Managing the shortage of IT professionals in companies

Many businesses in Germany are facing a growing shortage of skilled IT professionals. This trend is largely driven by demographic shifts in the German labour market, as the baby boomer generation approaches retirement. Increasing staffing gaps are compelling companies to reconsider how they manage this issue within the IT sector. We’re exploring potential solutions, focusing not only on improved recruitment strategies but particularly on IT outsourcing. In this context, we also examine the associated implications and possible use cases.

Initial Situation

Skilled IT professionals are currently in high demand, and many companies are struggling to fill their vacancies. This is primarily due to the growing need for skilled workers driven by digitalisation, alongside demographic changes: the younger, smaller birth cohorts cannot compensate for the retirement of the larger baby boomer generation. The problem is expected to worsen significantly in the coming years, as the majority of baby boomers have yet to exit the workforce (see Figure 1, dashed box).

The age structure of Germany’s population (2021) highlights the IT skills shortage Figure 1: Age structure of Germany’s population (2021) Even skilled workers from abroad cannot come close to bridging the widening gap. For this reason, every company must develop and implement a tailored solution to address this issue.

Potential Solutions to the IT Skills Shortage

Many companies will need a solution that combines several measures. The following approaches are particularly worth considering:

• Improving recruitment strategies
• Establishing in-house IT teams abroad
• IT outsourcing

Below, we examine these measures in more detail and offer an assessment.

Improving Recruitment Strategies

To successfully attract new IT professionals, a company’s recruitment process must be designed for employee-driven markets. In other words, candidates choose their roles and are courted by employers seeking skilled staff. Key aspects of this shift include:

• Enhancing the appeal of available roles to meet the rising expectations of potential applicants. In addition to salary, factors such as a positive company culture and attractive working conditions (e.g. flexible hours and location, training opportunities) play a crucial role.
• Effectively marketing job postings and the aforementioned benefits. Potential candidates must be actively targeted. Additional channels—such as social media and job fairs—should be explored to capture the attention of skilled professionals.
• Ensuring the recruitment process is fast and flexible. If feedback is slow or decision-making takes too long, candidates may be snapped up by competing employers.

However, in most cases, improved recruitment alone cannot meet the growing demand for skilled workers, as the supply is simply too limited. Recruitment is often only a supplementary measure.

Establishing In-House IT Teams Abroad

If a company needs to hire a larger number of IT professionals, setting up an in-house IT team abroad may be a viable option. Countries with a high proportion of young people in their population are particularly attractive. Additionally, such countries should offer stable economic conditions, a well-developed IT sector, strong educational institutions, and a qualified pool of IT professionals. Nearshore and offshore locations can also offer significant cost savings.

That said, the initial effort required for this approach is substantial: suitable countries must be evaluated and selected, and country-specific conditions must be factored into risk management, business cases, and the setup of the new unit. For this reason, this measure is more suitable for large corporations and IT service providers.

IT Outsourcing: Shifting the Skills Shortage

This approach involves increasing the proportion of outsourced IT services within the company—or outsourcing services for the first time. Outsourcing reduces the number of internal IT professionals required. The skills shortage is transferred to the external service provider, who is now responsible for supplying the necessary qualified staff for the services they take over. The provider must implement appropriate measures to meet these requirements.

On the client side, outsourcing may reduce the need for internal service delivery staff, but it introduces new tasks related to managing external service providers. This requires personnel with the right competencies, and many internal staff may need to develop skills in provider management.

If internal provider management staff are unavailable or insufficient, qualified professionals must be sourced from the labour market. This poses the risk that provider management roles may remain vacant for extended periods.

Alternatively, instead of building internal provider management capacity, companies can outsource these functions as well—just like IT services. According to the Service Integration and Management (SIAM) framework, several options are available.

We focus here on two externally supported options:

(1) Outsourced Provider Management

In this option, a company engages an external service provider to manage its external IT service providers. This provider should have sufficient expertise and experience in provider management.

Provider Management as an External Service – A Solution to the IT Skills Shortage Figure 2: Provider Management – External Service The company authorises the service provider to act on its behalf. Only a few activities (e.g. policy decisions) remain internal. This option enables the rapid establishment of professional provider management while reducing internal effort and mitigating the IT skills shortage.

(2) Hybrid Provider Management

Here, internal staff resources are supplemented by those of an external service provider to ensure effective provider management.

Provider Management as a Hybrid Solution – A Response to the IT Skills Shortage Figure 3: Provider Management – Hybrid Solution The external provider, equipped with sufficient expertise and experience, can fulfil two roles:

• Quickly establish professional provider oversight
• Coach internal staff and significantly ease their workload

In both options, it is essential to clearly define roles and responsibilities between the internal organisation and the external provider.

Managing the IT Skills Shortage – Conclusion

If a significant proportion of a company’s IT workforce belongs to the baby boomer generation and is set to retire in the coming years, IT outsourcing offers the greatest potential to counteract the skills shortage—especially given the likely continued strain on the labour market. The more IT services are outsourced, the greater the need for provider management. If qualified staff are also scarce in this area, engaging a specialised provider management service may be the solution—either to support a small internal team or as a fully external service.