Layoffs rock the IT services industry amid move to the cloud

The impact of the continued move from on-premises IT services to the cloud, accelerated by the COVID-19 quarantine, is finally being felt by the IT services industry as multiple major players are rocked by layoffs.

IBM was hit with cuts in five states. While the exact number was not revealed, Bloomberg estimates the cuts are in the thousands, with North America the hardest hit global region and IBM Global Services the hardest hit business unit. Estimates from ex-IBM employees on TheLayoff.com (one of the most depressing sites I have ever seen) puts the reduction at anywhere from 5,000 to 20,000, although that could be looking through the prism of some very bitter ex-employees.

Consultancy Deloitte on Friday reportedly held an internal all-hands call, led by CEO Dan Helfrich, who announced a 5% staff reduction, or 2,500 workers. Where the cuts are coming is not clear yet but Bloomberg speculated that any consultant not currently assigned to a project would likely be the first to go.

DXC Technology, the consultancy born out of the merger of CSC and HP Enterprise’s consulting business (the former EDS) plans to eliminate 4,500 positions in a bid to eliminate about $700 million in expenses on an annualized basis. CEO Mike Salvino made the announcement last week on an earnings call with Wall Street analysts.

In this case, however, he said the drop in revenue was not caused by cloud trends prompting customers to move away from DXC. Instead, he said it was due to poor performance by the company and a need to streamline operations. “As a result, we lost roughly $1 billion of revenue in FY ’20, and expect to lose a similar amount in FY ’21,” he said.

So what are we to make of all this? The obvious culprit is the move to the cloud. Enterprises don’t need to hire as many consultants making six-figure salaries when AWS or Microsoft is handling half of your IT load. But DXC said it wasn’t the cloud, it was its own bloated hierarchy, which is quite an admission.

“There is no doubt that these big consulting firms are having to pivot because of the cloud and its hitting them in the bottom line,” says Joshua Greenbaum, president of Enterprise Application Consulting, an independent consultancy. “The quarantine and emergency has accelerated plans to move to the cloud and put the brakes on projects that would have been lucrative. The combination of the two means a lot of stuff is put on hold.”

Whether those jobs come back is questionable. Not helping matters is machine-learning software like the recently announced SAP Cloud ALM that automates a lot of the basic work of cloud lifecycle management.

“There’s no doubt the basic, low-level services of getting data centers up and running stuff doesn’t come back. There will be a shift. At the end of the day, complexity is king in enterprise software. What is made easy today is made more complex tomorrow and that will need more skills. If they can upskill these people into new skills then the jobs will be there,” says Greenbaum.

Journalistic gadfly Robert X. Cringely has a similar theory. He believes the automation brought about through software-defined networking has reduced the need for “three people in the USA and 30 more in India along with three months of trying and testing” to implement a simple database entry.

Whatever the case, with work-from-home being extended and in some cases made permanent, a lot fewer people will be going into offices, which means the nature of on-prem is about to change radically and permanently and the consultants are the canaries in the coal mine.