Gartner: Spending on external service providers to increase

Gartner: Spending on external service providers to increase

ANZ organisations optimistic of early recovery.

The results of a recent survey by Gartner indicate increased spending with external service providers (ESPs) will lead to a return to growth in the IT services market. According to the survey, 85 percent of organisations worldwide anticipate that their spending with ESPs will increase or stay the same. Seventy six percent of organisations surveyed are optimistic about the economic recovery indicating that in their planning cycles, they are seeing that a recovery already began in 2009 or will occur in 2010. According to Gartner, organisations in Australia and New Zealand are most optimistic of an early recovery, and those in Japan are least optimistic. 63 percent of ANZ respondents said that their spending on external service providers would increase, the highest proportion of all countries surveyed. Only 10 percent said it would decrease. "The impact of the global economic recession in 2008 through 2009 has been significant, in some cases radically changing a vertical market or a company's competitive position. Buyers of services have been impacted in many areas, making them more cautious regarding IT spending," says Gartner vice president and analyst Allie Young. "In terms of IT services spending, the recession has been clearly felt by organisations, which report the following changes in their behaviours: increased contract renegotiations with ESPs, greater influence of the CFO and procurement in IT services spending, and increased levels of offshore services usage. However, the good news for service providers going forward is that the majority of buyers of IT and business process services will increasingly turn to ESPs to support the execution of their IT strategies." Young says that the results of the survey confirm an overall positive market acceptance of ESPs to support IT initiatives. “Service providers that prioritize understanding the marketplace and monitoring the changes in their client and user environments will be best-prepared to capitalise on growth.” According to Gartner, sole-source decision making in IT services is largely over; however, through deep relationships, providers still rely on new opportunity leads and expansion of services from existing client relationships, often as sole-source opportunities. "Although there are positive signs of a return to growth, we will remain in a hypercompetitive IT services environment for some time, with more provider options for buyers to consider, a focus on cost continuing to dominate in buyer considerations, and very likely more providers pursuing the same opportunities," says Young. "Service providers across all types of service categories and relationship models have the potential to capitalise on growth opportunities as the economy recovers, yet there will likely be little relief from the extreme competitive challenges experienced by service providers in the 2008-through-2009 economic downturn."

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