In 2022 the war in Ukraine has added another layer of complexity and implications for vendors to account for in staffing and human resources (HR), something many have been dealing with since the onset of the COVID-19 pandemic. The macroeconomic pressures caused by the war have also led vendors to prioritize employee experience in their business continuity plans. These macroeconomic pressures have also compelled vendors to reconsider the distribution of their global delivery models, over-reliance on a single country, and the true opportunity to scale the integration of automation in service delivery.
Two hundred days into the war and three quarters into 2022, vendors continue to rethink best practices in HR as supply chain disruption and labor shortages persist, while new threats including a potential global recession emerge, putting the promise of automation to its greatest test yet.
Prediction No. 1: The robots will hire each other, complicating the people part of global delivery
Boz Hristov, Principal Analyst: The trend is not going to be an overnight “turn the switch” kind of phenomenon, but instead will create long-tail opportunities and implications for ecosystem participants. With automation now table stakes, vendors and enterprises are facing the next phase of developing and adopting intelligent solutions that are less about technology architecture and more about recognizing patterns and recommending outcomes.
Rising wages pressure vendors to increasingly rely on intelligent automation solutions to ensure service quality and meet shareholder promises. While benefits have yet to trickle through vendors’ P&Ls at scale, early indicators suggest that improving contract pricing paired with the use of automation will enable vendors to develop better visibility into their staffing and profitability models as they minimize the need to use people for mundane tasks.
Prediction No. 2: Get paid for what you do, not for where you live goes global, with business model and business culture implications
Boz: The trifecta of the tight labor market, war in Ukraine and looming recession has challenged legacy HR policies and compelled vendors’ leadership to seek alternative routes to retain talent as attrition continues to pressure the very existence of their business models that are centered around quality and continuity.
The need to strike the right balance between onshore and offshore headcount has been dictating vendors’ global delivery strategies since the dawn of outsourcing as many continue to rely on the pricing arbitrage offered by low-cost locations. Accounting for the emergence of nearshore markets including Turkey and Egypt could present a short- to medium-term solution for vendors to leverage, especially if the war spills over beyond Ukraine. Doubling down on building on-site resources helps vendors offset potential geopolitical risks in Eastern Europe, but this could trigger financial risks, especially as onshore talent wages are several times larger than offshore rates.
Regardless of how long the war lasts, diversification will remain the watchdog for vendors for the next decade and beyond. While vendors maintain relatively diversified global footprints, India remains the go-to destination for the majority of vendors seeking talent. If the government of India picks a side against Western allies, this could cause vendors to further re-evaluate their business continuity plans. And just as vendors pivoted toward remote delivery when the pandemic began, we believe ramping up automation will allow vendors to decrease their reliance on India as a global delivery hub and possibly provide them with the necessary solution to combat the potential development of new clusters of state economies.
Prediction No. 3: Software developers defecting to TikTok challenge IT services vendors’ talent models
Boz: Similar to the previous two trends, this one has also held true throughout 2022 and will accelerate for the foreseeable future but with certain caveats largely depending on the pace and longevity of a global recession.
As legacy IT services vendors continue to hire in bulk, contenders across the spectrum, from McKinsey & Co., Boston Consulting Group (BCG) and the Big Four on one end to hyperscalers building their services arms and new tech platforms like Tesla and TikTok on the other end are constantly vying to build a right-skilled bench, resulting in job-hopping among new recruits.
Striking the right balance between scale and skill while accounting for new business and delivery models will also test vendors’ innovative recruitment and retention practices as economic outputs begin to slow down and news about tech industry layoffs start to appear in the headlines.
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Predictions is an annual TBR series examining market trends and business changes in key markets. 2022 covered segments included cloud, telecom, devices, data center, and services & digital.