• United States
by Juan Carlos Perez

Consulting and integration to rebound

Mar 19, 20033 mins
Data CenterIBM

The North American consulting and systems integration markets have suffered in the past two years, as companies have significantly reduced their spending for these two types of IT services, but the situation will improve in late 2003 and 2004, according to a Yankee Group report.

The Boston-based market researcher predicts chief information officers will open their wallets for consulting and systems integration work in the second half of 2003 and next year in order to get projects off the ground in new priority areas, including Web services, application management and integration, security, business continuity and disaster recovery.

Yankee Group also sees a stabilization of prices, which had been falling consistently in these two markets. This stabilization is due, in part, to a reduction in competition as a result of consolidation among firms that provide consulting and systems integration services.

Also helping to level prices is the establishment of offshore facilities by these North American vendors, which marks the bottoming out of their price reduction efforts. The term “offshore” refers to IT services a client receives from personnel and systems located abroad, which often leads to savings when compared with local cost.

Yankee Group warns CIOs against making cost their priority when seeking providers of consulting and systems integration services, especially vendors from India. “Frankly, Indian firms do not have robust enough local sales and (more important) management presence in the North American marketplace,” wrote analyst Andrew Efstathiou in the report titled “What will happen next in consulting and integration?” The report was published in February and announced in a press release Tuesday.

CIOs should instead focus on establishing relationships with vendors that can take on projects that deliver positive long-term value and results. “The current obsession with cost is shortsighted. Prudent C-level executives will change their focus during 2003 from cost to new functionality,” Efstathiou wrote.

“The changes in both the vendor environment and in enterprises over the past two years require (clients to conduct) a top-to-bottom reassessment of strategy, partnerships and direction. Often, the bidder willing to offer the lowest cost is the most financially stressed vendor,” Efstathiou wrote.

In North America, CIOs will have to choose between traditional consulting and system integration vendors, such as Accenture and BearingPoint, and application vendors, such as Oracle and SAP, which have of late boosted their consulting and system integration teams.

CIOs should also be aware of the new 800-pound gorilla in this space: the IBM Business Consulting Services unit IBM created after swallowing PwC Consulting last year. This new IBM unit competes directly against the likes of Accenture and BearingPoint by letting IBM Global Services complement its traditional outsourcing strength with consulting services.

In terms of vertical industries, Yankee predicts that North American government agencies and pharmaceutical companies will increase their spending in consulting and systems integration in 2003, with healthcare and financial companies following suit in 2004.

Yankee expects consulting revenue in North America to increase from $20.5 billion in 2002 to $21.7 billion in 2003, a 6% increase. It should reach $31 billion in 2006.

North American revenue for systems integration will climb from $41.7 billion in 2002 to $45.4 billion in 2003, a 9 percent increase, Yankee said in the report. It should reach $66.3 billion in 2006.