IT Staffing Report: March 1, 2018

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Growth assessment provides annual update on the global state of the IT staffing market

Staffing Industry Analysts recently released its IT Staffing Growth Assessment: 2018 Update. This 72-page report provides an overview on the state of the global IT staffing market. We have included the introduction text below. SIA corporate members can access the full report here.

Global IT staffing generated $59 billion in revenue in 2016, based on SIA estimates, representing more than 15% of the total global temporary staffing market. About half of IT staffing is derived from the US, where we forecast revenue to maintain a 4% growth trajectory in 2018. Despite the stable growth forecast, a host of underlying trends are shifting in a market that has become increasingly complex.

The secular trend of an increasing contingent share of the workforce remains intact, driven by buyer demand for flexibility, scalability and reduced risk. Digital disruption has intensified the flexibility factor, specifically for IT talent, as an accelerating pace of technological innovation and a more rapidly evolving business environment have fueled demand for shorter-term projects requiring more specific IT skill sets.

The same demand drivers mentioned above have also sparked an increase in demand for the provision of projects and managed services under statement of work, which are becoming an increasingly prevalent supplemental layer of service offerings within traditional staffing firms, particularly among the larger IT staffing operators. The development of corresponding subject matter expertise may provide the foundation for a push up the value curve, which can offer more predictable revenue (e.g. typically less cyclical model than temporary staffing) and deliver higher-margin business in an environment where staffing margins have been eroded by VMS and MSP.

As the IT services field was early to embrace the use of contingent labor, its temporary agency penetration rate remains high relative to other occupational segments. Thus, IT staffing should benefit all the more from the long-term growth in overall IT employment (projected to exceed all areas of the economy aside from healthcare). However, the 800-pound gorilla currently obstructing employment growth is a constrained labor supply. While the shortage of high-level IT talent has the benefit of enhancing the value of staffing services, it also creates recruiting challenges. As unemployment rates for IT occupations continued to tighten in 2017, we believe the labor shortage pendulum has swung to a point where the challenges outweigh the benefits. Despite growth in the number of new computer science graduates (both undergraduate and post-graduate) entering the labor force, the supply has been unable to keep pace with rapid shifts in IT skill demand. As a result, coding bootcamps have quickly emerged as a vital resource in accelerating IT workforce development. Immigration of foreign workers provides a boost, yet, the current structure of the H-1B visa program, such as its annual caps on visas, does not sufficiently bridge the demand gap. Should current efforts in Congress to raise the annual cap come to fruition, they would clearly aid supply to some degree. Additionally, there appears to be bipartisan support for changing the visa lottery system to a more merit-based selection process, which may lead to greater use of visas where talent shortages are most acute.

In the near term, economic trends serve as a general tailwind to our growth forecast. After a prolonged period of plodding US GDP growth, economic activity has recently displayed signs of gaining steam and is forecasted to accelerate in 2018, partially aided by the recent passing of the Tax Cuts and Jobs Act, which the Tax Policy Center estimated would pad GDP by 0.8% this year. An acceleration in GDP may trigger wage increases in the US, which could spur bill rate growth, which has been sluggish in recent years. Rising GDP growth may also reflect increased IT investment. Gartner projects growth in global IT spend to accelerate to 4.3% in 2018, from 3.3% growth in 2017 and 0.3% in 2016, and forecasts growth in US IT spend to accelerate from approximately 3.1% in 2017 to 5.5% in 2018. Technologies with significant runway for enterprise adoption include: cloud computing, cybersecurity, data analytics, digital marketing and artificial intelligence.

In addition to the broader benefits of an accelerating economy, IT staffing is a highly fragmented market offering significant mobility for top performers to gain share. Relatively low barriers to entry stress the importance of differentiation and innovation in eluding competitive pricing pressures. Specialization has been a common thread among many of the fastest growers in the space. Large players with a heavy emphasis on STEM skill sets, such as On Assignment (planning to be renamed ASGN) and Insight Global have enjoyed consistent above-market growth rates, as have many of the mid-tier specialized firms in our fastest-growing list. Among smaller firms, modes of specialization include concentration in industries served, specific occupations/IT skill sets, and technology platforms. Specifically, as it relates to industries served, tech/telecom, banking/financial services/insurance, and healthcare are the three largest verticals in IT staffing, together comprising approximately 60% of the market, based on SIA benchmarking data.

We have also seen consolidation in the form of M&A where firms seek synergies, access to strategic clients, geographies or subject matter expertise, for example. Yet, the number of IT staffing firms continues to grow. In fact, over the 2009-2016 period, IT temporary staffing was listed as the most common primary staffing segment of new entrants, according to SIA survey data. Encroachment into IT staffing from consulting firms, outsourcing firms, system integrators, and human cloud vendors have also further muddled the competitive landscape. While the numbers are still relatively small in volume, nearly half of B2B human cloud spend is attributed to the IT occupational segment.

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