Big services and outsourcing cull on the cards

By next year 20 of the top 100 IT services providers will vanish, warns Gartner

A huge chunk of the IT services and outsourcing landscape will disappear as soon as next year as the market consolidates, according to a report from Gartner.

Gianluca Tramacere, a research vice president at Gartner, said that up to 20 per cent of the top 100 IT services providers will vanish by 2014, as a result of a tough market environment with limited growth in most geographies. Traditional infrastructure outsourcers in particular are at "serious risk" of being wiped out, he warned.

"In the past decade many outsourcers have procrastinated, failing to make the changes needed to transform challenges into opportunities. Many will disappear – some slowly, some rapidly. But the question is, which ones and how fast?" said Tramacere.

His report, Market Insight: the Five Regrets of the Dying Infrastructure Outsourcing Service Provider, predicts that purveyors of traditional infrastructure outsourcing approaches are becoming unable to deliver the continuous cost reductions or operational efficiencies that customers now require.

On the other hand, service providers that ensure they develop and implement valid long-term strategies, that rationalised their portfolios and adopt service life-cycle management processes, and align and connect their salesforces accordingly may have a chance of survival.

Tramacere said they should also gut and rebuild their marketing functions to ensure they can articulate whatever tangible value they deliver.

"As clients asked to expand the scope of existing deals and new clients came in with full outsourcing propositions, they [infrastructure outsourcers] opted to grow their revenue by following a 'let's win the deal and then worry about profitability' philosophy," Tramacere wrote.

"Although this model survived for a long time, strong pressure on prices, hyper-competition and a worsening economic scenario have brought the industry to breaking point."

Meanwhile, he confirmed, cloud-oriented business models remain works in progress.

"In addition, confusing, weak and scarce communication to the market about their [infrastructure outsourcers'] strategic purposes has lowered the confidence of clients and prospects," Tramacere noted.