IT Services Market Forecast: The Levers to Pull to Accelerate Growth

TBR Talks: Decoding Strategies and Ecosystems of the Globe's Top Tech Firms

IT Services Market Forecast: The Levers to Pull to Accelerate Growth

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IT Services Market Forecast: The Levers to Pull to Accelerate Growth

TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms. Where we talk business model disruption in the broad technology ecosystem from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors, and chip manufacturers to value-added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors. 

I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about TBR’s new IT Services Market Forecast with Elitsa Bakalova, Senior Analyst, and Jill Cookinham, Research Analyst, both part of TBR’s Professional Services practice.

How TBR approached creating the IT Services Market Forecast 

All right, Jill and Elitsa, welcome to TBR Talks, season five, and we’ve got something new this year, some research that we’ve just released, a market forecast for IT services. We have never done market forecasts before in the IT services and professional services space for a whole host of reasons, but those don’t matter anymore. We did it. So, we got one rolled out there. And so, what I’d love to talk about today is the thinking that went into coming up with the forecast, because forecasting is, it’s not just throwing a dart at a dartboard and taking whatever percentage shows up. There was a lot of thinking and a lot of research that went into it. I wanted to talk about some of the scenarios and why we did scenarios. And then talk about, of course, specific companies, because we’re TBR, that’s what we do. So, Elitsa, maybe if you could lead us off and just talk through your thinking, your research, your approach to doing a market forecast for IT services?

Elitsa Bakalova, TBR Senior Analyst: Yeah, so this is our first IT Services Market Forecast. So, you know, we initiated the process from scratch. And our initial lever for designing and creating this market forecast was to gather all the knowledge and understanding of IT services companies within TBR. And TBR, we research companies; we have a big knowledge base and analysts that are experts on each vendor that we include in our research. So that was the, you know, that library and data and information within everyone’s heads and understanding of the companies, that was really the foundation for designing the market forecast. So, TBR, we publish reports on 20 companies on a quarterly basis. So, each one of the analysts is an expert in several of those companies. We also publish an IT Services Vendor Benchmark on a quarterly basis that includes 30 IT services providers. We track multiple metrics and data points, and we do analysis across those 30 IT service providers. So, we collected that knowledge that we have, and we started building out the benchmark. And those 30 vendors that we include in the IT Services Benchmark, they comprise approximately 30% of the IT services market. So, we have a solid foundation for starting to model the data and create our expectation for the market forecast, which goes through 2030. 

So, the next item that we added was our understanding about the consolidation in the IT services industry and what’s the effect of inorganic growth on some of the vendors. We track vendors on a quarterly basis. We see multiple acquisitions, large and small, that happened every quarter. So- and they affect the growth profiles and just the competitive landscape in the IT services market. So, we factored this type of modeling within our data sets to come up with what our expectation is for IT services revenue size in 2030. And we also looked at the macroeconomic and political environment and the effects those factors have on IT spending, on discretionary spending, on customer behavior, on overall trends to help us understand how each vendor that we track and just overall IT services revenues, how it would trend through 2030.

Patrick: So, Elitsa, it would be fair to say that when it came to forecasting, you started with that foundation of all the data and all the analysis we have on these companies. But then you looked at trends both from the macroeconomic view, but also the company specific or IT services specific view, right?

Elitsa: That’s correct, yes. We use multiple points of view. We use the vendor view and our knowledge and what we hear from each vendor saying about their growth outlook projections in the next few years, and also external factors, such as the macroeconomic and political environment, which is a very significant factor. And we’ve seen that over the past few years, negatively affecting discretionary spending and just buyer behavior. And we also looked at the consolidation of IT services for organic contributions.

Patrick: Yeah. And then, so, and sorry to interrupt, and then we also have, by going backwards, by benchmarking, we’re able to say how much these companies projected growth and how accurate they were over the years prior to now. So, we had that information, that analysis, that data coming into it as well. 

Scenario discussion: European sovereignty push

And I think what- I know one of the ideas we had here was to sort of set a baseline. I kept calling it the gray forecast, meaning sort of this is the most basic forecast of where we think IT services is going in the next five years. But then we wanted to say, let’s do some what ifs, some scenarios. And I think part of the reason why we kind of have to do that is because we all went through the pandemic six years ago. We all know that there were things that happened that just so dramatically disrupted the market, but you can’t necessarily predict the next pandemic, but you certainly can say, well, what would happen if. If there was a massive acceleration of AI adoption, if there was another market, you know, global financial meltdown. So maybe Jill, you could talk through one or two of the scenarios that are in this market forecast.

