Tech Giants Continue Layoffs: Will the Broader IT Market Finally Slow?Tech Giants Continue Layoffs: Will the Broader IT Market Finally Slow?
There’s still excess demand for IT professionals, but with a growing list of major tech companies announcing layoffs, the white-hot tech jobs market may -- ever so slightly -- be cooling.
February 15, 2023
From Amazon to Salesforce, the world’s leading tech companies are shedding thousands of workers, but enterprise IT departments have largely been isolated from recent layoffs hitting the tech sector.
However, there are some signs that the white-hot IT labor market is finally beginning to cool; for example, Capital One making the decision in January to cut the agile group within its tech department, among many other IT layoffs.
Meanwhile, IT employment tracker Janco Associates noted recently that the market shrank by 4,700 jobs in January with 100,000 unfilled positions -- the first time the IT hiring trend has gone negative in 27 months.
Forrester principal analyst Christopher Gilchrist points out Dell just announced a 5% cut to their workforce due to PC sales squeezing margins, and PayPal just announced around a 7% reduction in its workforce due to margin pressures.
“Just like the rest [of the tech giants], revenue growth has been slower than headcount growth since the pandemic,” he says. “This is just another example of pulling costs back to sustainable growth levels for the long run.”
Specific to the IT labor market, it will be industry specific and based on the durability of margins, he explains.
There is excess demand for IT labor, which will continue to be in favor of those looking for IT employment and lessening the exposure to those roles specifically targeted during layoffs.
“Consequently, from an organizational standpoint excess IT demand means greater competition and higher wages,” Gilchrist says. “This is why IT labor is most exposed to layoffs when redundancies and low margin revenue streams are in scope.”
Correcting for Hiring Overexuberance
Graham Waller, distinguished VP analyst with IT research firm Gartner, agrees that there was a period of “overexuberance” where the tech giants went on a hiring spree as company valuations soared in the pandemic period.
“There was a lot of optimism and very fast hiring, and now there’s obviously a correction in the tech sector,” he says. “Obviously there are the longer-term headwinds of a potential recession or slowdown. We are seeing some early signs that hiring for the more traditional IT jobs are slowing, but it’s relatively small in the scheme of things so far.”
He adds there will still be a there will still be a supply/demand imbalance in the favor of highly qualified tech talent in the fields of data science, cybersecurity, and software engineering.
“There’s still a continuing trend toward digital acceleration. The pandemic boosted that, and there’s a lot of interest in artificial intelligence, as well as cybersecurity and data science,” Waller explains. “There’s a push from organizations across the board to accelerate that as part of their business strategy.”
He notes there is still a planned 5% increase in IT budgets in 2023, which indicates there’s still a healthy demand for investment in technology and the talent required to build it.
“Many organizations, traditional organizations are using this tech layoff as an opportunity to play offense,” Waller adds. “Certainly, progressive organizations are looking to fill some of those positions where is has been incredibly difficult to hire. There is still a lot of competition for people with those skills.”
From Gilchrist’s perspective, tech leaders do not need to be too aggressive with short-term cuts that inevitably will force them to play catch-up in the long run.
“Instead, be aggressive with repositioning the current workforce to expand core business growth and strengthen the durability of your advantage in the market,” he advises.
As an example, Microsoft cut costs from their HoloLens business as short-term shareholder commitments restructured long-term costs/investments.
“If cost needs to be reduced, focus on reducing investments that have diminishing marginal returns in the short run,” he says. “This will redirect resources away from low yielding efforts, impacting profitability quickly while limiting exposure to future growth.”
If hiring, focus on growing investments that have increasing marginal returns in the long run, which will redirect resources to high yielding efforts, restructuring cost (i.e., profitability) to support the sustainability of growth.
New Opportunities for IT Pros Emerge
Kathy Northamer, Minneapolis district director with Robert Half, says despite the high-profile layoffs, the IT jobs market is still looking strong for 2023.
She points out a lot of companies are still undergoing a lot of digital initiatives as the pandemic shifted people’s buying habits to a more online focused habit.
“When you dig under the covers and you look at the latest jobs report or the hiring indexes specifically within the IT industry, it’s still at record lows of unemployment,” she says.
She expects to see a “normalization” of the space as the year progresses as companies pare back on aggressive hiring and look to target talent in areas where it will help grow the business and add value.
“Anything in that space from web developers to data specialists are still in demand, because that’s where companies are trying to understand consumer buying habits,” she says. “We’re also still seeing a lot of need in anything in the cloud area, where companies are looking at what business segments should be in the cloud, what should they keep local on site and more migrations to the cloud.”
She adds there’s also been resurgence in the help desk area, as the surge in digital commerce has resulted in more people requiring help with everything from product information to payment transactions.
“Whether it’s a proprietary application or a general help desk role, we’ve seen an uptick in demand for that role with the market the way it is,” Northamer says.
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