Monday, May 27, 2024
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What the Growth of IT Services Means for the Enterprise

The IT Services industry is growing – and fast. According to a 2023 IBIS report, the industry generated a combined revenue of $623.1 billion across 502,000 U.S. businesses in 2022. This explosive growth has substantial implications for the future of enterprise technology; IT service providers act as shepherds to help their clients understand and implement new, cutting-edge tools to drive continued success.

Why are IT Services growing so quickly and what does it mean for enterprises? First, some background – IT Services broadly comprise three practices: business product outsourcing (BPO), managed services, and consulting.

Business Process Outsourcing 

Involves organizations outsourcing specific tasks to IT service providers – e.g., billing, payroll, medical transcription, and customer service. These outsourced functions are all bolstered and driven by technology. BPO is the largest and fastest-growing segment within IT Services.

Managed services 

Involves longer-term management or stewardship of an organization’s tech stack, including infrastructure management, data backup and recovery, and security and network management. The proliferation of cloud computing has catalyzed significant growth in the managed services practice.

Consulting 

Consulting involves ongoing counsel for digital transformation, IT infrastructure, and computer systems development. This type of work typically entails high-dollar, multi-year transformational engagements and has become increasingly popular in recent years.

Armed with a clear understanding of the IT Services space, let’s dive into the key drivers behind the industry’s explosive growth and highlight the implications for the enterprise.

Key Drivers of Growth in IT Services

The below themes are red-hot for enterprises today and will have an outsized impact on the future of the IT Services industry:

Artificial Intelligence 

With a potential global value of $10–15 trillion (with $3.6–5.6 trillion in supply chain management and manufacturing alone), artificial intelligence (AI) will boom in the years to come. We’ve already seen key implications for the enterprise (e.g., generative AI like ChatGPT), and IT Services providers will be in demand to help implement the technology and train staff on how to leverage it.

Blockchain 

More than three-quarters (76%) of senior executives believe that digital assets – backed by blockchain technology – will at least partially replace fiat currencies within the next decade. But blockchain can power more than just cryptocurrency, with applications in real estate, voting, supply chain management, and more. As businesses and governments alike dive into blockchain tech, they’ll look to IT Services providers to share their expertise.

Cybersecurity 

While not new to the enterprise, cybersecurity remains top-of-mind for business leaders around the globe – especially since hackers are getting increasingly more sophisticated. Around the world, cybercrime causes an estimated $16.4 billion in damage per day as of 2021. For IT Services, the pace of cybersecurity work won’t be slowing any time soon.

Remote Work 

Remote work has skyrocketed in recent years and is widely considered the new working norm, with almost three-quarters (74%) of U.S. companies embracing a hybrid work model. While convenient and desirable for workers, the shift to remote work puts added stress on IT systems and processes. As a result, enterprises around the world have leaned on IT Services to help facilitate this massive organizational shift.

Sustainability 

A whopping 90 percent of executives believe sustainability is important, and 85 percent of investors consider environmental social governance (ESG)in their vetting process. In addition to being a top priority for enterprises, sustainability is estimated to be a $4–6 trillion market by 2030. Enterprise sustainability often boils down to advanced tech, which requires the expertise and guidance of professionals in IT Services.

With so many factors contributing to the growth of IT Services, it’s imperative for leaders to remain adaptable as they ride the wave and secure new business.

How IT Services Can Position Itself for Growth

How can IT Services leaders accommodate an influx of demand while delivering the best possible service for their customers? The answer lies in their go-to-market models.

Broadly speaking, IT Service businesses can be organized in one of two ways: a bifurcated sales and delivery model or a partner-led model. In a bifurcated model, there is a clear distinction (and handoff) between the sales team and the delivery team. This model allows each team to thoroughly dig into their respective expertise, but there must be crystal-clear communication between the two parties. Otherwise, they run the risk of poor execution and client outcomes due to misaligned expectations. 

Partner-led models, on the other hand, rely on senior partners acting as point people (and air traffic control) for an entire customer engagement and relationship. Partner-led models often encourage stronger client bonds, but it can be challenging for partners to appropriately allocate their time between selling, nurturing the relationship, and delivering on what was promised.

No matter which models an IT Services organization deploys, leadership must preemptively determine how they will handle questions around ownership of (and credit for) key deliverables, compensation and incentives, and team communication.

IT Services Will Propel the Enterprise Forward

With seemingly no end in sight to the development, proliferation, and appetite for advanced technology, IT Services organizations stand to grow significantly in the years to come. Their expertise in key technology like AI, blockchain, and more will play a substantial role in enterprises’ continued digital transformation journeys. As business leaders vet and engage with IT Services providers, it will be helpful to have a clear understanding of how IT Services firms function and what their operating models mean in practical terms.

Guest Author: Mike Burnett, principal and Business Services Practice Lead at Alexander Group

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