Recession and crisis in the IT industry. 7 months of interviews with 50 managers from Europe and the USA.

Recession and crisis in the IT industry

Over the course of seven months, I conducted more than 50 interviews with top-level managers, mainly CEO (chief executive officer), CTO (chief technology officer), CFO (chief financial officer), COO (chief operating officer) and CIO (chief innovation/IT officer), from countries such as Poland, the United Kingdom, Germany, the United States and Sweden.

These meetings gave me the opportunity to hear a variety of perspectives on the onset of the recession in the markets, particularly the IT and high-tech crisis, and to learn about the current situation in their organisations. Based on these reflections and the data collected, the following notes have been created. You will not find all the interviews here, only a selection. Those that do appear have been anonymised. I have left only the positions and countries of my interviewees.

Virtually every manager I spoke with described the enormous and devastating effects of the crisis, which seemed to have no end. I didn’t meet a company that wasn’t feeling the weight of these problems. The specter of uncertainty and stagnation hung over the entire industry. Even the most ardent optimists no longer talked about growth, investment, interesting projects or long-term plans.

High-tech industry seemed indestructible

There is no denying that the technology industry, for at least a decade, was seen as a symbol of stability and continuous development. Organizations created strategies based on digital transformations. National economies grew with technology, and some countries created their specializations around it. Companies invested in cutting-edge solutions, and multitudes of non-technology-related people, tempted by high salaries, re-branded themselves to become programmers. In all this momentum, no one expected the industry to start experiencing a crisis, and certainly no one expected it to happen so quickly.

While the job market was booming in 2022, just a year later in 2023 the situation has changed dramatically, and in 2024 finding a job in IT has become quite a challenge.

The reasons for this can be traced to the fact that many companies, in response to economic hardship and the raging recession, have begun to cut operating costs and FTEs. In addition, looking at the headlines in newspapers and portals, one can get the impression that artificial intelligence and automation are also responsible. However, is this the whole truth?

I decided to see how other companies in the world are doing and find out how they view the current situation in the industry. I wanted to find out where they thought the problem was, what was contributing to the growing problems and how it all started.

With this in mind, I opened my LinkedIn and decided to seek answers from experts, but outside my network of contacts. Instead of reading analysis, I started making appointments.  I spoke with managers, business owners, industry leaders and specialists, from different countries and continents. Each meeting uncovered new perspectives for me and allowed me to understand how diverse experiences and challenges can be in the IT industry on a global scale.

History likes to repeat itself

When looking at the current crisis, it is important to remember that this is not the first time the technology industry has experienced it. The most commonly cited example is the (Internet) dot-com bubble of the late 1990s and early 2000s, a time when the market became saturated with investments in Internet companies that promised a revolution in the way business was conducted. The value of the technology-focused Nasdaq index increased fivefold between 1995 and 2000, peaking in March 2000 at more than 5,000 points. Unfortunately, many of these companies lacked solid business fundamentals and generated minimal or no profits.

When the bubble burst, many companies lost value overnight, thousands of employees were laid off and investors lost billions of dollars. The companies’ collapses showed how dangerous excessive speculation and lack of sustainable business models can be.

Inflation one of the factors responsible for the crisis

As I write this article, in July 2024, the figures for average inflation in 2023 are as follows:

Country/Year	2023
Turkey	53,44%
Sweden	8,63%
USA	4,14%
UK	6,83%
Poland	11,4%
Italy	5,72%
China	0,24%

Although the percentages, at first glance, may seem relatively low, inflation in 2023, reached, in specific months, the highest level in 40 years in the US and 24 years in Poland.

A significant number of the executives I met with blamed inflation for the situation in their country and the world. Rising prices have definitely reduced purchasing and investment power, which has resulted in reduced demand for goods and services, including technology. In addition, in response to rising inflation, many world economies made decisions to raise interest rates, which aimed to stabilize prices, but at the same time had a direct effect on increasing borrowing costs. All this further reduced investment budgets and slowed economic growth.

I remember a conversation I had with the CEO of a Swedish technology company in early December 2023.

— “Inflation has hit us hard,” – she said, looking straight into the camera.

