What Growing Manufacturers Can Do About IT Labor Shortages

As manufacturing rapidly adopts digital technologies like Industry 4.0, IoT and artificial intelligence (AI), small to mid-size enterprises are struggling with severe IT and digital skills shortages. Manufacturers face growing pressure to boost efficiency and output while maintaining safety. According to weforum.org, 74% of manufacturers report acute skills shortages, and 94% plan to hire or retrain workers to support smart manufacturing.

Over half of the advanced manufacturing workforce will need upskilling by 2030. In England, nine out of ten small and medium-sized enterprises report critical entry-level skills gaps, based on the Skills Horizon Barometer. In the U.S. automate.org warns that 3.8 million new manufacturing workers may be needed by 2033, with nearly 1.9 million positions potentially going unfilled if the skills gap remains.

Key Challenges that Stem from IT Labor Shortages

Three challenges that are due to shortages in IT labor include:

• Recruitment and retention difficulties: Growing companies struggle to attract and retain qualified IT staff due to tight budgets, limited HR/IT department and competition from larger firms offering better pay and development paths. In China, only about 20% of employees for small and medium-sized companies are IT specialists, with most talent concentrated in large companies—leaving very few digital experts in smaller factories. Growing companies also lag in training investment; their workers receive formal training 15% less often than those in larger firms with 80-92% of these companies needing at least fundamental digital skills just to operate. Even when growing companies develop IT talent, they often lose those employees to better-paying roles elsewhere.
• Skill gaps and emerging needs: The rapid pace of technological advancement is widening the gap between workforce capabilities and industry demands, particularly for small and medium-sized manufacturers. These businesses often face significant challenges in recruiting candidates for specialized digital roles. Manufacturers identify AI and advanced IT skills as urgent hiring priorities. The skill shortage in the industry delays innovation, as manufacturers may lack essential professionals such as data analysts, cloud architects or systems integrators needed to implement and scale smart factory initiatives.
• Digital transformation barriers: Without sufficient IT personnel, growing businesses often struggle to advance digital initiatives. Complex software and connectivity projects require specialized oversight, yet many digital tools are designed for engineers rather than frontline operators, which can lead to low adoption rates and employee frustration. In practice, many digitization efforts stall in the early stages due to technical debt and lack of in-house expertise needed to transform to and maintain new systems.

4 Ways Manufacturers Can Mitigate Labor Shortages

Manufacturers are deploying several strategies to cope with IT staffing shortfalls, including:

• Workforce development (training and internships): Many small and mid-sized manufacturers invest in on-the-job upskilling and partnerships with educators. For example, the UK’s Made Smarter Digital Internships program embeds tech-savvy interns into SME plants; almost 50% of those interns are hired permanently after their placement. Some companies sponsor dual-education apprenticeships or certificate programs to cultivate talent directly. Manufacturers are also trying new training formats (e.g., wearable-enabled, on-site training) to accelerate learning without taking staff off the line.
• Outsourcing and cloud services: To compensate for lean IT staffing levels, growing manufacturers often turn to external providers. Managed service providers are now “critical allies” for many small manufacturers, handling IT infrastructure, helpdesk and especially cybersecurity. At the same time, adoption of cloud-based (SaaS) tools is widespread: using cloud accounting, CRM and security platforms frees manufacturers from owning and maintaining complex IT systems. These services reduce the need for in-house specialists by outsourcing routine IT operations to larger experts.
• Automation and smart technologies: To address labor shortages, many growing companies are adopting automation technologies such as industrial robots, IoT sensors and AI tools to boost productivity, reduce manual tasks and improve quality. This shift creates demand for new technical roles like robotic programmers and maintenance technicians, often filled by external partners.
• Education and industry partnerships: In various regions, collaborative initiatives are helping small and medium-sized companies access digital tools and expertise by sharing resources. In China, shared manufacturing platforms and talent databases allow smaller manufacturers to pool costly technical expertise. In Europe, programs like Germany’s Mittelstand networks and the EU’s Digital Innovation Hubs offer subsidized access to R&D, training and technology infrastructure. These models reduce barriers and accelerate digital adoption among SME firms.

Recommendations for Manufacturers with Skills Shortages

The following steps are part of a short-term strategy:

1. Establish clear upskilling pathways: Provide structured development opportunities for existing employees through online courses, in-house training and hands-on learning. Focus on practical digital skills relevant to daily operations.
2. Recruit early-career talent: Proactively engage junior staff or interns with digital aptitude. Collaborate with local universities or technical colleges to offer internships or co-branded certification programs tailored to SME needs.
3. Leverage external expertise: Partner with managed service providers or external IT firms to temporarily fill critical skills gaps while internal capacity is being developed.
4. Adopt scalable digital tools: Embrace cloud-based and SaaS solutions to reduce the burden on in-house IT infrastructure and allow for flexible, cost-effective scaling.
5. Automate high-impact tasks: Begin with automation in areas like shop-floor analytics, predictive maintenance or simple robotics to offset labor shortages and improve efficiency.

The following steps are part of a longer-term enterprise strategy:

1. Fill your talent pipeline: Develop partnerships with educational institutions to offer apprenticeships, internships and guest lecturing opportunities. These collaborations can create a steady flow of entry-level talent while increasing visibility and relevance in the academic community.
2. Invest in employer branding and career growth: Position your company as a desirable workplace by highlighting opportunities for technical staff to grow their careers. Offer defined advancement paths and recognize skill development to attract and retain talent.
3. Create a multi-year digital roadmap: Align digitization efforts with workforce planning. Identify the specific skills your future technologies will require, such as AI, cloud infrastructure or cybersecurity—and invest in targeted training or recruitment accordingly.
4. Broaden hiring strategies: Address local talent shortages by exploring geographic flexibility. Build remote or hybrid IT teams and consider tapping into underutilized or emerging talent markets.
5. Scale automation strategically: Gradually implement smart technologies such as robotics, machine vision or predictive analytics focusing on those investments that will offer early, incremental return on capital invested. Free up employees from repetitive tasks so they can focus on higher-value work.

OCM Can Make All the Difference

Small and mid-sized manufacturers face many hurdles when it comes to adopting innovation, from finding available capital to hiring and re-skilling staff to adopting organizational change. Organizational change management (OCM) remains the most significant challenge, often cited as the cause of transformation program failure. All forms of automation available to and impacting manufacturers, whether IT, engineering or operations, will require new skills and ways of working. Define your personnel and organizational change requirements annually and review quarterly to ensure return on your investment, and, even more importantly, to ensure your current teams are ready for the change and look forward to the growth it represents.

ISG works with small and medium sized manufacturers to address IT labor shortages and create a organizational change plan that sets them up for growth. Contact us to find out how we can help.