Forrester report on IT services revenue growth and challenges

Research firm Forrester, in its Global IT Services Market Forecast report, has revealed revenue growth in the global IT services industry and challenges. The research report has also shared tips for decision in the IT services to overcome challenges.
IT services forecast by Forrester

GROWTH

Annual spend on IT services will reach $2 trillion by 2028, Forrester forecasts. The worldwide IT services industry is grabbing more than a third of annual global tech spend — some four times the annual spend on computer equipment.

The IT services industry will achieve 4.6 percent annual growth during the forecast period. Infrastructure as a service (IaaS) will be achieving annual growth of nearly 16 percent. Growth in the IT services business will be the fastest in Asia Pacific, reaching almost 6 percent, Forrester said in its report prepared by Michael O’Grady, Forecast Analyst and Michael Kearney, Data Researcher.

Growth will be driven by:

Ten of the largest IT services companies saw 44 percent of their revenues come from financial services, manufacturing, and energy. The growth opportunity is significant: Accenture estimates that only 5 percent of manufacturing and engineering services companies scale mature digital capabilities across their organization.

Infrastructure as a service will nearly double its share of the IT services market — going from 8 percent in 2022 to 15 percent in 2028. The largest hyperscalers will enjoy the biggest growth. Google Cloud and AWS had 26 percent and 13 percent growth in 2023, respectively. Azure and other cloud services grew 17 percent for Microsoft.

Canalys estimates that two-thirds of the $224 billion in cybersecurity spend in 2024 will be for IT services in consulting, outsourcing, managed services, solution deployment and integration, maintenance, and support.

Despite strong forecasted growth in the market in the next five years, IT services firms predict weak results for 2024. Only in 2025 will real global GDP growth (a strong predictor of IT services growth) exceed pre-pandemic levels.

CHALLENGES

The report said IT services companies face challenges in the next few years, including retaining talent and balancing headcount with increased competition from software and engineering firms and the effects of generative AI.

IT services firms grew headcount to match supercharged pandemic demand, but many are now cutting jobs. Since headcount and revenue have been in lockstep, they must ensure that such cuts do not harm the bottom line. To improve margins, many are considering the productivity gains of automation, but most benefits are still unrealized.

Engineering and IT services firms are competing to increase their share of IT services revenue, especially in consulting, security, maintenance, digital, and networking. IT services firms are also nurturing closer collaboration with the software industry: For example, Cognizant’s purchase of Thirdera strengthens its strategic partnership with ServiceNow for AI-driven automation.

Nearly 57 percent of the jobs lost to automation in professional services in the US will come from generative AI. If genAI increases IT service productivity to lower project delivery costs, more resources would be available to reduce project backlogs. Project onshoring could become more popular as parts of consultant jobs become semiautomated.

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