— “The cost of outsourcing services has increased so significantly for us that the budgets we had previously set were no longer sufficient. We had planned to develop several key projects, but had to put them on hold. The cost of hiring a specialist from Poland, for example, began to be comparable to hiring a local expert. This completely changed our approach to recruitment and resource management. Previously, we used to attach external specialists to our teams not only to increase our capabilities, but also, after all, as a cost-effective solution. Now it has become as costly as hiring local employees. Finances don’t allow us to do that.”

Her words reflected the situation of many companies in the region. The high cost of inflation forced managers to revise their strategies and look for new solutions. The development of IT projects, which were supposed to be the future of the industry, had to be curtailed, further inhibiting innovation and progress.

— “We have stopped hiring not only from abroad, but gradually also from the local market. We just don’t have the budget. We now lack the high quality of service and expertise that we used to get from outsourcing. We are now looking for budgets that will allow us to return to our previous practices.” – she added

In January 2024, I had another video call with Sweden, but this time with the innovation director of a manufacturing company. The colorful wallpaper on his wall contrasted with the serious expression on my caller’s face. As we began discussing inflation, the director straightened up in his chair and said with determination in his voice:

— “We are approaching this situation with great calm. We are holding off on the increases because we believe it is our civic duty to endure all these hardships.”

Intrigued, I asked him to elaborate on this thought. The director continued, gesturing vigorously:

— “The way we see it, it’s only through solidarity and belt-tightening that price increases will be felt less by everyone. It’s not easy, but we believe it’s the only way to economic stability.”

— “What about operating costs and investments?” – I asked.

— “Well,” he sighed, “we are cutting operating costs to the limit. Every crown is carefully analyzed, and when it comes to investments, we simply wait with them for better times. These are difficult decisions, but we believe they will pay dividends in the long run.”

Impact of geopolitical situation on IT crisis

Inflation and recession in the high-tech industry did not come from nothing.  The global political situation in recent years has been extremely complex and constantly changing. Numerous geopolitical events have had a negative impact on many sectors of the economies. Russia’s attack on Ukraine has had a serious impact on increasing energy uncertainty, disruptions in trade, capital flows, investment or raw material markets.

The situation in the Middle East (war between Israel and Hamas), the migrant crisis in Europe, or the tense relations between the US and China involving Taiwan are not helping either.

— “Sanctions, tariffs and restrictions on access to technology are causing disruptions in global supply chains.” – heard from the COO of a manufacturing company in Germany.

— “Many countries have started to compete more and more strongly with each other in the military and technological spheres, which adds to uncertainty and destabilizes the sense of security.”

In addition, low interest rates maintained by major central banks to stimulate the economy for years after the 2008 financial crisis, and then in response to the pandemic, led to more money in circulation. As economies began to recover, the excess supply of money in circulation was met with renewed demand, resulting in inflationary pressures.

In March 2024, I met with the CIO of a large technology company in Poland. Outside the window, the winter landscape was still smelling, and with a mug of hot coffee in my hand, I was waiting for the video conference. When my meeting partner showed up for the meeting, we talked mostly about sales challenges in today’s rapidly changing environment. At one point, our conversation descended into operating expenses.

— “Price increases and massive inflation have affected us all,” – said the director, fleeing with his eyes to the other screen of his computer.

— “We wanted to raise our employees’ salaries at all costs so that they wouldn’t feel the effects of the crisis. But it wasn’t enough, because at the same time a new tax system appeared in Poland, which caused us to have to equalize salaries again, because it depleted our specialists’ wallets. We wanted to take the worry off of them, but it put a huge strain on our budgets. Today I think it was a mistake.”

Increased number of cyber attacks

Additionally, it doesn’t help that organizations are experiencing an ever-increasing number of cyber attacks. According to McKinsey, the war in Ukraine has shown a new scale of cyber threats. The number of attacks to which organizations are exposed is dramatic. In Ukraine, they have increased by 250% in 2022, compared to 2020, and by as much as 300% for NATO countries.

Cyber attacks are becoming increasingly complex and intense, threatening not only individual organizations, but also ecosystem or national security. Critical infrastructure such as power grids and transportation systems are increasingly vulnerable to attacks. According to a report prepared by Barracuda Networks, companies around the world lose an average of $5.34 million a year due to cyber attacks. In addition, the study highlights that as many as 71% of the companies surveyed have fallen victim to a ransomware cyber attack in the past year. As many as 61% chose to pay the ransom.

