|IT Services Vendors Fueling Growth by Investing in High-Value Offerings, Emerging Mkts
IT News Online
2012-07-06Mumbai -- IT News Online -- According to Technology Business Research Inc.'s (TBR) Q1 2012 Professional Services Business Quarterly IT Services Vendor Benchmark, IT services vendors are fueling growth by developing vertical-specific offerings in high-growth vertical markets, such as healthcare, financial services, energy and retail, and accelerating investments in APAC, LATAM, and the Middle East and Africa.
Cost reduction and operational efficiency remain the primary drivers of IT spend in the U.S. and Europe, creating signings and revenue growth opportunities for vendors with well-established global delivery models and end-to-end outsourcing portfolios.
TBR Analyst, Erin Hichman, said, "Revenue growth is increasingly driven by vendors that can 'do more for less' by leveraging their global delivery models and bundled hardware, software and services capabilities to deliver cost-effective, end-to-end solutions. These solutions address business imperatives, such as business/IT innovation, enhanced customer engagement, new service development and globalization."
Overall IT services revenue growth will contract sequentially in Q2 2012, as IT spending continues to transition toward cost- and efficiency-focused, offshore-centric AO and BPO services.
Trailing 12-months (TTM) IT services revenue year-to-year growth contracted sequentially for the 30+ vendors covered in the benchmark in Q1 2012, falling to 10.3% in Q1 2012 from 10.8% in Q4 2011. Applications outsourcing remained the fastest growth service line, improving 14.9% year-to-year on a TTM basis, followed by BPO, which grew 12.4% year-to-year. Applications rationalization/consolidation drove growth in AO, as clients seek to trim excess IT costs by standardizing applications and moving to third-party managed cloud environments.
Demand for vertical-specific, platform-based solutions in healthcare, financial services, retail and energy as well as increased adoption of offshore/nearshore BPO services by European and U.S. firms for cost takeout and near-term ROI drove BPO growth. C&SI growth slowed sequentially in Q2 2012, which TBR attributes to macroeconomic uncertainty and fiscal austerity in Europe that pressure discretionary spending on larger-scale, longer-term consulting projects. ITO growth continued to lag behind all other service lines in Q1 2012, as clients in mature markets are forgoing large-scale infrastructure outsourcing engagements in favor of selectively moving elements of infrastructure to private and hybrid cloud environments.
APAC continues to outpace all other geographic segments in growth, increasing 14.6% year-to-year on a TTM basis, followed by the U.S./Americas (10.5%) and EMEA (8.2%). Transformation and modernization remain key themes fueling APAC growth, as regional enterprises undertake large-scale systems integration and outsourcing projects to transform legacy IT infrastructures. TBR believes vendors continue to gain traction in the U.S. through alignment of offerings to healthcare, retail, energy and other growth verticals.
TBR expects vendors will continue to experience improving growth in the U.S. throughout 2012, as enterprises broaden their IT investment focus to longer-term, growth-oriented projects beyond near-term operational efficiency needs, creating demand for analytics, cloud and mobility. Sovereign debt concerns and fiscal austerity continue to suppress vendors' growth rates in Europe, particularly for those with a high concentration of revenue in the U.K., Benelux and Spain. TBR believes vendors will seek European growth by expanding their nearshore delivery capabilities to the region and pursuing deals in stronger performing regional economies throughout northern and central Europe.
IBM GS, HP Services and Fujitsu maintained their positions as the three largest firms (by TTM revenue) in the Q1 2012 PSBQ IT Services Vendor Benchmark, fueled by their expansive global presence and broad portfolio coverage across services, hardware and software. Atos continued to improve its position among the top 10 TTM revenue leaders in TBR's Q1 2012 PSBQ IT Services Vendor Benchmark, fueled by revenue synergies and a broader global presence afforded by the ongoing integration of Siemens IT Solutions and Services (SIS). TBR believes change in the top 10 revenue leaders is imminent, as TCS and other Indian vendors continue to build global scale and drive revenue growth by building an onshore, consulting-led presence in the U.S. and Europe.
Atos, EXL and Genpact led TTM revenue growth in TBR's Q1 2012 PSBQ IT Services Vendor Benchmark, with Indian vendors accounting for six of the top 10 spots. Genpact improved from sixth to third overall in revenue growth during Q1 2012, which TBR attributes to ITO and AO growth provided by the integration of Headstrong and traction with investments in high-value smart decision services, spanning vertical-oriented process re-engineering, social media and analytics. Acquisition synergies continue to fuel growth for Atos (SIS) and EXL (Trumbull Services, OPI).
Despite macroeconomic uncertainty and debt concerns impacting discretionary spending in Europe and the U.S., clients that are spending are looking to invest in disruptive technologies such as mobility
Enterprise mobile usage continues to expand across industries and geographies, creating opportunity for IT services vendors to capture signings growth in areas such as mobile device/application management and mobile security. Vendors address this opportunity by leveraging internal resource investments and strategic alliances to bolster their end-to-end mobile solutions breadth.
In Q1 2012, Fujitsu partnered with Sybase, a U.S.-headquartered software company that provides mobility solutions, to deliver end-to-end SaaS and PaaS managed mobility solutions to enterprises in Australia and New Zealand. HCLT announced the opening of its Silicon Valley Customer Collaboration Center in Santa Clara, Calif., which will serve as the global headquarters for TCS Mobility Solutions. TBR believes vendors will leverage similar alliances throughout 2012 to enhance their outsourced mobile applications development capabilities and capture signings opportunities as macroeconomic conditions recover and firms seek to catalyze innovation in mobility.
Increased usage of social media by consumers drives demand for social media solutions as firms look to analyze social media and leverage key findings to improve business and customer engagement
Social media grows in importance internally and externally for IT service vendors, as vendors adopt internal platforms (i.e., Cognizant 2.0) to enhance resource collaboration, coordinate knowledge sharing and catalyze product/service innovation. Investments in social media solutions will expand in 2012, as vendors pair expertise gleaned from successful internal social media pilot programs with acquired analytics software assets to deliver comprehensive customer insights for clients. Vendors will also increasingly leverage alliances and niche acquisitions to develop social media solutions platforms aligned to high-growth vertical industries, such as healthcare, financial services, energy and retail.
Accenture acquired Spain-based Neo Metrics Analytics in April 2012, adding analytics technology and related advisory expertise in social network analysis. Genpact partnered with the Massachusetts Institute of Technology (MIT) to develop methodologies and solutions for applying social media and analytics tools to improve enterprise collaboration and customer engagement.
Vendors build their delivery capabilities and offerings in Africa to target local demand and diversify revenues by expanding in an emerging market
IT and professional services vendors are rapidly expanding their investment in South Africa to capitalize on growing regional demand for IT infrastructure transformation and modernization. European and Indian IT vendors are aggressively pursuing growth in South Africa to offset weakness in key European markets, as the region offers rapid IT services growth and proximity to these firms' core delivery pools.
T-Systems announced it is expanding its South Africa practice into an Africa regional division, operating independently of its EMEA operations and headquartered in Midrand, Johannesburg. HCLT is establishing a South Africa Global Center of Excellence in partnership with Cisco in Johannesburg, which will serve as the training headquarters for approximately 100 engineers. Vendors will pursue growth in Africa in 2012 by positioning themselves as one-stop shops for IT transformation, bundling hardware, software and services to deliver end-to-end infrastructure and applications solutions.