Credit crunch squeezes IT consulting
29/02/2008
Demand for IT project services has shrunk in the face of economic turmoil and will continue to slowdown in both the private and public sectors, possibly until 2011.
Last year, the UK market for project services, which includes IT consulting, systems development and a thin wedge of IT training, grew 6% to the tune of £7.57billion. But in 2008, project services are predicted to be worth just £7.96bn, representing spending growth of just 5.1% - the lowest spike in market size for more than four years. Analysts at Ovum, which produced the figures, said IT project experts will "bear the brunt," as a raft of economic uncertainties force organisations to deprioritise major IT plans. The pressure some banks have felt on their profits since last year has now forced the sector's big and small institutions to postpone their IT initiatives or cancel them outright. Further pressure on IT budgets is possible in specific financial services, but is more imminent in the telecoms, media, retail, wholesale, hospitality, consumer goods and hi-tech industries. "We expect that the project services market, which tends to rely in part on new growth initiatives? and business confidence more generally, to see some buying decisions delayed or even cancelled. "Some major software upgrades?are likely to be put on hold," Ovum added, "by no means universally of course, but in enough cases to have an impact on growth prospects for the market and conditions for vendors." Turning to the state sector, the analyst said that spending growth on project services was kept high in 2007, thanks to IT programmes like those at HM Revenue & Customs and in the NHS. Major new IT projects like the Home Office's identity cards programme and its eBorders initiative will also inject spending into project services over the next few years. But the boon will be only short-term, the analyst said. Discretionary spending on IT-related projects is already starting to be limited by public bodies, which will depress growth of the market. The sector's budget for IT projects will be pressured beyond 2008; either because big programmes will be live, or because external consulting/systems development will appear too costly. Overall, the analyst believes economic factors affecting both sectors will not lead to recession in the UK but they will impact IT investment decisions, causing the amount of IT service jobs to shrink. These changes in the marketplace won't have a huge impact on skills shortages, but onshore fees for IT project services ? mainly consulting and application development - will plateau or sink. IT consultants at the very top end of the market, particularly those with business acumen, will be immune, however, and can expect to be chased by high-value propositions from rivalling businesses. The analyst also sounded a positive outlook for IT professionals skilled in software upgrades ? Microsoft Windows Server and SQL Server as well as SAP ERP 6.0 were spotlighted. Meanwhile demand will stay buoyant for IT professionals who help businesses get more value out of their existing IT systems, particularly as cost management is hiked up CIOs' to-do lists. And in spite of tougher economic conditions ? or perhaps because of them ? the financial services sector holds some cause for optimism. Not only is the use of IT a core component in risk assessment in financial services, but headlines have alerted enterprise to the need for a tighter focus on the collection, security and analysis of data. Moreover, Ovum pointed out that for many financial institutions mergers and acquisitions remain on the agenda. This process typically drives IT integration and rationalisation projects. For the foreseeable future, IT project services will be led by two factors. Firstly, IT experts with 'vertical expertise' ? such as knowing about a specific business process or regulation, will drive spending growth in the market. The second priority will be given to IT consultants with specialist technical knowledge, whose roles had been in demand in recent months, Ovum said. Evidencing its claim, the analyst pointed to Accenture as just one of many service giants now providing a separate IT consulting arm, designed to raise IT-specific capabilities. Phil Coding, principal analyst at Ovum, summed up the general climate for the suppliers of IT project services. "It would be correct to view 2007 as something of a 'peak' in the UK project services and applications outsourcing market," he said. "The second half of the year has seen conditions remain relatively buoyant, but all the while other indicators have reinforced the view that things are getting tougher, at least in the projects market. "These changes will not lead to recession in the UK economy (in Ovum's and the majority view). However, they will have an impact on IT investment decisions and this will affect the level of work in the UK software and IT services market." Feb 27, 2008