9.5% Rise in IT Services Spending in 2008: Study

by CXOtoday Staff    Jul 29, 2008

Though the economy remains weak, IT services will persist to grow through 2008 end, said a Gartner study released last week.

The research firm said that global IT services expense will rise by 9.5% this year to $819 billion. Among this large expense, the outsourcing of IT and process management tops with 42% of the entire IT services market. The analysts expect dollars to continue to flow into services categories, such as BPO (business-process outsourcing) for short-term cost-control measures at organizations trying to tighten their belts.

According to a press release, cost reduction is also driving growth in the consulting, development and integration services market. Spending on development and integration services is expected to swell by 10.1%, a faintly higher rate than overall services. Despite these growth figures, Gartner analyst Kathryn Hale said that the numbers may paint an overly rosy picture of enterprise spending on IT services. The steady decline in U.S. dollar value has actually buoyed the figures when expressed in dollars, she said.

“Although we expect continued strong growth in IT services, there are 2 causes for concern,” Hale said in a statement on the report. “First, the rate of innovation in providing new service offerings is sporadic, at best, and strong returns on investment stories are hard to come by. At the same time, innovation in delivery is not growing as fast as hoped: Industrialization is being adopted slowly.

“A second fundamental problem in IT services is the inability of providers to provide compelling value statements about the services they provide, whether in offerings or delivery.”

Both concerns tend to induce “a common buyer mentality that focuses on IT cost takeout and adopts a ‘lowest cost wins’ decision-making in its services and sourcing decisions,” which can ultimately hold up innovation and harm long-term ROI, Hale said.

According to media reports, Hale’s warnings came just a few days after Goldman Sachs released the weak results of a recent survey it conducted among 100 CIOs at multinational enterprises. The major thread running through all of the responses was that CIOs will focus on ways to cut costs not only in-house, but also through service providers. Among the CIOs surveyed, 42% were reluctant to spend money on third-party professional services. In addition, 48% were keen on cutting contractor staff.

According to Goldman Sachs, Overall IT spending will grow but more slowly than last year with a 5 % gain in 2008 against 7% for last year.

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