The need to invest in protection

My suspicions about the need for increased security funding were confirmed by a CEO from a UK-based consulting firm. It was already spring 2024, and sunlight was streaming in through the window, casting warm reflections on my desk.

— “In the kind of environment, we currently find ourselves in, companies in the UK, instead of increasing their spending on innovation, are mainly forced to invest not in development, but in protection against additional external factors. Our stakeholders are demanding more and more robustness and a sense of security. We need to provide them with that.” – said the CEO from his company’s London headquarters.

In other conversations with policymakers, I’ve heard repeatedly that there is a heightened concern that companies could fall prey to an attack from, say, Russia or China, which would seek to steal their technological thinking or infect their systems for espionage purposes.

Elections around the world

— “We are afraid for the future of NATO and policies related to the Union’s security,” I heard repeatedly in 2024.

It is worth bearing in mind that this year is unique in terms of the number of elections around the world.

Elections are held in more than 60 countries, covering about 40% of the world’s population and GDP.

According to managers, possible changes in political ordinances may directly translate into (at least temporarily) instability in the operation of their organizations, as well as disruptions in the markets. In addition, changes in the law, including tax or labor laws, may further increase operating costs, which, also in a difficult economic situation, raises further concerns for them. Managers from EU countries also point to concerns about the migration crisis, which they say could negatively affect the amount of taxes they will have to pay.

Disinformation and polarization of society

During the pre-election period, disinformation activity increases. False information can be used to manipulate public opinion, as well as to slander the good name of an organization.

In addition, there is a polarization of society and an increase in interpersonal tensions. An example of what this can lead to is the attempted assassination of presidential candidate Donald Trump, which took place in July 2024. The public quickly recognized that the candidate’s chances of winning had increased, which triggered a series of reactions in the financial markets, reflecting investors’ expectations about the potential political and economic implications of his policies. Among other things, another rise in inflation was predicted, causing long-term bond yields to rise rapidly. Also significant were movements in European defense stock markets, which rose in anticipation that the candidate would force European governments to spend even more on defense.

During one of my calls in the spring of 2024, I connected with a manager working at a financial institution in the United States. The manager talked about how deep political divisions were affecting his company.

— “I have the impression that this year the polarization of society is particularly noticeable,” – he said, rubbing his eyes. The time difference was palpable. At his place, it was still early in the morning, and my thoughts were already running toward my longed-for rest.

— “Instead of focusing on work, people are busy with political and ideological conflicts. This affects our efficiency and my personal morale.”

— “How do you deal with it?” – I asked.

— “With difficulty,” he – he admitted — “I won’t bore you with what policies the company is introducing. In fact, we are waiting for the elections and what they will bring. Maybe after them the situation will calm down.”

Minimizing investments

Managers believe their organizations are facing global unrest and are constantly increasing spending on operations and putting out the effects of the “fires” that break out. They are also afraid to invest money in innovation and cutting-edge technology, waiting for the global situation to calm down. As a result of political conditions and numerous threats, many companies have decided to minimize investment and development of their projects to protect their resources and ensure stability in uncertain times.

Insatiable demand for recruitment in recent years has driven huge wage increases

The huge demand associated with digital transformation, digitalization and rapid economic development has continuously increased the demand for IT professionals over the years.

At the time, the main task of HR and technology departments was to attract as many specialists as possible from the market. This was not always driven by real needs, but often by the compulsion of a chosen growth strategy or the desire to secure their position for the future.

New businesses and re-branding

The ever-increasing demand led to the emergence of an increasing number of new companies that made money by re-training people from various professions into IT specialists. These organizations trained according to the programs they developed, and then either released the workers directly to the market or hired them out to large companies, corporations or outsourcing conglomerates.

In one of my articles on the information technology industry in the context of software engineers, I wrote about the damage that a massive re-branding of developers from other professions can do. I also stressed that the work done by developers is much more than just “slapping together code.” Very often companies do not realize how difficult and complex application development is and how many different factors affect the success of a project. In the article I also stressed that every piece of code created by professional developers is a huge responsibility. Not only for the technology itself, but more importantly for the functioning of entire businesses, the people working in the companies, the customers for whom the software is created, the ecosystems, and even human lives.

