IT service providers are the key to success

Digitally transforming a company is no easy task. Companies are increasingly being confronted with new technologies such as blockchain, AI or IoT and topics such as digital marketing or process automation without having the necessary expertise.

They need external support to cope with the demands of the digital age. It is therefore not surprising that the market for IT consulting companies is growing like no other.

According to the 2018 Lünendonk study "The market for IT consulting and IT services in Germany", IT service providers have become key factors in the digital transformation of companies and are experiencing their strongest growth in years.

In the course of this study, 78 IT service providers, including the leading 25 IT consulting companies in Germany, and 137 user companies from various sectors, such as manufacturing, logistics and telecommunications, were surveyed.

"The majority of IT service providers surveyed expect to grow faster than the overall market and thus gain market share"

explains study author Mario Zillmann, Partner at the market research and consulting firm Lünendonk & Hossenfelder.

"One reason for this is, for example, the increased need for support in the automation of processes, but also in the migration of legacy applications to the cloud and the introduction of new business software."

For user companies, it can feel overwhelming to have to deal with all these new technologies and initiate a digital transformation based on them.

This is why most companies not only seek external support when implementing software, but also in the early initial phases of their digitalization projects.

Dieter Loewe, Chief Client Officer at NTT Data, believes that it is partly the demand for exactly this kind of holistic support that has helped IT consulting companies to succeed so rapidly in recent years:

"Nowadays, you simply have to pick up the customer much earlier if you want to remain competitive. As an IT consulting company, you have to be able to accompany a customer project from start to finish.

This also means that you have to be able to perform creative services that were traditionally carried out by Internet agencies."

The study also revealed that the specialist departments in particular are now increasing the number of digitization projects. A third of the 137 user companies surveyed stated that they had 50 percent more digitalization projects than in the previous year. Mario Zillmann sums it up succinctly: "IT drives business."

Dieter Loewe sees this as a new trend:

"Instead of outsourcing, insourcing is now being increasingly practiced again. This means that companies are building up more and more of their own IT expertise, as they can no longer do without it. This is a relevant turning point that should not be underestimated."

At the same time, however, many of these additional projects are never completed. 38 percent of respondents stated that they had canceled 20 percent of planned projects. The reasons for this are varied, but the most frequently cited reason is a lack of IT experts.

Heiko Packwitz, Chief Marketing and Communications Officer at Lufthansa Industry Solutions, tries to explain the shortage of IT experts:

"The high number of projects that fail due to an insufficient number of employees can possibly be explained by the fact that digitization projects are increasing in specialist areas where there are naturally few IT experts."

These figures show that the need to digitize is significantly higher than the implementation. Holger von Daniels, Managing Partner of Valantic, has a possible explanation for the disparity between planning and reality:

"There is simply a lack of IT expertise at board level. The responsibility for such projects lies far too often with the CFO, where it absolutely does not belong."

Digital Customer Experience

Digital customer experience is one of the most important topics that user companies and IT service providers will be facing in the near future. It is almost essential that companies focus on the customer, digitize their customer interfaces and create user-friendly websites and apps.

Digital marketing is also becoming increasingly important. This is reflected, among other things, in the fact that digital customer experience services account for 20 percent of the planned turnover of IT consultancies.

"That's not a small value; it's about one in five euros"

says Mario Zillmann.

"This is of course driven by demand. User companies need support in the development of digital solutions."

Blurring boundaries

It is precisely here that the boundaries between management and IT consulting are becoming blurred. Creative services that are usually provided by digital agencies are increasingly being taken on by IT consultancies. This is necessary in order to meet the high demand for holistic project support.

Frank Wallner, Managing Director of BridgingIT, sees this development as positive:

"When you pitch ideas to customers, you have to get creative. That doesn't harm the IT market at all - on the contrary, it dusts it off."

IT service providers have long since accepted this new development, as the study shows. 58% of respondents believe it is very likely that they will have to offer an integrated portfolio of management and IT consulting, digital agency services and system integration in order to remain successful in the future.

Most large IT consultancies, including the top 25 companies in Germany, have already bought in agencies to meet customer demand.
Forecasts

Lünendonk expects the market volume for IT consulting and system integration to remain at a consistently high level. However, the IT service providers themselves expect to grow significantly faster than the market as a whole, which is evidence of a positive mood in the IT market.

IT service providers are increasingly focusing their portfolio on supporting customer projects for the introduction of new technologies. They see the highest demand potential in the automation of specialist processes and digital customer experience. This is the main focus of all 25 leading IT consulting companies.

They see less potential in RPA or blockchain projects. Holger von Daniels knows why:

"Blockchain is very important in the financial sector, for banks and insurance companies, for example. The security and cost-cutting potential of blockchain is huge, but it is not yet a revenue driver. I'm excited to see how it will all develop."

The focus of digital transformation is shifting from IT modernization to process modernization. The digitalization of business processes in particular is becoming increasingly important: 71% of the companies surveyed intend to invest heavily in this area.

Cloud migration and legacy modernization continue to be topics that companies' IT departments are increasingly addressing - with 55% of respondents planning to invest heavily in these areas.

In general, companies are increasingly willing to invest in IT. The restructuring of business and IT processes in particular is becoming increasingly important. Maintaining the IT architecture is a major challenge, and this is also reflected in the increased willingness to invest: 25 percent want to invest up to five percent more.

One area that is often underfunded despite its importance is IT security.

"Everyone can imagine security measures such as a lock on the door or an alarm system, but IT security is difficult to visualize"

explains Holger von Daniels.

"It's not easy for management to imagine what IT security measures should be taken, which is why it's difficult for the IT department to even get a budget for them."

"In short: the market will change. The IT sector will continue to benefit from the digital transformation in companies and a positive global economic trend"

concludes Mario Zillmann.