Tuesday, 15 July 2008

IT resourcing - so what's up?

Many years ago, I introduced the “ITSAs are the Barometer of the IT market” concept. Through every previous IT cycle, ITSAs had behaved roughly as follows:

- IT market is great. IT contractors and permanent recruitment in great demand. ITSAs thrive.

- IT market turns down. IT contractors are the first to get ‘let go’. Contractors reduce rates and many apply for permanent roles. Permanent staff turnover falls. ITSAs the first to suffer.

- IT markets get really rough. Permanent jobs go. ITSAs find life really tough.

- First signs of recovery. Firms take on IT contractors first – fearful that the recovery will not last.

- Recovery strengthens. Permanent jobs are in demand not least because churn increases as confidence returns.

I think I’ve been through this cycle at least three times in my time as an analyst. The ‘problem’ is that each time the ITSAs tell me that it’s ‘different this time…”.

So far this year, if you take stock prices as an indicator, you would conclude that the ITSAs are having a tough time. Although fully recognising that all these companies are different and, indeed, engage in the IT bit of resourcing to varying degrees, Michael Page, Hays and SThree have declined by 23%, 30% and 36% respectively this year. Parity and Harvey Nash have both slumped by over 50%.

The ‘problem’ is that these companies have actually performed according to expectations so far this year and there haven’t been any revisions for 2008 as a whole. The share price falls are therefore mainly based on the outlook for 2009. Basically, the market just doesn’t believe the current 2009 earnings estimates and companies don’t have to issue warnings that far in advance!

So what is happening?

There is no question that overall the recruitment market is tightening. Latest data (Source – KPMG) shows that demand in permanent placements (all sectors) fell in June for the first time in 5 years, whilst demand for temporary placements, whilst still growing, was at the lowest level of growth for 2 years. In IT, strangely and against the cycle I outlined above, permanent recruitment is still growing whilst temp recruitment is shrinking a little.

I am also told that it is getting more difficult to pull people out of existing employers (nervousness about being somewhere new when times get tough) and that senior level headhunts are scarce at present (cautiousness about changes in senior management – that will probably change as companies hit problems)!

In IT, I still believe there is good demand in some technologies and in the more senior roles (driven by offshoring and technology changes for systems development and maintenance/support). Recruitment in some areas (project and programme managers, service managers, analysts, system architects etc.) is still doing fine. Clients are trying to apply pressure on prices and margins, but with mixed results. Public sector still seems very strong.

So I invited the CEOs of two of the resourcing companies, whose shares have been the worst affected, to give me their views.

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