Recruitment problems

Meanwhile, organizations recruited even employees who had little to do with modern technology into their IT departments, hoping, like the companies mentioned earlier, to train them according to internal standards and development programs.

Competition and wages

Large corporations offered incomparably higher salaries than smaller high-tech companies. In order to stay afloat, companies began raising salaries to the limit of their capacity. An additional factor that emerged around 2020 and affected the equalization of salaries between companies was the pandemic. It led to an equalization of wages between regions of a country and even different states.

Massive layoffs at large corporations have hiccuped the entire market

However, in early 2023, the situation reversed and companies, not only in the high-tech sector, began to lay off workers en masse, most likely in response to inflation and recession, in order to optimize costs.

By the end of the same year, the IT industry had seen record layoffs. An estimated 263,180 employees lost their jobs in 2023, which in Silicon Valley alone was the largest wave of layoffs since the early 2000s, the era of the Internet bubble. Unfortunately, 2024 did not bring solace. According to the Tech Crunch website, as many as 84,460 workers were laid off in the high-tech industry in the first half of 2024, and that’s not the full figures.

Situation in Poland

In Poland, Polish companies laid off an average of 26% of their IT professionals in 2023, according to the IT Industry Salary Report 2024 released by SoDA. Companies with more than 300 employees laid off 12% of their staff. As many as 23% of the layoffs were in companies in larger cities, where the labor market is more saturated and competitive. Smaller towns, though also affected, laid off an average of 14% of their employees.

The layoffs have not helped improve the financial situation. According to the KRD‘s 2024 report, the debt of IT companies in Poland has increased by a third over the past two years and now exceeds PLN 250 million.

Market reaction to layoffs seems out of step with the situation

The first job cuts in 2023 may have been caused by panic. However, when the market, instead of reacting negatively, reacted with great optimism, many managers I spoke to were surprised. Stocks:

• Microsoft’s 2023 figures rose by nearly 57%.
• The meta has grown 79.16% over the past year (through June 2023 to June 2024).
• Amazon by 45.74%.
• Alphabet (Google) by 51.81%.
• Salesforce by 15.71%.

Since downsizing seems to be helping stock prices, why should organizations stop doing it?

In addition, the consistency of behavior among many companies and the herd effect provide them with cover and justification for their decisions, drawing attention away from individual companies. This allows organizations to make up for erroneous decisions related to previous investments or strategies. Moreover, they gain the argument that artificial intelligence is responsible for replacing “insignificant” positions and increasing efficiency.

— “AI is one big bubble.” – began the CIO from the UK, and his voice was full of scepticism.

— “I’m not saying that artificial intelligence doesn’t have its advantages, but what’s being said about it is mostly science fiction. Many companies are now looking to capitalise on its popularity, so demand is growing. However, this doesn’t change my perception of the technology at all.”

— “It’s not that I’m against it, of course. There are interesting ways to use AI, especially in the area of machine learning, for example in predicting actions or analysing large data sets. This is real and useful. But the big words and promises we hear are simply impossible to deliver in today’s technological reality” – he continued, explaining his position.

In another online meeting, this time with a CTO from the US, I heard a different perspective on artificial intelligence.

— “Sales-related AI is an interesting direction. Companies are looking for ways to improve efficiency and replace ‘unimportant’ positions, so they can use AI as an argument. But personally, I think it’s just a fad. Eventually, the bubble will burst and we will be left with a reality that is far from these fantastic visions.”

— “Why do you think that?” – I asked.

— “Virtually all the needs of businesses are either impossible to implement or would cost tens of millions of dollars with no guarantee of effectiveness. No one wants to invest that much. Unless, of course, you believe so much in AI that you want to boost your company’s share price by doing it,”- he said.

— “We changed the direction of our growth to focus on AI. Our sales funnel was practically clogged to the brim. I was in awe, I thought this was going to be our big breakthrough. But months went by, requests increased and we failed to deliver a single project. Companies expect miracles that are simply beyond our reach. AI has potential, but not to the extent people are talking about.

Wrong decisions to build in-house IT departments

As I wrote earlier, smaller technology companies, especially software development companies, paid large sums of money in order to compete in salaries with the larger players and attract specialists.