Jill Cookinham, TBR Research Analyst: Yeah, sure. I think the one that I personally find most interesting is the major push for sovereignty in Europe. So, a lot of people think of the need for sovereign solutions, which companies like Capgemini and Atos Group are really doubling down on, especially since they have such a big presence in EMEA. But I think that something else that’s going to be on the horizon is that France and Germany are doing a major push right now for using companies that are no longer US-based. So as an example, by 2027, France wants to no longer use US-based companies for video conferencing for the French government. So, for example, like Zoom or Google Meet and Microsoft Teams, which I think could be pretty huge since those are things that everyone uses. So, I think that a lot of the IT services companies are going to need to be more willing to partner with smaller and more like emerging companies in this way, which should be pretty different and pretty interesting. So, I think that it goes beyond just having data centers and things of that nature be sovereign. I think it’s going to need a little bit more depth. And I also think that some of these governments in the EU may start labeling certain companies as higher risk.

Patrick: Yeah.

Jill: Which would be really interesting in my opinion, because I think that you have companies like Accenture that sometimes win deals in Europe, but really the big ones are like Capgemini and Atos Group and things of that nature. So, I think that they’re going to have to really kind of sharpen their teeth on that a little bit. Otherwise, I think that the companies that are already winning big in that space might just win even bigger because government agencies might be less willing to work with foreign-based companies. And I think that it’ll go beyond just in the government sector as well. I think that, you know, things in financial services and other sectors that are highly regulated may kind of want to play it safe and do, you know, what governments say, because they don’t want to have any controversies and that might be better for them in the long term.

Patrick: Right. Their risk would be the companies themselves would see their, when they think about their risk profile, if they’re following the example of the government, particularly around an area like sovereignty and data sovereignty, you could end up with a real balkanization of the companies that are providing IT services. And most of the time, while that’s better for the clients because they’re getting a better price or they’re getting more options, overall it would sort of depress the market for- take market share away from some of the big companies we cover. 

Jill: Totally.

Patrick: So, it would certainly alter what the forecast looks like. 

Scenario discussion: AI adoption 

Elitsa, how about you? What’s a scenario that could make a real difference in the next five years?

Elitsa: I think just the overall adoption of AI and the form of adopting AI. So, we started hearing a lot about the physical AI, specifically being adopted in industrial sectors, driving new opportunities around IT services and manufacturing, automotive, supply chain, through automation, through IoT and data-driven operations. So, this is really something that’s emerging and it will be beneficial for vendors, or specifically IT services providers, that have developed their digital engineering capabilities. So, for example, robotics capabilities, digital twins, real-time monitoring, and vendors with such capabilities are becoming more open to working with clients and capturing growth in heavy industries. And we know that heavy industries right now are under pressure, especially in Europe. Manufacturing and automotive are big contributors for multiple IT services providers, especially in Europe. And supply chain disruptions are causing challenges for growth, especially in the automotive sector, which has been struggling globally. So, the vendors that have developed those digital engineering capabilities, they’re not a whole lot, but there are companies like Accenture and Capgemini and some of the India-centric providers that have established expertise around engineering services. So that’s something that’s going to drive more opportunities, specifically in physical AI use case adoptions for the industrial sector.

Patrick: Yeah, and I think if you look back to sort of 2017 to 2019, there was a lot of hype and a lot of excitement around IoT, around digital twin, around blockchain, but there was sort of this idea of smart cities, of smart ports, of actually bringing so much more IT to the manufacturing space, to the sort of hard physical environment. And the challenge at that time was, of course, connectivity and, you know, connectivity plus data. So, we fast forward to now, and what we realize now is that AI was actually the other missing piece. And so when you add greater connectivity, greater data management and greater AI to- there is this huge opportunity for IT and IT services to really explode in the physical AI space, as they call it, or just in the physical space of actually making IT more important to what’s happening in a factory, in a port, in a smart city, in all those different physical environments. And of course, that would then accelerate growth as well across IT services. 

Capgemini will grow in line with the market

So, Elitsa, you mentioned Accenture and Capgemini, and Jill, you mentioned Atos. So, Elitsa, you go first. What’s a company you think in the current market forecast is most likely to- I’ll let you go either exceed or lag behind the overall trend?

