Nearshoring | September 23, 2016
Outsourcing – the Answer to Labor Market Issues in The UK’s IT Industry
Data from the latest Tech Nation 2016 report indicates that the IT industry in the UK is growing very rapidly – up to 32% faster than the rest of the economy, generating £161 billion worth of turnover in 2014 alone. In recent years, levels of employment in the industry have grown up to three times faster than in other industries, reaching 1.56m employees. Such a pace brings with it the risk that the labor market may not be able to cope with that kind of pressure. The first signs of overheating are clearly visible even now – although the average wages of IT professionals are on average 36% higher than in other areas of the economy, more and more companies are having difficulty finding workers. It is estimated that by 2020, the UK will need an additional 180,000 developers, which means that the problems associated with finding the right IT specialists will continue to grow.
An employee worth his weight in gold
As many as 75% percent of the nearly 60,000 IT companies in the UK are located outside London. Not surprisingly, both salaries and costs are highest in the capital – smaller companies must therefore look for cheaper alternatives. Yet London is one of the most attractive places for employees, in terms of both earnings and prestige, as well as the presence of international companies whose headquarters are based there. It is the outflow of the most talented IT professionals to the largest players in the IT market which is the main concern of local businesses, which cannot compete in the race to attract employees.
Recent years have seen an explosion not only in the wages of IT specialists, but also in the range and value of perks offered by desperate employers. Cars, gym memberships, healthcare, pension schemes, nurseries, attractive training courses – these are just some of the extra benefits offered to tempt specialists to join. Major corporations compete directly with one another in inventing ever more extravagant incentives, from health insurance for cats and dogs, to massages, and everything in between.
Costs just keep growing
Even if a company provides its employees with all of these benefits, as well as a fully-furnished office with a climbing wall and space for afternoon naps, the costs don’t stop there. The recruitment process is getting longer and requires ever more creative activities. Regardless of whether you hire an outside recruitment firm or whether recruiting stays in-house, the cost of actually getting the employee will be many times his or her monthly salary. At the same time, there is no way to be sure that the employee will not leave after a mere few months, tempted by a seemingly better proposition.
Of course, the largest single expense in the context of employment remains the salary itself. The exact amount naturally depends on the location, as I mentioned earlier, but salaries in the IT industry are much higher than the average, irrespective of whereabouts. In the largest cities in the UK, the average annual salaries as cited in job offers range from £36,000 in Belfast to nearly £59,000 in London. It is also worth remembering that the final figure, as negotiated by the employee, may be even higher. But that’s not all – because according to cost calculator estimates, after adding the cost of taxes, equipment, training, licensing, and leave of absence, it turns out that the full cost of an employee in London may even exceed £97,000 per year. Or about £47 per hour!
Even higher sums are associated with the hiring of contract workers, whose wages don’t contain so many hidden costs, but nonetheless are much higher than workers employed on a standard employment contract – and may be as high as £120,000 a year.
Not all programmers are created equal
With such high demand for IT specialists nowadays, companies are often forced to compromise, resulting in the hiring of workers who subsequently fail to meet expectations. This situation unfortunately also spoils the labor market, as large numbers of employees have low skill levels and minimal motivation to do anything about it because work will come to them. One such programmer working in the UK, who has extensive experience working on international IT projects, honestly lays out for us the cons of hiring this kind of worker:
- lack of basic programming skills,
- superficial knowledge of programming languages,
- lack of independence and problem-solving skills,
- low productivity, and the creation of low-quality software,
- lack of documented experience in that worker’s CV,
- excessively high expectations in relation to skill level.
Unfortunately, employers often assume that they simply have no alternative, due to the difficult situation on the labor market. So they agree to the lesser of two evils, which unfortunately affects the quality of the services they offer, or the applied IT infrastructure. Instead of investing in new technologies and moving with the times, they waste ever more money on old solutions, which consequently leads to technological debt.
Outsourcing – the scalability of resources
And now we get to the point. In the current heyday of cloud services that allow you to customize resources to suit the needs and capabilities of the company, outsourcing IT services and hiring employees from external service providers is truly a sign of the times. Outsourcing allows you to choose the best specialists in the field, without burdening the company with all the costs of hiring the employee full-time. It provides great opportunities in terms of scalability: highly qualified staff with experience in various projects in many countries are available within a short period of time, for a reasonable price. For example, in terms of Polish IT specialists, acclaimed by HackerRank as some of the best in the world, if we take into account the actual costs of employment and the hourly rate, the wage of a programmer may be only half as much as in London. Moreover, all obligations in terms of hiring workers which may be borne by the employer, are now the responsibility of the outsourcing services provider, and workers are hired for a predetermined period equivalent to the duration of the project. After completion, their employment may be extended for additional maintenance services, or they are simply transferred to another project, or to another customer.
Most importantly, it is the outsourcing company which is responsible for the quality of services provided, and which must satisfy its obligations according to the contract which regulates all aspects of co-operation, from the project deadline, to the budget, and finally to objective indicators of the quality of the services provided.
Such a model of cooperation may, however, benefit all parties – the customer may utilize the service itself, the service provider earns remuneration, and employees get secure and attractive employment, as well as the opportunity to work on interesting and diverse projects.
Read more: 7 phases of the IT outsourcing process