After massive layoffs in corporations, organizations that were unwilling or unable to reduce their employees’ salaries were left with old costs from the pandemic boom. This reduced their ability to be price competitive.

Searching for savings

At the same time, a sizable number of companies using such software development companies halted investments and began looking for savings. Company managers also recognized that since there were a large number of specialists available on the market at their fingertips after massive layoffs, it was necessary to recruit them directly in-house, thereby reducing cooperation with subcontractors. Companies that have so far developed their technology through outsourcing have made it a strategic goal to create their own development departments.

Failed recruitments

The experience of the aforementioned organizations with recruiting technical people was mostly negligible. Managers and leaders did not fully realize how difficult it is to properly assess and recruit specialists. As my interlocutors pointed out, erroneous hiring decisions led to a situation in which a sizable portion of new hires completely lacked the experience and skills needed for the positions and roles they were taking on.

These stories were not about one industry or one country. They were globally, erroneously replicated patterns.

 — “I didn’t realize how difficult it is to properly evaluate candidates’ skills. I was evaluating the technical aspect, but I forgot how important it is for a person to be able to communicate properly. Once I discovered this, I started to exaggerate the other way. As a result, we were hiring people who were not able to meet the project requirements. It happened that we had to bounce pull requests from newly hired people a dozen times each. At one point I thought I was going crazy. Simple functionalities were growing from days to weeks.” – is just one of the quotes I heard from a UK-based technical director.

— “Now we have to fix the mistakes of our decisions, which will cost us a lot of time and resources. And we don’t have those anymore.”

Overtime projects, optimization and savings

It turns out that projects that were supposed to be completed faster and cheaper since the creation of in-house departments have, in many cases, started to get longer and company budgets shrink more and more.

In addition, the indefinitely prolonged time for projects to go into effect began to take a toll on the morale of teams (including sales teams), managers and executives. This led to actions based on emotions and ill-considered decisions.

Organizations have begun to look for optimization and savings in the way they develop software. This directly translated into layoffs of such roles as scrum master and manual tester from projects. The latter began to be replaced by automation testers, and when this too proved suboptimal, this work was shifted to programmers.

— “What are you doing to look for savings?” – I asked in a private message, as my UK caller didn’t have time to meet online.

— “We are mostly firing. And if I want to keep someone at work because I work well with them, I have to change their position. I recently made programmers out of automation testers, because otherwise I would have had to take them off the payroll.” – I read the next day.

Deterioration of projects

The actions taken by the companies made the projects even longer, both by the proliferation of responsibilities and the steadily declining morale of the teams. There have been changes of leaders and leadership positions in the teams, but this has not improved either.

About 30% of the managers I spoke with said their companies had virtually completely burned through budgets.

Despite their willingness and admissions of wrong decisions, they have not been able to return to working with subcontractors (including software development companies) or release projects that their sales departments have been mainly waiting for.

Difficulties in obtaining financing

As a result, erroneous decisions to build in-house IT departments and problems with recruiting and maintaining quality projects have led to financial difficulties for many companies.

Managers therefore tried to turn to external sources of financing, most often in the form of loans. Unfortunately, they encountered difficulties here as well. Due to high interest rates and the banking crisis, obtaining external financing became impossible for many of them.

Recession and crisis linked to banks

In 2023, as some companies laid off their employees en masse and others struggled to survive their IT projects, we also experienced one of the biggest banking crises of the past few decades. On March 10, 2023, Silicon Valley Bank (SVB) collapsed, with its impact spreading to the global technology sector and the broader economy. As a key bank for technology companies and startups, SVB’s collapse triggered an immediate reaction in financial markets and heightened concerns about the stability of other banks specializing in financing innovation.

The reasons for the collapse of Silicon Valley Bank

Silicon Valley Bank was heavily involved in financing specific innovative sectors of the economy, which made it particularly sensitive to changes in market conditions and monetary policy. High interest rates, inflation and declining asset values contributed to the difficulties that eventually led to its collapse. In addition, failed investments and liquidity problems forced the bank to take drastic steps that did not yield the expected results.

The domino effect

SVB’s collapse was not an isolated case. A few days earlier, on March 8 2023, Silvergate Bank, which had similar structural problems, was declared bankrupt. Both institutions were deeply involved in financing specific sectors, which made them particularly vulnerable to market changes. The crisis that hit SVB and Silvergate dragged down other financial institutions, including Signature Bank and First Republic Bank, which also experienced similar difficulties.

