IT consulting market outlook: It's growing, but slowly

While IT consulting market bellwether Accenture had a disappointing third quarter, the sector in general looks to be on a growth track.

Accenture has seen its IT consulting business stall of late, but that particular situation may not signal a slowdown for the broader IT consulting market.

The global company, something of a bellwether in consulting circles, saw its consulting revenue decline 2 percent in U.S. dollars in its May-ended third quarter, compared with the same period last year. Consulting bookings were nearly $400 million below the company's expectations. Accenture's consulting operations include management consulting, technology consulting and systems integration. The company cited contracts slower to convert to revenue and a drop in demand for enterprise resource planning (ERP) services, among other factors.

While Accenture might have a case of the consulting sniffles, other channel companies offering technology advisory services and systems integration don't appear to be catching cold. On the contrary, some solution providers report solid growth rates in technical areas such as cloud computing and in vertical markets such as energy. Indeed, solution providers focusing on cloud, mobility and other hot markets tend to avoid the longer sales cycles and slower deployment times of traditional, on-premises software projects.

"A lot of these other vendors are experiencing an improvement in the consulting and implementation pipeline, so I would say that the issue is specific to Accenture," said Susan Tan, a research director with Gartner Inc.'s IT consulting and system integration services team.

Tan, commenting during a recent Gartner webcast on IT spending, said Accenture's performance, as a big company in the IT consulting and integration space, is of much interest to the market as a whole. She said she will continue to monitor what Accenture's situation portends for other players in the field.

On the rebound

For now at least, the outlook for the IT consulting market looks favorable in the main. Gartner pegs the IT services growth rate at a modest 2.2 percent for this year, but predicts that pace will quicken to 4.6 percent in 2014 and 5.2 percent in both 2015 and 2016.

IDC, meanwhile, forecasts that the worldwide market for IT consulting will expand at an annual growth rate of 4.1 percent through 2017. The market research firm said consulting is poised for a rebound after the eurozone financial crisis hurt growth in 2012. The easing of that crisis in combination with gradual improvement in global markets "will lead to a revival of the worldwide [IT consulting] market in 2013, and market spending will grow positively for the remainder of the forecast period," according to IDC.

While the overall pattern points to a rebound, Tan noted that budgets remain tight and conversion rates slow, especially for very large projects. Customers, however, are pursing quick hitting projects.

"We ... see a lot of activity in projects that can prove business value in the short term," Tan said, citing projects in mobility, analytics, big data and cloud-based implementation as examples.

Accenture, during its Q3 earnings call, actually pointed to rising demand for industry-focused software solutions involving mobility, analytics and cloud.

Cloud projects, in particular, are lifting specialized service providers. David Hoff, chief technology officer at Cloud Sherpas, a cloud services provider based in Atlanta, said the company is experiencing about 40 percent growth, adding that he expects the trend to continue. He acknowledged that the company's perspective is filtered by its cloud orientation, so may not reflect the industry as a whole.

"We are sharply focused on cloud-based technologies for professional services --Google Enterprise, Salesforce.com and ServiceNow -- and as such, we have seen much greater increases in growth year over year," he explained.

Hoff said many of the traditional consulting players generate a disproportionate slice of their revenue from on-premises consulting, ERP in particular. He said those companies operate cloud practices, but the practices have yet to make a big impression on total sales.

"They are a tiny portion of their portfolio and don't move the needle in terms overall revenue," he said.

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As for Cloud Sherpas, the company has encountered a strong increase in projects calling for technical architects. The highest demand, Hoff said, is for individuals wielding Salesforce.com's Certified Technical Architect designation. Those architects have the expertise to handle large record volumes, using Salesforce best practices, he said.

"This is critically important as customers migrate from legacy solutions like Siebel, where there is a large amount of historical information to be migrated to the cloud and integrated with other enterprise solutions," Hoff said.

Jeffrey Kaplan, managing director of THINKstrategies Inc., a cloud and Software as a Service (SaaS) consulting firm in Wellesley, Mass., said the cloud impacts professional services in much the same way it has altered the software and systems business.

"Just as you've seen in the past decade software and systems disrupted and decimated by the advent of SaaS and cloud, the same forces are at work undercutting the perceived value and, therefore, the demand for traditional consulting," Kaplan said. 

Customer organizations, Kaplan said, now look for shorter-duration, lower-cost projects and more tangible deliverables.

"Fewer and fewer enterprises are willing to tolerate the cost and the extended duration of the traditional consulting engagement," he said.

As a consequence, companies such as Appirio Inc., Bluewolf Inc. and Cloud Sherpas "are running circles around the old guard," he added.

Other growth areas for the IT consulting market

Consulting in support of audiovisual systems integration is another growth area.

David Berlin, president of Video Corporation of America, a video communications systems integrator based in Somerset, N.J., said he has seen an increase in demand for design/build projects.

"The customer wants us to be both consultant and implementer of our findings, taking full responsibility of the project from beginning to end," he said.

He said customers in the past would hire a consultant for projects of any size, but now organizations tend to bring in advisors only for the largest projects, such as building renovations or new construction. He said consultants continue to play an important role in larger audiovisual projects in which architectural coordination is important. He also noted that some procurements, in government and education, for example, may split the design and implementation phases of a project as a matter of policy. That approach creates a distinct role for consulting.

But, in general, Berlin said he is seeing most projects of $1 million or less going to design/build.

As for vertical markets, energy stands out as a field generating considerable demand for consulting services.

Paul Held, managing partner of Deloitte Canada, the Canadian member firm of Deloitte Touche Tohmatsu Ltd., said the energy and resources sector is exceeding Canada's GDP growth rate and is expected to continue outpacing the overall economy. This expansion translates into consulting opportunities among companies in the business of finding, extracting and moving oil and gas.

Deloitte in July announced an agreement to acquire Quattro Integration Group, an SAP consulting firm based in Alberta, the heart of Canada's oil and gas industry. Held said Quattro dovetails with Deloitte's interests in the SAP business and energy. Quattro targets medium-size and large businesses with its service offerings.

Held said he believes the market for consulting in the energy and resources sector has the potential to grow in the high single digits to low double digits over the next several years, barring a major change in the tone of the marketplace. He said the industry "is as hungry a consumer of technology services as any other sector."

Customers are interested in strategy services, advisory services and implementation services, Held noted. They also explore emerging technologies such as mobile.

Kaplan suggested that consultants with sufficient vertical market domain expertise should be able to find demand for their services in a range of industries. Companies, across the board, are looking to leverage cloud computing, big data, social media and mobile, he said.

"All of them recognize that these forces and these capabilities are things that they should be taking advantage of," Kaplan said.

This was first published in July 2013

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