IT Services Market To Grow Despite Economic Uncertainty

Despite the uncertain economic situation, the IT services market is expected to remain strong as worldwide IT services end-user spending is forecast to exceed $819 billion in 2008, up 9.5 percent from 2007, according to Gartner. Analysts said results in the first half of 2008 have shown mixed results.

“In the first quarter of 2008, results for the top nine providers came in above expectations, and several market leaders have expressed optimism for the remainder of 2008. In addition, the continuing decline of the US dollar has, and will continue to contribute to market growth as expressed in US dollars,” said Kathryn Hale, research vice president for Gartner.

Core outsourcing (IT management and process management) remains the highest growth area in the market. In 2008, core outsourcing services are on track to represent 42 percent of total worldwide IT services end-user spending. Buyers look to process management — core business process outsourcing (BPO) — as a remedy for cost control for short-term impact, and the increase in availability of global delivery capabilities makes BPO an attractive cost option, bringing more companies to BPO that would have considered it in the past.

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The consulting and development and integration (D&I) segments also continue to exhibit steady growth. These segments are fueled by demands such as overall cost reduction, combined with demand for projects that can improve profitability or revenue growth. The worldwide consulting and D&I segments combined are forecast to reach $327 billion in 2008, up 10.1 percent from $297 billion in 2007.

“Although we expect continued strong growth in IT services, there are two causes for concern,” said Hale. “First, the rate of innovation in providing new service offerings is sporadic, at best, and strong return-on-investment stories are hard to come by. At the same time, innovation in delivery is not growing as fast as hoped: Industrialisation is being adopted slowly. A second fundamental problem in IT services is the inability of providers to provide compelling value statements about the services they provide, whether in offerings or delivery”.

“The result from this is a common buyer mentality that focuses on IT cost takeout and adopts a ’lowest cost wins’ decision-making approach in its services and sourcing decisions,” Hale said. “This approach inhibits the needed innovation for IT to ‘make a difference’ and add value and also restricts the level of innovation that providers are able to offer. Buyers that are unable to work closely with providers on innovation in all its various forms are inhibiting the growth of this critical sector in IT.”