IT service providers must bridge legacy & new offerings to stay relevant

by CXOtoday News Desk    Mar 19, 2013

Bridge old and new

The drive of organizations toward increased standardization of infrastructure, applications and business processes, combined with expanding and more comprehensive provider ecosystems, shows that service-led solutions will displace traditional sourcing approaches through 2015. According to Gartner, to remain relevant, IT service providers must bridge legacy offerings and new services based on new technologies, new delivery models and new architectures.

“The IT services market plays a key role in bridging legacy offerings and new cloud delivery paradigms. IT services providers able to adapt to change, improve competitiveness and identify growth opportunities will thrive,” said Eric Rocco, managing vice president at Gartner. “Growth opportunities certainly exist for service providers with life cycle solutions in relation to the Nexus of Forces (cloud, social, mobile and information). However, this requires IT services providers to adapt to significant changes, including the growing influence of business leaders in technology investment decisions.”

Overall IT services market will grow 5.2 percent in 2013 and continue strong growth through 2016. Growth will largely come from changes and opportunities brought on by the Nexus of Forces and newer delivery models, although not exclusively in the consulting and implementation segments.

Segments will not grow uniformly. Hardware support and software support are among the lower-growth opportunities in the IT services market while cloud-based Infrastructure as a Service (IaaS) and business process as a service (BPaaS) are growing strongly at 13.1 percent and 47.3 percent, respectively, in 2013. Agility, not cost, will be the primary reason that many organizations adopt cloud computing. Hybrid IT environments will dominate client IT architectures through 2016, underscoring the importance of skills in the old-world legacy environments as well as the new world “as a service” operating models.

“The big squeeze is on for early IT services providers to achieve sustainable value-based differentiation,” said Rocco. “This challenge is prominent in a time when economic uncertainty persists to the point of being essentially a certainty in its own right. Providers must be recognized by clients for delivering tangible business improvement to alleviate the cost reduction pressure, or they simply won’t prosper or ultimately survive.”

With this in mind, Gartner has identified three recommendations for IT service providers in 2013:1) Stop undifferentiated bland marketing messages. Cost reduction focus ignores opportunities to improve the business. Emphasize business value and modernization/extension to transform clients’ existing operations. Differentiate using value. Reinforce with references, and in doing so establish credibility and build trust to grow relationships with business buyers. Pricing models must also reflect the value being impacted. Providers must evolve unit-based pricing to outcome-based and value-based pricing.

2) Reinvent the service portfolio. Restructure the portfolio of services delivered to heighten focus and impact. Asset-based and Internet Protocol-based service offerings are critical elements of future competitiveness. Assess, prioritize and invest in productizing of existing IP assets. Modernize service delivery factories as fast as possible. Promote the value of process enhancement technologies and services (PETS) to your business process outsourcing (BPO) clients.

3) Determine if your business model is based on scale or specialization. Services themselves will continue to commoditize. Not all providers need to be business transformation enablers, but only providers focused on operational efficiencies driven by scale and cost discipline should bother committing longer term to services that are clearly more mature and rapidly commoditizing, such as segments of the infrastructure outsourcing marketplace. Gartner research suggests it will be increasingly difficult for scale-based business models and highly specialized, higher-margin business models to successfully coexist within the same provider.