Impact on the global financial sector

Major Japanese banks, such as Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group, have lost between 10% and 12% in stock value due to market unrest and their exposure to the bond market. In addition, the cost of insuring against Deutsche Bank’s insolvency has risen significantly, and CDS rates on the bank’s five-year debt have increased by 70%. This situation shows how far-reaching the consequences of a crisis in one sector can be on the global financial market.

Credit Suisse collapse

March 2023 also saw the dramatic collapse of another bank, this time Europe’s Credit Suisse. Switzerland’s second largest financial institution, with a 166-year history, has struggled in recent years with numerous scandals, management changes, and significant financial losses. Scandals have included the oversight of its former head of wealth management, losses related to the collapse of Archegos Capital and Greensill Capital, and breaches of protocol by its chairman.

Despite attempts to stabilize the bank, including a CHF 50 billion emergency loan from the Swiss National Bank, panicked withdrawals of client deposits and the refusal of its largest shareholder, the Saudi National Bank, to provide further support led to the bank’s collapse. The Swiss government and regulators forced UBS to acquire Credit Suisse to avoid further financial market turmoil.

Problems with financing technology projects

The situation in the banking and investment sector has contributed to huge funding problems for many technology projects. With the collapse of the SVB, the availability of capital for startups and technology companies that relied on the support of such institutions decreased.

Many of these companies collapsed at a rapid pace, and software houses that specialized in providing services to such organizations lost their clients. Attempts by these firms to change service recipients were often unsuccessful, mainly due to their lack of experience in working with sectors other than startups.

In addition to changing the type of clients served, more and more software development companies have begun to look for new markets for their services.

Change in policy towards outsourcing in the United States

The U.S., which for years has been a sales direction for Polish software development companies, among others, has benefited from IT outsourcing on a large scale. This has huge implications for the global economy. It is estimated that about 300,000 jobs are outsourced each year in the US, and this does not only apply to IT services. Other industries and the decisions made within them are interconnected systems and are directly reflected.

When it comes to jobs lost due to outsourcing, California’s economy comes to the forefront, largely due to the shrinking of the state’s garment industry in favor of the growing Silicon Valley. Of the 3.8 million jobs the U.S. has lost to China since 2001, when the country joined the WTO, 2.89 million were in manufacturing.

Trump’s and Biden’s policies

Not surprisingly, over the past few years Presidents Trump and Biden have taken various steps to combat outsourcing and offshoring of jobs, including in the IT industry. Trump has tried to curb outsourcing through protectionist policies, tax cuts for companies investing in the country and tariffs on imported goods. Despite these measures, technology companies and software houses continued to outsource, mainly due to lower labor costs abroad and access to highly skilled labor. As a result, the number of jobs being transferred overseas has not decreased significantly.

Biden, after taking office, introduced tougher measures, such as an additional 10% tax for companies moving jobs overseas. Organizations that had previously looked to software development companies from Europe for support were also facing European inflation and higher service prices, in addition to increased operating costs.

US redirected outsourcing to other markets

Companies have therefore redirected their attention from Central European countries toward less developed economies such as India, Mexico and Sri Lanka. It’s also worth mentioning that these countries have been shunned by organizations in recent years due to questionable service quality and high security risks.

When I asked managers why they decided to use companies from the aforementioned countries, the answers were mostly about increased operating costs. The managers, despite their bad experiences, again took a risk and decided to look for their specialists outside Europe. They were tempted by the fact that many companies from those regions had been training their specialists at Western universities for the past few years, giving the impression that there were fewer cultural differences and increased understanding of their business.

In June 2024, I arranged a meeting with one of the project managers of a large logistics company. He was responsible for leading key IT projects for his company. A breeze of summer wind blew through the open window as I sat down in front of my computer to connect with him via video conference. Initially, I wanted to talk about the possibility of cooperation between our companies, but our conversation also drifted to the current global situation.

— “I don’t know if it’s true, but I have the impression that under the previous government administration there was some kind of formal or informal ban on cooperation with companies from countries like India or Mexico,” – he recounted.

