Digital Transformation And Automation Shake Up The Tech Services Market — Are You Ready?
US tech consulting services spend is growing at 8.3% — but that’s not good news for all services firms. Twice a year, my colleague Andrew Bartels publishes Forrester’s US tech market outlook, covering tech spending on everything from CIO staff salaries to systems integration for licensed apps. For the first time, Liz Herbert and I published a complementary report taking a deeper dive into what US tech services spending tells us about the health and direction of the services market.
What’s the real story behind the growth? Technology changes impact how and what types of services are delivered, and new dynamics in the services market affect who’s best positioned:
- Long story short, the drivers of services spend are in transition . . . The digital transformation services market is undergoing a digital transformation. Increased cloud spend has been good to overall tech consulting spend, but the associated services for SaaS implementations are not as strong of a revenue stream as in the world of on-premises implementations and therefore won’t continue to fuel strong overall tech services spend growth.
- . . . and increasing use of automation in tech services delivery will continue to shake up the market. As automation in services delivery increases, it will put pressures on people-heavy pricing models. Services firms will have to find new revenue streams to make up for this new gap — and I haven’t run across a provider yet that I think has discovered the “holy grail” solution.
- The short-term outlook favors the consultancies with the chops for change . . . Business technology spending focused on winning, serving, and retaining customers is outpacing back-office tech spending (9% growth in BT spend in 2018 compared to 4.8% growth in back-office spend). This — combined with the deep change management skills needed to successfully digitally transform — favors business consultancies where process transformation sits directly in their wheelhouse.
- . . . but longer-term cost concerns will swing the pendulum back in favor of tech services firms. Business consulting comes at a premium. While consultancies are enjoying a competitive edge in the near term, tech services firms that have invested in insights technology, automation platforms, and AI-enabled tools are in prime position — at competitive rates — to meet customer demand as they mature transformation efforts to include operations.
What Does This Mean For Customers?
It’s time to rethink your company’s strategic partnerships — starting by breaking the mindset that “most strategic = most spend.” Your digital business requires a long tail of tech and services partners that will break the mold for traditional approaches to sourcing and vendor management. Ask yourself: What is the ultimate business value that your partners help you realize? Then use those indicators to spotlight the most innovative or even niche players who can bring your digital experience vision to life. For more on the implications to the services market, see our report here.
As always, please feel free to reach out via inquiry with any questions.