On average, companies spend 28% of their technology budgets on technology services. Those budgets have increased by 13% over the past four years (and, for custom software, by 20%). And we don’t see this trend slowing. This lively and vibrant sector is both a fast follower of enterprise demand and an instigator, supporter, and sometimes creator of technology-fueled business change. We published our predictions for the major factors driving the services sector in 2023 and what they mean for technology executives as they look to differentiate with tech. We’re also providing a few to share with you here:
- Backlog, transformation, and cost takeout projects will keep services growth strong in 2023. Missed earnings for 2022 and reduced guidance for 2023 are daily headlines across businesses globally. But in IT services, providers such as Accenture, Capgemini, Infosys, and TCS are doing just fine. And they forecast strong growth in 2023, as well.
What it means for technology executives: Your peers are moving forward with business transformations, albeit with more of a business-optimization focus. Don’t get caught flat-footed. While the market is slow, the value you create now will build resilience that you’ll need when the market rebounds.
- The future of services is built on cloud and software partnerships. Accenture reports that half of its revenue is linked to cloud and software alliance partners. IBM Consulting expects its partners to be involved in 50% of deals next year, up from 40% in 2022. Capgemini, Cognizant, and Infosys are setting up hyperscaler practices to scale those relationships, industry clouds, and businesses.
What it means for technology executives: Don’t buy software without a service provider at the table. Yes, buying committees across budgets pose difficulties, so work internal deals to align these teams and purchases. It’ll be worth it, because you’ll have more confidence that everybody’s working together to solve your problems.
- Pricing models will move further toward outcomes to motivate and reward success. In digital experiences, as many as 85% of deals have an outcome-based component, and 43% of providers have seen the use of outcome-based pricing models increase the most. Don’t miss out on the better incentives and stronger provider motivation stemming from an outcome-based kicker in your services contract.
What it means for technology executives: Even in a traditional time and materials contract, seek alignment that comes from blending in outcome-based contract terms. And if you can’t, introduce contract terms for contributions and coordination — even if the compensation terms are traditional.
Forrester clients can access the full report here. Forrester has been helping clients with their services strategy and purchases for many years, so please reach out with any questions.