IT service providers heading into interesting times in 2009

For local IT service players there will be a greater focus on applications and infrastructure outsourcing models, Software as a Service (SaaS) impacts, partner/alliances, sustainability in light of the enlarged Australian regulations.

Jens Butler, principal analyst, IT services and sourcing Asia Pacific for Ovum told CRN that they will need to look at how to best address the economic flux from a local market perspective and associated sourcing strategies, electricity deregulation, innovation, etc.

“[They] will have to look beyond simply growing the business, there will have to be a substantial focus on retaining customers and revenue and delivering to contracted services, i.e. not giving the customers the opportunity to move,” he said.

“Customers will still expect the services they are paying for, as well as all the factors associated with innovation, value-add, etc. Vendors need to be aware of trends, technologies, offerings, solutions and services that may impact their clients.”

He told CRN that IT service providers can look at technology like cloud computing, which could potentially offers savings, transparency and flexibility.

“It has been doing the rounds for a while, but this year expect some demand to actually realize some of the benefits associated with it,” said Butler.

“Quality Assurance and Information Security will also continue to have a high priority locally, but in the Financial Services arena, for example, expect the SPs to have to up their game in light of the new tranche of Basel II requirements.”

In the coming year there will be substantial demand by users for providers to offer alternative delivery, pricing and resourcing models to achieve the client organisation’s outcomes, often with narrower boundaries to play with.

“The adage, more with less will definitely come into play but it will require more flexibility, shifting revenue streams (less “spikey” consulting, more retained revenue), greater measurement and an outcome focus,” said Butler.

“Interestingly, there will be consolidation, acquisition, disappearance of some players and this will also affect how buyers see the risk/viability associated with some organizations and may shift their spending/engagements.”For local IT service providers avoiding the possible problems that may arise will be difficult.

Other than potentially putting strategies and plans in place to proactively negate these problems; shedding more staff than are currently expected to be required (which seems to be the case in other industries).

Also they can look at strengthening client engagement models (relationship management); cementing partnerships (defining boundaries, grey areas, etc); preparing for expected demand in regulatory / audit requirements; and ensuring that the customer does not start to fear the long-term viability of their organisation, as this will start to change behaviours, expectations, and eventually flows of money

“Just keep on following business as usual. Other tactical areas that could potentially shield the local players could be to focus on longer-term, retained, multiyear contracts, reduce debt levels,” said Butler.

“Or renegotiate for longer-term and align more closely with the larger integrators (especially those associated with the banking engagements that are due in 2009) and engage with Government accounts more actively.”

He advises integrators to keep delivering and supporting the customer especially the CIO, who will be pressured to reduce costs, especially in the capex arena).

"Clients may need transformational thinking (out of the box) so be prepared to come to the party with offerings (and often being proactive here can avoid any going to market),” said Butler.

“Remember, it’s a partnership – so supporting the customer in ways beyond just the standard service agreement and helping them out, especially in these troubled times, will be worth far more further down the track … long-term thinking is key

“Having talked to a number of vendors recently, there is a feeling that moving into 2009 the service partners/ecosystems will become even more critical, especially as these have been allowed to decay/fade away a bit in 2007/2008.”

However Butler believes there will be the risk that key components of certain partner systems may fall by the wayside and, as such, put the overall value associated with that system at risk.

“Thus, there may be a move to make the service partner network stronger and more supportive. I would expect that some service partners will start to compete around the edges of some of the bigger vendors, but expect there to be greater oversight to be put into place to ensure a “fairer” distribution,” he said.

“It’s either that, or certain partners will go to the wall, and others may get bought out / will merge.

Personally, I think there will be a bit of a mix … there will be some consolidation, but then the balancing will come into play to level the playing field and ensure there is sufficient distribution across the board.”