What Will Determine Vendor Success in 2024 as IT Services Revenue Growth Decelerates?
While macroeconomic uncertainty challenges year-to-year revenue growth in the IT services sector, the trajectory beyond 2024 appears promising, largely due to the resilience of managed services bookings. to read more vendor analysis from our recently published research.
Tight Spending Is Pressuring Consulting Revenue Growth, But Managed Services Bookings Growth Will Push Out Revenue Generation Beyond 2024
Macroeconomic uncertainty will cause year-to-year IT services revenue growth to decelerate in 2024, according to the latest data in TBR’s IT Services Vendor Benchmark. However, IT services spending will continue as clients seek run-the-business managed services opportunities to operate in challenging market conditions characterized by inflation, foreign exchange rate fluctuations and political uncertainty.
While clients continue to pursue digital transformation, macroeconomic uncertainty is pressuring discretionary spending, as evidenced by softening benchmark performance for the fifth consecutive quarter within the consulting and systems integration segment in 4Q23.
The ongoing success of some vendors with large and long-term managed services deals suggests they are well positioned to navigate evolving buyer expectations. Maintaining trust with stakeholders through transparent messaging will be key, especially as managed services bookings take longer to convert into cash compared to consulting ones, a trend that could easily be misinterpreted.
Client retention is not an easy task as it requires maintaining service quality throughout the client engagement and delivery cycles. Focusing on client success rather than meeting internal financial targets will be key for vendors, as salespeople and leadership can often lose their focus on priorities, especially during economic downturns.
Click the image below to watch the on-demand replay of our Q&A on GenAI opportunities for legacy GSIs
Key IT Services Trends in 4Q23
Vendors Shift Industry Mix
Vendors continue to experience growth pressures in the financial services and telecom sectors in regions including the U.S. and the U.K. & Ireland. Expanding portfolios and resources across a broader spectrum of verticals, for example by building capabilities in manufacturing, enables vendors to diversify revenue streams and alleviate revenue growth pressures.
GenAI Remains an Area of Investment
Generative AI (GenAI) has been an area of investment over the past year across multiple vendors tracked in the IT Services Vendor Benchmark. Vendors are focusing on GenAI for two reasons: to use GenAI internally to bolster productivity, and to provide GenAI-related services to clients to drive revenue streams. The success of GenAI depends on good data. Efforts to adopt GenAI-enhanced solutions will persistently run into data issues, opening the door for consultancies and consulting-led IT services vendors to assist with data orchestration.
Employee Attrition Is Decelerating
Resource management trends are shifting from spikes in hiring and employee attrition in 2022 to selective hiring for in-demand skills, reskilling and upskilling, and a deceleration in employee attrition in 2023. Productivity initiatives and steady employee utilization will enable vendors to stabilize cost structures and invest in skills development to support revenue growth.
Conclusion
While macroeconomic uncertainty challenges year-to-year revenue growth in the IT services sector, the trajectory beyond 2024 appears promising, largely due to the resilience of managed services bookings. Despite macroeconomic uncertainty the revenue growth trajectory beyond 2024 is promising, driven by the resilience of managed services bookings.
Vendors must adapt to strong demand by diversifying industry mixes, investing in emerging technologies like GenAI and prioritizing client success over internal financial targets. Moreover, as employee attrition decelerates and resource management trends evolve, vendors have opportunities to stabilize cost structures and invest in skills development, further positioning themselves for sustained revenue growth amid evolving market dynamics. Strategic adaptation and a focus on long-term client value will be essential for IT services vendors to thrive in the coming years.
Stay ahead of the curve with our latest insights and updates. Subscribe to Insights Flight now to receive exclusive content, expert tips, Q&A invitations and industry analysis straight to your inbox. Don’t miss out on the opportunity to elevate your knowledge and stay informed!