Elitsa: So, I’m going to go with Capgemini because it’s a company that’s going to grow in line with our expectation of the overall market, IT services market growth. So, we expect the IT services market to expand by approximately 6.9% CAGR over the next five years to $2.1 trillion in 2030 from $1.6 trillion in 2025. And Capgemini is going to grow, in our estimations, about 6.3% CAGR through 2030. So, it’s pretty much close to the overall IT services growth. And it’s because this company has been investing in developing its portfolio in line with demand trends and making some strategically important acquisitions historically. For example, I I talked about digital engineering. Capgemini acquired Altran several years ago to increase its product engineering capabilities. And now recently, it acquired WNS to add AI-enabled intelligent operations capabilities and to strengthen the business process services portfolio. So, you know, adding more AI and specifically agentic AI in business process services, which is a heavily labor-intensive capability. So, it’s been making very concerted and logical additions to its portfolio to drive growth in line with market and our expectations. 

There’s been a strong push into AI-enabled intelligent operations, sovereign cloud specifically as well. And Jill talked about sovereign and Capgemini is really strong European provider with European coverage. So that really makes sense. Expanding in sovereignty space and then industry specific transformation capabilities. You know, Capgemini is really well known for its financial services expertise, public sector, manufacturing. So really positioning to capture transformational opportunities in regulated and Europe-centric markets. It’s also benefiting from growth in large deals in managed services lately in the past year, capturing opportunities again with demand, increasing the AI activity and AI service delivery capability internally. So, you know, moving along multiple lines and areas that we constantly hear are in demand in the market is something that will help Capgemini keep in line with market expansion.

Patrick: In line with, but slightly ahead of.

Elitsa: I would say slightly- a bit slightly lower, 6.9 overall market, 6.3 Capgemini.

Patrick: Okay, and so then just, you mentioned managed services, and I know we also have a Consulting and Systems Integration Forecast coming out. Just curious if you think that Capgemini is going to be adept at using their managed services capabilities to grow their consulting practice as well?

Elitsa: Absolutely, yes. And Capgemini has an established consulting practice, branded Capgemini Invent, and it’s been there for- that business has been there for many years. But since managed services is something that’s in demand, and the company keeps saying that recently, activities are very much driven by driving cost optimization, operational efficiencies. So that itself is driving managed services opportunities and deals. But then, you know, AI is kicking in, regulatory changes within, you know, specific countries are kicking in. So, this is definitely driving a lot of opportunities for consulting to come together with managed services opportunities.

Patrick: Yeah, it’s definitely a change in the way that the sort of the traditional consulting tip of the spear. 

IBM Consulting: its greatest strength is its greatest weakness

So, Jill, how about you? What’s the company that stands out for you as either going to accelerate above the forecast or perhaps lag?

Jill: So, I think I want to talk about IBM Consulting. We specifically contrast these two in the market forecast, and I think that was something that was really interesting for the both of us to write on. So, the most interesting thing to me is I think that IBM’s like greatest strength is often its greatest weakness in terms that it’s always really doubling down on its own solutions. So specifically with everything with watsonx and really having a platform-led approach, which I think really provides the company with stability and how much they focused on hybrid cloud in the last like 5 or 10 years, which I think is really huge. But I think that almost that holds it back in a way, because it’s really trying to go to this next step that right now, they’re kind of losing visibility in digital transformation, which, that’s going to kind of provide them the cash short term. So, I think that that’s going to be something that’s pretty interesting, especially as you have other companies like OpenAI, and everything changing so quickly that they’re constantly trying to find new integrations and things that they can do. But I think that how much they lean on their own solutions, which can allow it to be a lot more sticky with clients. 

Patrick: Right.

Jill: But I think that in a sense, it almost seems like they’re playing it kind of safe, which is I think kind of reflective of we’re projecting that they’re going to grow at a 4% CAGR, which is- I think like 6.9% is the overall. 

Patrick: So slower. 

Jill: So slightly lower. Yeah, and I kind of think that that may be why.

Patrick: Yeah, that’s a good point. And I mean, IBM has been around for 100+ years. They have transformed in a lot of different ways over the last five years, shedding Kyndryl being a good example of that. And changing the way that they partner more broadly, and they’re not just focused on only their own solutions, but they’re still focused on their own solutions in a lot of ways. So, it’s fascinating.

