The number of finance and other back-office jobs at big companies in North America and Europe will continue to decline over the next few years, although the pace of such job losses is slowing, according to a recent report by The Hackett Group.
Hackett revised up its forecast for the number of business services jobs that will be lost in coming years in response to the International Monetary Fund’s gloomier outlook on the global economy. The business advisory firm recently estimated that another 604,000 such jobs, including finance, HR, IT and procurement positions, will have disappeared by the end of 2017.
“We made a downward adjustment to these projections strictly following the IMF numbers,” said Erik Dorr, senior enterprise research director at Hackett. “That paints a slightly bleaker picture than we put out the year before.”
The decline that Hackett is forecasting in overall business service jobs in coming years pales in comparison with the plunge that has occurred. Hackett reported a 38% drop, to just 4.9 million such jobs in 2013, from 8 million in 2002. It now sees the number of business services jobs bottoming out at 4.3 million in 2017, down from the 4.5 million total it forecast for 2017 in last year’s report.
Roughly half of the decline that Hackett expects over the next four years will occur in finance jobs. The firm expects a 312,986 decrease in finance jobs at big companies in North America and Europe over the next four years. (See chart.) Its data show that finance jobs at such companies already contracted from 3 million in 2002 to 1.9 million this year.
In addition to the IMF forecasts, Hackett’s projections take into account data from its benchmarking studies about productivity gains and offshoring.
Large corporations’ use of technology to improve productivity and shifting jobs to cheaper offshore locations has not only driven the losses in back-office work in North America and Europe, but has led to a new standard for getting such work done, the global business services unit, according to Hackett.
“The essence of what’s going on is a redesign of the enterprise model for companies,” Dorr said.
In the global business services unit model, companies have a separate unit that provides all the other business units with services like accounts payable and accounts receivable, IT or HR.
Honorio Padrón, a principal at Hackett and leader of its global business services practice, said 78% of the companies Hackett benchmarks now have a global business services unit that performs two or more functions, although he noted those units are at varying stages of maturity. “It is a winning strategy, and more and more companies are figuring that out,” said Padrón, pictured at left.
Hackett’s research shows that a company that moves work to a global business services unit can see its costs for that work cut by 19% in the first year and it will continue to realize recurring productivity gains each year.
Padrón attributes those results to the focus that a global business service unit can give to the work it does, the process improvements it can implement and the competencies it develops. “When you put someone in charge of looking across the enterprise horizontally, the connections get made in a better and more efficient way,” he said.
Dorr noted that global business services units also enjoy economics of scale.
As more routine back-office work is automated or moved offshore, companies have less need of employees with transactional skills. But there is still good demand for “knowledge-centric” workers, according to the Hackett report, as well as a shortage of workers with certain types of skills.
“For the foreseeable future, there’s going to be a shortage of technical skills,” Dorr said. “There is an explosion of new technologies like wireless and there’s simply a lack of resources to do that kind of work.”
“Someone will say, there are more jobs in the U.S. than ever before in IT,” Padrón said. “But the growth is not in the back office, the growth is everywhere else.”
There are three types of employees in great demand currently: those with expertise in change and transformation; those who can work with data and make sense of it, in such areas as data analysis and data mining; and those who can manage services within the business, Padrón said.
As wages have headed higher in some popular outsourcing locations, such as India, there has been talk that companies may bring some work back. But Padrón said it still makes financial sense to do work overseas.
“There’s been movement in some of the labor arbitrage being reduced, but the variation is still so large that it does not make sense to bring all that back,” he said, adding that costs are also rising in the U.S., and healthcare reform could push them still higher.