested in being a [multitasking] Swiss Army knife. I want to be a big bowie knife.”

Consider this hypothetical company in 2010, for example. Paul, the Cobol programming expert who once boasted that he spent all day every day for a year doing Y2K remediation, doesn’t work in the IT department anymore. He’s begun a second career as a carpenter and is actually enjoying spending more time with his family. At his old desk sits Bianca, who has an MBA from Boston University. Just back from a two-year stint at her company’s office in Ho Chi Minh City, Bianca has a meeting to discuss a business case for a joint marketing and IT project in the morning, and will review the post-implementation audit of the recent biometrics installation over lunch. In the afternoon, she has a Six Sigma class so that she can effectively manage the development of a CRM project at the company’s Chinese outsourcer.

Like Bianca, the IT applicants of tomorrow will have to position themselves differently. “I tell my students that the job market is forevermore global, not local,” says Venkatraman, who advises his protŽgŽs to consider taking a position in Ireland or India or China if only for the sheer market value of global experience. “You may think there’s a shortage of your skills locally, but companies aren’t going to look at local value alone anymore. You need to compete globally.”

Despite downward pressure on U.S. IT salaries (the average compensation for tech workers grew just 1.7 percent from 2001 to 2002, while inflation was 2.2 percent, according to the Economic Policy Institute), experts expect wages to stabilize. But IT workers hoping for the fat paychecks and big bonuses of the past will be sorely disappointed. Normal cost-of-living increases and enough lift to keep up with other corporate positions are more likely, agree Intel CIO Busch and SIM’s Markle.

Corporate America’s Conundrum

While individual corporations may benefit from their increasingly global staffs, the loss of thousands of IT jobs could hurt America’s ability to remain a leader in technology innovation. For without a critical mass of IT professionals in the United States, true innovation will be next to impossible.

“In 2010, we won’t have gutted the IT industry in the U.S. or any other currently developed economies in favor of moving somewhere else if we behave the way we should as leaders,” says Busch. Hopefulness aside, Busch admits it isn’t easy juggling four major constituencies — his employees, shareholders, customers and the communities Intel operates in. “It feels like swimming upstream,” he says.

Busch is currently trying to increase IT’s presence in emerging economies while continuing to invest to a certain extent in his U.S. workers. “We have to compete with highly skilled IT workers in very sophisticated companies with lower cost structures. But simply substituting lower cost resources to reduce spending or deciding to solve a weak IT organization by sending the work someplace else is thoughtless,” says Busch. Rather, CIOs must concentrate on improving efficiency, taking the risks necessary to innovate, and investing in tomorrow’s leaders.

“CIOs who focus exclusively on chasing cost savings around the world will have short careers,” agrees Sun CIO Howard. “What matters is smart sourcing that looks at the [total cost of ownership] over the long haul and the many other factors like security privacy, [intellectual property] protection, geopolitical risks, and the potential cost of having to bring it all back in.”

Investing in R&D will also be important both in the government and private sector. A lot of IT innovation came out of the space program, for example. “We wouldn’t have computers or the Internet had the U.S. government not invested in the research,” says Ron Hira, assistant professor of public policy at the Rochester Institute of Technology. Homeland defense, security and military technology are all areas where federal funding could spur future innovation.

“But we can’t wait for the government to address these issues,” Busch says. CIOs in the private sector can do their part by bringing the R&D spend back in their own companies.

Putting a greater focus on R&D and continuing to recruit the best and the brightest into IT are crucial to maintaining our competitive edge as a nation. But bear in mind, the United States has a built-in advantage when it comes to innovation: As a capitalist democracy, it is relatively free of the excessive government regulations, bureaucracy and corruption that stymie IT innovation in other countries.

“The free flow of information and the freedom to develop products is really the U.S.’s ace in the hole,” says Maria Schafer, a program director at Meta Group. “That doesn’t exist in China or in Russia, or even in India. It’s why the U.S. has always been the innovator. There’s a tremendous strength in the way IT is done in the U.S.”

Scenario Two: Americans Need Not Apply

If we continue to move jobs offshore, the U.S. IT professional could become extinct

It’s 2010. TaTa Consultancy Services has made New York City its de facto worldwide headquarters and opened more than 100 satellite offices around the country. No longer simply a provider of lower-level application development and maintenance work based in Mumbai, India, TaTa now provides high-level consulting and business process improvement, overtaking IBM Global Services as the leading IT services provider in the States — and the world. The company has hired a recent Nobel Prize winner to head up its burgeoning R&D business, and rumor even has it that a recently out-of-work Sam Palmisano, formerly CEO of IBM, was sniffing around for a position there.

Such a scenario might scare the dickens out of most CIOs (and probably a few CEOs), but it’s perfectly plausible. Offshore companies have made no secret of their wish to compete with the likes of IBM Global Services and EDS. Changing the base of operations to the United States is possible, particularly if the U.S. government does not rein in the L-1 and H-1B visa programs that encourage the hiring of foreign workers here to oversee work done abroad.

“If Indian firms set up shop in the U.S., that’s where the real threat happens,” says N. Venkatraman, Boston University School of Management’s IS department chairman. “You no longer have to fly someone over from India. You now have someone who’s worked for the EDSs and Accentures, and now just carries a TaTa business card.”

If offshore providers transform themselves into multinational corporations, watch out. They’ll develop talent at all levels of IT operations. “The U.S. IT professional could become extinct if we continue to import foreign labor,” says Norman Matloff, computer science professor at the University of California, Davis.

Increased standardization of IT tasks that once required localized, human skills will further the export of the American IT function. And improvements in real-time communication could boost the use of staff around the world as well.

A lack of entry-level IT employment might dissuade U.S. students. It already has. Although America saw a rise of IT college degrees awarded in the late 1990s (from 37,500 in 1998 and 1999 to 52,900 in 2001, according to the Digest of Education Statistics), enrollment has begun to decline again. Fairchild Semiconductor CIO John Watkins understands why. “If it looks like America is just chasing the cheapest source of labor, why would anyone want to go into IT?” he says.

Ron Hira, assistant professor of public policy at the Rochester Institute of Technology, saw the effects last fall. The new IT major at RIT missed its hoped-for enrollment figure by 200 students.

Without new entrants in the domestic labor supply, the United States could lose its competitive edge. In a 2003 report on workforce policies, the National Science Board predicted dire consequences if the United States depends primarily on foreign talent. “If you don’t have a critical mass of people, you won’t get innovation.” says Matloff. “Companies that offshore all of their entry-level positions will be shooting themselves in the foot.” They’ll be forced to look elsewhere for IT talent, perhaps at higher costs.

Remember the leaked tape that came out of IBM last summer? IBM Global Employee Relations Director Tom Lynch said IBM had to accelerate the shift of white-collar services jobs, including software design, to markets such as India and China because “our competitors are doing it, and we have to do it.”

Once one big name in IT does it, nearly every other CIO will too. “It’s the most destructive characteristic of large enterprises, that we’re like herd animals and just do what everyone else is doing,” says Intel CIO Doug Busch.

Once the number of jobs available to skilled U.S. IT workers dips below a certain level and the salaries being offered hit rock bottom, “Americans just aren’t going to go into the profession anymore,” Matloff says. And that bodes ill for CIOs’ ability to get the job done at their companies and for their own future clout in corporate America. Wholesale offshore outsourcing would also be a disaster for America’s leadership in IT innovation.

“I’m not certain that the U.S. can retain its reputation as the leader in IT innovation. The leadership we’ve had in the past could move offshore if we’re not careful,” says Nancy Markle, president of the Society for Information Management. “As CIOs, we have to make sure that that doesn’t happen.”