IT leaders see 18% reduction in IT workforces within 2 years

CIOs expect a significant drop in payrolled IT positions, according to a recent report from technology recruiting firm Harvey Nash.

An historic realigning of how IT work is sourced, in terms of in-house versus contractor or third-party firm, is likely playing a role, industry observers say, but so too is AI, in terms of the experience and training sought, as well as the perceived notion among business leadership that AI will eventually lead to reduced headcount needs. 

“Digital leaders believe that their hiring needs for existing tech positions will reduce by 18% in the next 2 years. More broadly, respondents predict that around 18% of the workforce will be automated in the next 5 years,” the report said.

Moreover, the report, based on a survey of 2,015 technology and digital leaders across 62 countries, found a shift in sentiment in favor of AI skills over IT experience: “Right now, 65% of digital leaders would choose an AI-enabled software developer with just 2 years’ experience, over one with a 5-year career but without AI skills. This not only has an implication on the type of person a digital leader might want to attract, but also how they will want to develop the skills of their existing team.”

Matt Kimball, VP and principal analyst at Moor Insights & Strategy and the former CIO of the State of Florida, sees much of this shift as potentially problematic as the skills and talents of the older workforce may be lost.

“As the boomer generation are hanging up their pocket protectors, the younger workforce is coming in and embracing automation more than the old people,” Kimball said. “You’re running out of folk who know what a shell script or a command line is.”

Contraction ahead?

Kimball attributed anticipated IT payroll reductions “partly to automation and partly to the cloud — but also, a lot of partners. You can contract with Deloitte or Accenture or whoever and need fewer people to maintain [IT infrastructure] over time. That will be a lot less expensive” than paying the salaried IT talent to do it.

But, Kimball said, those temporary savings come with a steep long-term cost. “You will bring in far better returns by investing in your own employees.”

Overall, Kimball is highly skeptical that automation will result in any notable contraction of the IT workforce. “We’ve been talking about automation and AIops for at least 25 years. This is nothing new,” he said. “This perception that automation is going to kill off the workforce” is not justified by the long-term numbers.

Roman Rylko, CTO at IT consulting firm Pynest, however, has seen this effect in action, offering a fintech client as an example. 

The fintech “optimized its internal IT department by reducing nearly half of its full-time testers and administrators and shifting those tasks to a dedicated development team,” Rylko said. “The goal was to shift part of the load to external partners and reduce fixed costs.”

Not every IT domain will be hit with headcount reductions, Rylko suggested, especially “cybersecurity, because the risks are only increasing; big data and analytics, since business is increasingly relying on data; and architecture, which is essential for managing hybrid systems.”

But, Rylko said, “routine roles will be cut first: some support, testing without automation, and administration of legacy systems.”

Chirag Agrawal, a software engineering consultant to enterprises, has also seen staff reductions as a trend, along with a drop in enterprise IT hiring, although the rationale, he believes, goes beyond AI.

“I’ve noticed workforce reductions in enterprise IT, but AI isn’t the only reason. More often, it’s due to vendor tool consolidation, managed cloud services, and automating routine tasks,” Agrawal said. “A decade ago, big teams managed on-prem servers and networks. Now, a small group can handle the same work using managed Kubernetes, serverless setups, or outsourced security services.”

Agrawal added: “Budget pressure is underestimated as a driver. CIOs are under intense scrutiny to reduce run costs and reallocate funds toward digital transformation initiatives. That often translates into slimming down traditional IT roles while investing more in cloud engineering, data governance, and security talent.”

IT sourcing strategies in flux

Agrawal has also seen a lot of “boomerang hiring,” where CIOs “just laid off people and hired the same on contact a few months later.”

“It was partly a correction to their layoff but it’s also an overall lower cost for them,” he said, due to savings on corporate benefits and paid vacation. Also, it is easier to not renew a contractor than to cut someone from the payroll, he added.

Maxim Ivanov, CEO at AI consulting firm Aimprosoft, is also seeing a shift toward increased flexibility around external IT sourcing agreements. 

“Organizations are shifting from multi-year contracts to smaller, more flexible engagements with shorter terms, moving to quarterly billing cycles, and we’re seeing more delayed or disputed payments,” Ivanov said. “Legacy system and tech-debt drag continues to make integration riskier and delivery slower and more expensive. Add to this the geopolitical uncertainty and public-sector volatility that’s slowing approvals and raising risk premiums, plus the growing pressure to consolidate vendor and tool bloat to reduce third-party spending.”

Ivanov suggested that CIOs embrace financial “trigger points” when looking at IT staffing strategies. 

“For instance, if churn exceeds 15%, pause hiring. If 25% or more of your services are delayed or disputed, reassign staff to stable, critical work,” Ivanov said. “These thresholds help you respond quickly rather than reactively.”