Jill: Yeah, totally. And I think that like they’ve gotten a lot better at partnering with people, but they’re not as good as Accenture and some of the ones that have been doing it for a while, which I think that, you know, partners are everything now. So, I think that they’re really going to have to work on being very close with their partners. But as you’re saying, like a lot of times they’re competing directly with them. I’d argue more than a lot of others because they’re so platform-led.

Patrick: Right, reminds me a little bit of HCLTech in their sort of, because HCLTech has a software practice as well. They’re also focused on the- and maybe that’s something I’ll have to look into the forecast where we see HCLTech going. 

IBM Consulting: its greatest strength is its greatest weakness

So, Jill, how about you? What’s the company that stands out for you as either going to accelerate above the forecast or perhaps lag?

Jill: So, I think I want to talk about IBM Consulting. We specifically contrast these two in the market forecast, and I think that was something that was really interesting for the both of us to write on. So, the most interesting thing to me is I think that IBM’s like greatest strength is often its greatest weakness in terms that it’s always really doubling down on its own solutions. So specifically with everything with watsonx and really having a platform-led approach, which I think really provides the company with stability and how much they focused on hybrid cloud in the last like 5 or 10 years, which I think is really huge. But I think that almost that holds it back in a way, because it’s really trying to go to this next step that right now, they’re kind of losing visibility in digital transformation, which, that’s going to kind of provide them the cash short term. So, I think that that’s going to be something that’s pretty interesting, especially as you have other companies like OpenAI, and everything changing so quickly that they’re constantly trying to find new integrations and things that they can do. But I think that how much they lean on their own solutions, which can allow it to be a lot more sticky with clients. 

Patrick: Right.

Jill: But I think that in a sense, it almost seems like they’re playing it kind of safe, which is I think kind of reflective of we’re projecting that they’re going to grow at a 4% CAGR, which is- I think like 6.9% is the overall. 

Patrick: So slower. 

Jill: So slightly lower. Yeah, and I kind of think that that may be why.

Patrick: Yeah, that’s a good point. And I mean, IBM has been around for 100+ years. They have transformed in a lot of different ways over the last five years, shedding Kyndryl being a good example of that. And changing the way that they partner more broadly, and they’re not just focused on only their own solutions, but they’re still focused on their own solutions in a lot of ways. So, it’s fascinating.

Jill: Yeah, totally. And I think that like they’ve gotten a lot better at partnering with people, but they’re not as good as Accenture and some of the ones that have been doing it for a while, which I think that, you know, partners are everything now. So, I think that they’re really going to have to work on being very close with their partners. But as you’re saying, like a lot of times they’re competing directly with them. I’d argue more than a lot of others because they’re so platform-led.

Patrick: Right, reminds me a little bit of HCLTech in their sort of, because HCLTech has a software practice as well. They’re also focused on the- and maybe that’s something I’ll have to look into the forecast where we see HCLTech going. 

The levers to pull to accelerate growth 

So, I want to wrap up with a question that I’m going to sort of not allow you to give the consulting answer to. I’m going to force you, both of you, to give a direct answer to a direct question. So, thinking about the next couple of years in IT services and the companies we’ve talked about and the market trends, the macro trends, we’ve talked about the specific trends within IT services, you’ve highlighted a couple companies where they’re going. There’s only a limited number of levers that companies can actually pull that are going to either accelerate their growth or, well I guess accelerate their growth is what they want, but you can make missteps, no doubt. There’s only a few things that they can do. And I’m going to take AI off the table because the disruption that comes through adopting AI internally and the disruption to the business models is something we have a whole separate line of research about. We’re going to have a whole podcast episode about exactly what’s happening with the adoption of AI in these companies. But from the very traditional running the company perspective and when you think about the next two to three years with these companies, there’s only, I’m going to say there’s four different levers they can pull. I know there’s more than that, but I’m going to limit you to four. 

