AI related layoffs and the global BPO sector

by Zain Jaffer

Early in May 2023, Reuters reported that International Business Machines Corporation will pause hiring for jobs they think can be replaced with artificial intelligence (AI) in the next few years. Jobs in up to 26,000 back office corporate functions like human resources may be affected, according to IBM CEO Arvind Krishna. “I could easily see 30% of that getting replaced by AI and automation over a five-year period,” he said in an interview.

That one third possible reduction equates to around 7,800 jobs. Part of any planned reduction however would also include not hiring for jobs vacated by attrition, an IBM spokesperson said.

AI tools like Chat GPT and Google Bard have garnered public attention for showing capabilities in customer service, image, text, and code generation. Pundits have pointed out that AI can create massive job disturbances. IBM’s plan is one of the largest future AI related layoffs reported to date. It is probably reasonable to expect that more layoffs related to AI will be announced in the future.

Mundane tasks like writing employment verification letters or moving employees between departments will likely be fully automated, Krishna said. However some HR functions, such as examining workforce composition and productivity, likely won’t be replaced over the next decade, he added.

IBM currently employs around 260,000 workers and continues to hire software developers and customer-facing jobs. The company announced layoffs earlier this year, which may amount to about 5,000 workers once completed. However Krishna said IBM actually grew its workforce overall, adding about 7,000 people in the first quarter.

This has global implications for many industries. For example, the giant global Business Process Outsourcing (BPO) industry that employs hundreds of thousands of people worldwide is likely one of those that will fall under this scope. Currently a lot of Fortune 500 companies outsource their back office work to cheaper destinations worldwide. Aside from contact/customer services, these also include back office work like accounting, legal, HR, and other functions.

What will happen to the countries, the workers, the real estate developers, the suppliers, the educators, and others who have built their futures and livelihood on this sector if it gets wiped out or at least drastically reduced? What about the future of certain university courses that used to result in employment and are no longer needed because these have been replaced by AI?

This development will speed up the trend of “reshoring” that recently became popular for manufacturing when China supply chains shut down because of the COVID pandemic. Overseas BPO services was not as affected as much as manufacturing because cheaper services could still be delivered even from home with new technologies that time like Zoom and Google Meet.

Already the work from home and quiet quitting trends have made a lot of office buildings empty in many big US cities in favor of home offices. With the developments in AI, the BPO sector could be greatly downsized, even those being done from home right now. Many multi-million dollar real estate projects in the US and globally are BPO parks. What will become of those? What will happen to the hundreds of thousands of HR professionals, accountants, lawyers, and others?

If this IBM planned layoffs related to AI is the start of a global trend, then we as a society need to reexamine how we will handle these massive disruptions in the global workforce. Else we could be dealing with large social upheavals that we have not imagined to be possible.