The Yankee Group made five predictions in 2003 about areas in IT services that would have the most activity, change, and investment. With the year behind us, we graded our predictions on the familiar scale of A to F (an A means we had superior clairvoyance, an F stands for complete failure). We gave ourselves a B for the accuracy of our predictions of how the IT services industry would fare in 2003.
Here are our predictions and a brief description of how they each turned out:
Prediction: The market for IT consulting and integration services will start growing in the second half of 2003, reaching 6 percent in IT consulting and 9 percent in integration for the year.
What Happened: Late in the year, demand for IT services picked up, but it was uneven across service offerings and vendors. The services in demand were BPO, managed services, security, Web services, process management, and application outsourcing. Demand weakened in mega-outsourcing, application implementation, and mainframe technologies. Winning vendors were IBM GS, CSC, SAIC, Perot, and Accenture, losers were Bearingpoint, Deloitte, and EDS. Grade B-
Prediction: Large offshore-based firms will push hard into North America, but by late 2003, they will have to withdraw and rethink their strategies. In 2004, only two or three the largest will have direct sales presence in the U.S.
What Happened: The large offshore-based services firms are continuing their push without any strategy reassessment. However, U.S. enterprises (customers) and the U.S. workforce are starting to aggressively oppose off shoring. U.S. vendors (EDS, Accenture, BearingPoint, IBM GS, CSC) are aggressively growing their offshore delivery capabilities. A few offshore firms (Wipro, Tata, Infosys) could justify a direct sales presence, but only if they develop a more robust sales strategy. Second-tier offshore vendors will find the only effective strategy to be indirect U.S. sales. This is still a trend in development. Grade: C+
Prediction: IBM will dominate the professional services space and second-tier competitors will struggle. This will force smaller professional services firms like Deloitte (now Braxton) to look for partners, product oriented firms like Sun to look for services offerings, and independent subsidiaries like A.T. Kearney to consummate its merger with EDS.
What Happened: This past year, the market perception of IBM has moved from lumbering giant to thought leader. Deloitte aborted its attempt to separate from D&T. Sun acknowledged its need to drive services, which now account for more than one-third of its revenues. AT Kearney changed leadership, while it is reorganizing to align better with EDS. Grade A
Prediction: The corporate scandals of 2002 generated considerable talk about enterprise reporting systems. In 2003, the talk will change into action, with a focus on solutions that increase the consistency and transparency of reported information.
What Happened: Like most regulatory imperatives, the implementation dates were pushed out. During 2003, IBM, EMC, Sun, HP, Xerox, Fujitsu, OpenPages, and Siemens developed solutions aimed at Sarbanes-Oxley compliance. However, implementing those solutions will happen in 2004. Grade C+
Prediction: The worldwide market for BPO will grow 10 to 15 percent in 2003 (to nearly $150 billion), which is more than twice the rate of projected growth in overall IT spending.
What Happened: BPO was the hot topic in 2003 and will continue to be for several years. Vendors such as ACS, Perot Systems, Exult, Wipro, and Convergys are winning customers and mind share because of their BPO focus. The traditional vendors--Accenture, IBM GS, and EDS--are rushing to expand their offerings in this space. We expect to see this market continue to accelerate in the upcoming year. Mergers and consolidations will be a key driver for BPO in 2004. Grade A
The Yankee Group originally published this article on 22 January 2004.