— “Efforts were made to ensure that technological thought stayed in the U.S. or was developed in alliance countries. Now it’s as if the companies don’t care, because they only look at the finances. Most of our IT department is made up of people with very questionable skills that I would never hire in my life. However, I am completely out of options. This is the decision of the management, and I can only work in the kind of environment they create for me.” – He concluded visibly upset.

Problems arising from outsourcing in countries with lower labor costs

Decisions to move services to countries with lower labor costs have been proven wrong over time.

— „Companies from India, among other countries, use educated professionals who have graduated from Western universities to make a good first impression. In reality, this is just the tip of the iceberg. Beneath the surface are other team members, and with them come numerous challenges, such as cultural differences, communication barriers and poor service quality.” – I heard this from a UK CIO during an evening conversation.

The first few months of collaboration usually go smoothly, but in the long run it is very difficult to get projects to the point where they can see the light of day.

Many organizations tried again to move their projects to other countries, unfortunately without success. It turned out that they faced the same problems as years before.

— “Most of the information about the projects themselves remains only in the heads of the people working on them,” – said one of my interviewees, a manager from Austin, Texas.

— “They thus become an inseparable part of the project, sometimes even long after it is completed.”

Tied hands are causing companies to get into more and more financial problems. In addition, executives stressed that when they made decisions to switch outsourcing providers, the political situation was not as bad as it is today. Currently, countries such as India are balancing between East and West, and are increasingly tightening their relations with Russia, which affects the sense of security of the organization’s leaders.

Summary

There is no denying that the situation in the world, not only in the high-tech industry, is not very optimistic at the moment. I am also not convinced that there is a magic and quick way to deal with the current situation in the markets and the IT industry. I think the first step is to distance ourselves from the ubiquitous trends that the vast majority of IT companies have begun to follow.

— “It seems that the solution to the problems may be for companies to return to their roots and implement smart and thoughtful strategies, and not necessarily follow trends or conflicting news about the economy.” – CEO, Poland

A case in point is artificial intelligence, which is playing an increasingly important role in today’s world, but should not be viewed as the sole or primary solution to the challenges facing our organizations. AI can support processes, increase efficiency and predict trends, but it is important to remember that people are behind the success of any business. The companies that create AI solutions want us to think differently and join them in pushing the bubble to its limits.

— “A return to previously defined outsourcing is probably not possible. Companies need to understand that behind a particular person and the position I’m recruiting him for, there are real skills and business value that he must be able to answer. Only then do I decide to hire him.” – CTO, UK

Companies that focus on investing in their people, developing their skills and creating a collaborative workplace will have the opportunity to develop competitive advantages. In the longer term, technology companies may also need greater flexibility in their workforce and business models to respond quickly to changing market conditions.

— “Adapting and anticipating potential changes (including political ones) will become key management competencies that can protect companies from the negative effects of political uncertainty.” – CEO, Sweden

A few words at the end

The end of this article does not mean the end of the challenges facing the IT industry. On the contrary, it is only the beginning of the road to recovery and stability.

As companies, we need to take a deep breath and rethink the business models of our operations.

The direction that I currently believe in and that companies should bet on in times of crisis is to provide a sense of security. Providing that for our customers and members of the organization is something that is worth betting on:

• Build trust through long-term relationships with both customers and employees,
• Promote a culture of learning and development, as well as openness and transparency,
• Hiring or outsourcing well-trained and willing professionals to train others in our organizations,
• Encourage empathy among leaders, which will help sustain employee morale and remind us that there is another person behind every task,
• Use verified and reliable data so that we can make decisions based on facts, not emotions, trends or anecdotal information,
• Select trusted business partners so that we can develop or create better and better services,
• Constantly strive for operational excellence,
• Optimizing costs in a balanced and thoughtful way that anticipates the long-term impact of decisions,
• Scalable, repeatable, and independent of specific person processes, including those related to cyber resilience, even if the board or management is averse to them.

If you’d like to learn more about dealing with the crisis and discover practical strategies for leaders, I encourage you to pick up my new book, Leadership in the Age of AI. This publication offers an in-depth analysis of the challenges facing leaders and provides tools and methods that will help you not only survive the crisis, but also grow your organization in times of rapid technological change.

For more information, visit: Leadership in the Age of AI (right now only polish version).