Leveraging Competitive Intelligence to Navigate the Fast-Growing IT Services Market

Insights on IT Services Market Growth and Trends

IT Professional Services and Market Segmentation

Overall IT services revenue growth decelerated in 2023 as the market outlook remained uncertain, clients tightened budgets, and IT services vendors re-evaluated talent strategies in areas including hiring, composition and training. The majority of clients focused spending on run-the-business managed services as well as the integration of AI and digital solutions that provide more efficient ways of working, reducing overall expenses.

Additionally, cloud migrations and transformation-led activities helped clients reduce tech debt and consolidate cloud and application environments. According to TBR’s 3Q23 IT Services Vendor Benchmark, published on Jan. 16, “Enterprises are looking to establish strong and secure digital cores, paving the way for vendors to continue capitalizing on the need for cloud migration, applications modernization and data transformation services as well as cybersecurity opportunities. Vendors continue to experience profitability pressures due largely to rising labor and SG&A costs.”

In 2024, the needs emerging out of limited client budgets and centered on AI and efficiency will continue to guide IT services vendors’ portfolio expansion and talent development.

Using Competitive Intelligence for Market Success

To ensure business segments and portfolios are aligned with client needs, IT services vendors forge partnerships, such as with the hyperscalers, to create the ability to work within and across clients’ multicloud environments. For example, forging large-scale partnerships with Google Cloud, Amazon Web Services, Microsoft, Oracle and SAP equips vendors to deliver at scale across client needs and more easily support transformation projects even in a mature IT environment. With clients being more cost conscious, vendors that can seamlessly take over peer-driven transformations will be more successful in capturing new client engagements.

Acquisitions have proved to be a vital way for vendors to quickly add in-demand services and solutions as well as talent to better deliver on clients’ emerging needs. While overall acquisition activity slowed for most vendors during 2023, purchases that were finalized brought in specific capabilities that complemented existing strengths while also infusing new portfolio offerings. More specifically, vendors looked to deepen their capabilities and presence around cloud, security and AI, a trend we expect to continue — and possibly gain speed — in 2024.

Lastly, taking note of peers’ talent strategies and overall organizations enables vendors to effectively develop internal abilities and practices and strengthen client relationships. According to TBR’s special report IT services and consulting in 2024: Traversing GenAI pressures, talent challenges, and regulatory waves, “To battle employee attrition and take back control, employers ramped up training and other retention-enabling investments. While many tech companies made news by shedding headcount, most global systems integrators (SIs) and consultancies have sought to keep trained and experienced talent, minimize turnover, and prepare for renewed growth from late 2023 into 2024. … The 2023 focus on reskilling and training will pay off in accelerated revenues in 2024 as IT services vendors will have the trained and certified professionals to staff what TBR expects will be growing IT services demand.”

While most vendors look to certify employees on partner technologies, keeping pace with peers’ skills and certifications will enable vendors to better pursue software-driven projects. Additionally, efforts to reduce turnover remain similar across vendors, with a focus on training, culture and workplace flexibility. Vendors with more aggressive workplace practices and return-to-office policies may experience higher turnover than their peers. Across the IT services market, talent remains the key asset — vendors must keep in mind their peers’ strategies, investments and composition to successfully deliver client projects.

The Outlook for Competitive Intelligence in the IT Services Market

As uncertainty remains the common thread across market conditions as well as client and ecosystem company activities, vendors need to re-evaluate client retention strategies to ensure service quality standards are met. A focus on client management and success will enable vendors to effectively preserve market share by matching or exceeding peers’ client relationship efforts.

Limited budgets require more than communication, pushing vendors to ensure they can deliver on technology-driven transformation that infuses AI and automation capabilities as well as digital workplace services to drive operational efficiency and cost reduction for clients. Ensuring the right talent is in place to support innovation activities and maintain client relationships will be vital for vendors to secure positioning and remain ahead of peers.

Internal transformation projects to align business segments more closely with emerging technologies and services, including restructuring talent and spinning out or separating business units, will help vendors reposition and better compete for new opportunities. Additionally, offshoring and nearshoring will support vendors’ ability to deliver more cost-competitive contracts while also improving vendors’ profitability.

Conclusion

Competitive intelligence provides ongoing and context-specific guidance in the face of changing client needs and peers’ strengths and strategies. Keeping track of peer investments continues to increase in strategic importance to help vendors retain market share and capture projects with new clients.. Ensuring talent, business composition and positioning, and partner ecosystems are competitive with peers’ will further improve vendors’ stability by adding services capabilities and expertise, which will facilitate discussions and improve market leverage.

Maintaining a broader portfolio of services that address a wider range of digital, AI and cloud needs while also having partner expertise across a variety of IT environments will dictate vendors’ ability to compete effectively, expand presence and preserve existing client relationships.

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