IDC Anticipates Brisk Services Growth

In a recent study IDC projects a 6.9 percent compound annual growth rate (CAGR) through 2008 in business and IT services, a faster clip than overall global GDP. Performance in the United States is expected to be just shy of the global average, at 6.7 percent. The Asia/Pacific market, excluding Japan, shows the most promise, at just less than 13 percent growth. The study considered performance and projections from top providers of IT outsourcing, as well as business processes in customer care, human resources, finance/accounting, and procurement. Leading the pack of promising growth areas were service-delivered software, with more than 24 percent CAGR, IT infrastructure at 14.1 percent, and key functional business outsourcing at 10.7 percent. Report coauthor Marianne Hedin, an IDC program manager, says that of those business processes being outsourced, growth is expected to be slowest in the CRM space: "Customer care is probably the oldest and most mature of the [group], and may not be growing as fast as the others." With increased attention on IT outsourcing and business process offshoring, service providers face a conundrum. As customer demand increases, so does the sophistication of the client, leading to higher expectations and a need to manage costs through standardized, proven service offerings. At the same time commoditizing the services offerings could lead to declining profits, as customers are able to pit lookalike providers against one another for the best price--even for relatively complex projects, such as outsourcing a complete IT operation. "There is a standardization of services clearly going on," Hedin says. "To derive the profit margin they're seeking, they are looking for ways to standardize their service offerings to cut costs, especially in the area of [software] application management and development." As IT and business process outsourcers continue to grow and consolidate, the future may look very much like the accounting industry, where a small cadre of enormous firms compete with the exact same bundle of service offerings based on personal relationships and vertical expertise. "There's a tremendous push among the vendors to deepen their industry expertise and go to market with [new] verticals," Hedin says. "Breadth of service is also very crucial, [combining] consulting, business integration, and software and hardware expertise." Although expected to grow at a slower rate than the rest of the services industry, IDC makes special note of the emerging "business transformation" market, a bundling of outsourcing and reengineering marketed heavily by providers like IBM Global Services. "Fifteen years ago [consultants] were taking over processes and running them as they were." Hedin says. "There was not a major component of transformation, so it's evolving and hasn't reached its full potential." Related articles: The Next Outsourcing Destination
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