There’s acquisitions, and by acquisitions I don’t mean continuing at the same pace they always have. I mean, changing their strategy around acquisitions with the exception of Accenture. But maybe that’s it, actually become more Accenture-like in an acquisition pace. There’s alliances. Everybody partners with everybody, I’m not saying there’s not a lot of alliances out there. What I mean is can you actually change the way that you ally with technology companies? Can you go all in on NVIDIA in a meaningful way? Can you go all in on Palantir? Can you go all in on Salesforce? So, changing your acquisition pace, changing the way that you do alliances. There’s the leadership, organizational structure, the reinvention. You can restructure yourself. And we saw that from Accenture recently with reinvention services. We’ve seen it with Deloitte rolling out Operate, which is their version of managed services. And then we’ve seen leadership changes in a lot of companies. So that’s another lever that you can pull. And then the last one would be the opposite of acquisitions, divestiture, which again, I mentioned Kyndryl. There was an example of how IBM changed their growth trajectory by dividing up their business, not by acquisitions. So, Elitsa, I’ll let you go first. Out of those four levers, when you think about Capgemini, which is the lever that they’re most likely to pull and change course on that? Or which is the one, maybe not most likely, which one should they use in order to help them accelerate beyond the predicted growth curve for IT services?

Elitsa: Of the four, I think leadership is the most important lever, not just for Capgemini, but for any IT services company specifically, or just IT company in general. If you have stable leadership that has a vision about the direction of the company and has consistent strategy and execution and implementation of the strategy, it’s going to be a successful IT services provider. We’ve seen companies transform constantly and change leadership multiple times. And I’m talking about senior leadership and CEO level. 

Patrick: Right.

Elitsa: And it’s something that destabilizes the company. So, every time you change a CEO or a CFO or any C-suite executive, comes a new person with a new vision, with a new direction, and it drags the company from executing on its strategy. It first changes the strategy, and then it takes time to implement the new strategy. It drives costs with reorganization, just general changes within the structure and the direction. It affects everything that a company does. It affects mergers and acquisitions. It affects the way the company partners with technology providers or startups, you know, that direction as well. So, I think the leadership position is really the important part of the equation.

For Capgemini specifically, we’ve seen solid leadership team for multiple years now that has the direction, that has been investing logically in specific portfolio areas and specific acquisitions to expand the portfolio, client reach, resources, even in low-cost locations, or add AI to the mix. So really, the leadership is my number one priority for any vendor.

Patrick: Yeah, that’s a great answer. I absolutely love that. So that kind of sets you up, Jill. So, what’s your answer going to be for IBM?

Jill: I think Elitsa’s answer was really great. I think I’m going to focus a little bit on alliance structure for IBM because I think that it’ll become more important. I think that lots of IT services companies are starting to realize that partnering is a must, not only to win revenue short-term, but also for innovation. And so, you can innovate so much more and kind of be at the forefront when you have much closer partnerships. And I think that something that may be in the pipeline is if you look at something like Accenture and they’re having their own dedicated business groups for those things, I think that really digging deep and having those meaningful connections with your partners and really understanding the depth of all their services. And when you work that closely, I imagine that you’ll be able to be more at the forefront of innovation, which I think will be super important, especially in this next phase. So, I think that’s what I would say. I think that IBM needs to lean more into it. And I think that sometimes it might be a little bit uncomfortable.

Patrick: Yes.

Jill: And it might take some figuring out, especially since like, as I’ve been saying, like they have so many software products and so much IP, but I think that they can also offer a lot to their alliances because of that reason. So, I think it’s just going to take some more learning. I think that that’ll be also really important for them.

Patrick: It’s a really good point. I think of Accenture and SAP, which for decades have actually shared code, meaning SAP, a software company, that’s all they actually have is code and a really good sales force. They have shared code with Accenture at that level of innovation, at that level of partnership. And you’re right, I think for IBM, they’ve got to get more comfortable with having that kind of, that deep kind of relationship with their alliance partners so that they can then do that kind of innovation. And that comes back to Elitsa’s point, because you don’t get that kind of alliance partnership without leadership that is sustained, committed, all in on it. 

Jill: Exactly.

Final thoughts 

Patrick: So excellent. Elitsa and Jill, thank you so much for coming in. This has been really good. I know we’re going to get a lot of feedback on this market forecast. We already have. To indicate whether people think we’re right or wrong. And in a year from now, we’re going to revise this market forecast and we’ll be back to have the same conversation. Thank you both very, very much.

Jill: Absolutely.

Patrick: Tune in next week for another episode of TBR Talks. 

Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies, large and small, answer these questions with the research, data, and analysis that my guests bring to this conversation every week. 

Once again, I’m your host, Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us and see you next week.

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