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Growth Slows for Worldwide Services Market
According to research firm IDC, blame the current recession for the scaled-back spending forecast.
Posted Dec 4, 2008
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Yet another aspect of the CRM industry is now stumbling its way through the spending growth cycle: the worldwide services market. According to new research from Framingham, Mass.–based analyst and consulting firm IDC, this space will see just 5.2 percent year-over-year growth in 2009, down 1.5 percentage points from IDC's previous forecast.

Not surprisingly, the economic recession takes the largest share of the blame for the slower growth, according to Gard Little, IDC's research manager of worldwide services and emerging services opportunities research. He emphasizes that any decrease in the rate of growth, even by 1.5 percentage points, is especially significant in this space. In comparison to hardware and software markets, he says, "typically, services markets react a little bit more slowly when it comes to spending changes." He continues, "The magnitude is dramatic, to see such a change [in spending] in a quarter."

While spending may be slowing down, Little believes that the contraction will be nowhere near as sharp the one seen during the previous economic downturn, approximately seven years ago. During that period, he recalls, there was a greater amount of spending on hardware and software -- and when those markets crashed, the ripple effect brought services down as well. Little sees spending reductions now, but not to the same extent. "We haven't had that crazy boom that occurred both in the run-up to Y2K and the dot-com–era spending that occurred," he says. "There is investment, but not at that breakneck pace that [took place] before the last crash."

Little says that, aside from the hardware and software markets, the evolution and maturation of the outsourcing industry has also played an integral role in keeping the worldwide services market spending afloat despite scaled-back projections. "It's very hard to find people who are skeptical about outsourcing right now," he says. "It's a much-more-proven business model."

According to the study, business process outsourcing (BPO) remains the fastest-growing market opportunity. BPO, while still strong thanks to its potential to help save money through the transfer of operations to external service providers, was nevertheless also subject to slightly reduced spending growth expectations. The BPO projections, however, were revised markedly less than those in other spending segments, including:

  • project-oriented (including information technology and business consulting as well as systems integration)—growth rate will slow to less than 3 percent in 2009; and
  • support and training—growth rate will remain below 3 percent for the remainder of the forecast period.

Little says it is not surprising to find organizations cutting back on these two facets of the services market, which are often viewed as more-discretionary investments. "Companies are not going to cut running data center operations, [or] what they are contractually obligated to in terms of outsourcing," he says. "They will hunker down and wait until the economic environment improves so they can then return to spending plans related to other, more-discretionary areas."

Despite the gloomier forecast, Little says there are still areas of opportunity for services vendors and end-user companies. Providers that can offer hosted solutions, for example, will appeal to organizations looking to shift from capital expenditures to operating ones—a pitch that's likely to strike a chord in today's business environment.

Speaking more specifically from an end-user perspective, Little says that companies can take this time to identify activities that are absolutely necessary and to increase efficiency within internal processes. And organizations still able to hire additional talent during this time may find a silver lining in the rising unemployment rates. "Skilled resources -- independent contractors and consultants -- may become more available now than in the last few years," Little says. "That is a bright side -- these resources may now have a sudden interest to join an organization."

 

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