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Monday, January 19, 2015

Clouds Drive the Evolution of IT Professional Services

There once was a time where Information Technology (IT) professional services was a high-growth sector of the global economy. Organizations in all regions of the world were engaged in the deployment of monolithic CRM and ERP applications. Teams of software engineers and consultants were hired to manage these expensive projects. The results were often disappointing.

Today, the traditional IT Services business models have been disrupted by the transition to X-as-a-Service models, which combined with longer decision cycles around emerging complex hybrid cloud computing environments leads to continued pressures on vendor revenue growth.

According to to the latest market study by Technology Business Research (TBR), cautious client spend on transformational projects and extended decision cycles are occurring in the IT Services market, with average trailing 12-month (TTM) revenue growing 1.5 percent year-to-year in 3Q14.

That's slightly higher than the 1.2 percent year-to-year growth in 2Q14 but lower than the 2.6 percent year-to-year growth in 3Q13. TBR believes that IT Services revenue growth has been impacted by economic uncertainty and the commoditization of traditional IT professional services.

Meanwhile, there is now a focus on business outcomes -- rather than technology outcomes, plus a shift to providing IT infrastructure through Opex, rather than Capex. Furthermore, all vendors have been impacted by a reduction in public sector spending.

"IT Services revenue growth is bottoming out and will continue to be slow in 2015," said Elitsa Bakalova, professional services analyst at TBR.

While vendors used organic investments, partnerships, acquisitions and delivery to differentiate, revenue growth of all IT Services decelerated year-to-year in 3Q14.

Analytics layered onto back-office outsourcing operations resulted in business process outsourcing (BPO) revenue leading growth in IT Services in 3Q14. BPO revenue growth slowed the least, by 10 basis points year-to-year, to 5.1 percent in 3Q14, as vendors provided industry-specific services, integrated analytics and cloud computing services into BPO solutions and increased automation.

Portfolio expansions around SMAC technologies in conjunction with security sustained consulting and systems integration (C&SI) revenue growth in 3Q14. Workload migration to new cloud service environments maintained applications outsourcing (AO) revenue growth.

In IT Outsourcing (ITO) vendors adapted their legacy service delivery models to more comprehensive cloud-based platforms and included infrastructure service integration and orchestration capabilities that manage service delivery in hybrid multi-sourcing environments.

Cost reduction and bottom-line operational efficiency remain key levers for spending, joined by higher attention to cybersecurity as sophisticated attacks become more prevalent in organizations across the globe.

However, Line of Business (LoB) leaders continue to fund IT projects that result in meaningful digital service transformation, with the expectation of significant improvements to top-line revenue growth and the advancement of competitive differentiation in the marketplace.