Computing services is by far the fastest moving sector of the European IT industry with revenues set to rise at a compound annual growth rate of 14% through 2002. But for services companies to profit from the boom they will have to take account of regional as well as global requirements – or go ‘glocal’ as IDC put it at its first annual European IT Services Forum held in Munich last week. The main stimulus for growth is the ever greater complexity of IT systems. Where the focus of client/server has been the automation of the front-office, complementing the computerization of back-office procedures during the 70s and 80s, the fix for the internet age is e-commerce and the automation of customer interaction. More specifically, the aim is the development of so-called ‘business ecosystems’ using extensive electronic supply chains and highly tuned customer relationship management software. That will call for digital ties between geographically dispersed enterprises, their suppliers, trading partners and customers and this will favor those service companies that can truly demonstrate global capability with strong regional support. Though this sea change in business practices offers unprecedented opportunities for service providers it also presents some significant challenges. Chief among these is the predicted switch in emphasis from facilities management and systems integration contracts to the creation of long-term project-driven partnerships. Services vendors will need to be more tightly integrated with the ongoing business processes of their customers with risk-sharing contracts becoming the norm. This will make for more progressive two-way relationships. Services companies will also be expected to be more proactive in their selection of IT solutions and to be able to deploy them rapidly to gain the maximum business benefit. There’s going to be a need for easily repeatable but highly customizable solutions based on component technology. Service vendors will want to concentrate more on their core competencies as a result. This is likely to lead to more contract-sharing of the type seen recently in a consortium led by CSC to modernize the US Inland Revenue Service, or the deal CSC cut with JP Morgan as part of its Pinnacle Alliance with Andersen Consulting and AT&T. There is considerable complexity in managing services delivered by multiple vendors, however. And most of the risk in a multi-vendor contract is actually carried by the lead vendor. As yet no IT service provider appears fully equipped to be able to go ‘glocal’. The industry’s biggest players like IBM Global Services, EDS and CSC would seem at first to hold the advantage with their established global presence. However, their relatively broad-based service portfolios and largely arms-length business models may reduce their relative competitiveness, at least in the short term. IBM Global Services’ increasing focus on ‘e-business’ and last week’s announcement of EDS’ tie in with MCI WorldCom are indications that this is changing. Perhaps better placed are companies like Cambridge Technology Partners which can already demonstrate significant investment in the development of collaborative, rapidly deployed, repeatable solutions, albeit with short project assignments rather than an ongoing basis. All suppliers will face problems reconciling their ambitions to establish long-term partnerships with the need to deliver quickly a series of project-based services. Services companies face the added challenge of overcoming a skills shortfall, with an estimated 500,000 jobs remaining unfilled in Europe according to IDC. Only the best employers will attract the best talent. The projected boom in the European service market may not be to the sole benefit of European-based service vendors. Perhaps the single biggest challenge for European-based services companies will come from their US-based competitors. Currently only four of the world’s top 20 services companies are European. And even the biggest of the European players retain some degree of geographic bias. Of these, the likes of Italy’s Finsiel or Germany’s debis Systemhaus do not have the presence to truly penetrate the global market place. Further consolidation is assured. Whether we end up with a myriad of specialized companies or a handful of giants, success in this period of flux will favor those prepared to take risks.
This article is part of ComputerWire’s European Computer Services information service. Some articles from the service are being provided to ComputerGram subscribers for a trial period only.