Digital technologies to spark major shake-up of IT suppliers, says report

CIOs have been urged to rethink their partnerships with strategic suppliers as the industry goes through its most disruptive period since the dot com crash.

The rapid shift towards digital technologies, from big data to social networks, will lead to a major shake-up of IT suppliers, a study of the top 50 suppliers by Booz & Co has revealed.

“The landscape has shifted and it is really important for IT leaders to recognise it has changed and not necessarily stay with their existing suppliers,” said Richard Bhanap, vice-president of Booz’s IT practice.

The global ICT 50 study shows that IT service providers and telecoms companies, once the most profitable sector, are falling behind internet and software suppliers, as digital technology comes to the fore.

Solutions-orientated companies, such as Microsoft, Google and Oracle, are in the strongest position financially.

They have typical margins of 30% – twice as high as global IT services companies, such as IBM, the study revealed. Smaller IT service providers typically struggle with margins of 5% to 8%.

“Solutions-orientated businesses, such as Microsoft, Oracle and Apple, seem to be well positioned, financially strong and innovative. This is not the case with some of the service providers,” said Germar Schroeder, author of the report.

Booz predicts that service providers such as Amazon could soon displace some traditional systems integrators in the top 50.

“I would urge CIOs to look at the list, look at where they buy cloud and software services, and compare that with [which provider] is likely to be successful in the future,” said Bhanap.

In the short term, CIOs can take advantage of the shifting supplier landscape to negotiate some attractive IT deals, said Schroeder.

“Given the dramatic degrees of convergence and movement from one sector to another, there may be an opportunity to arbitrage and take advantage of suppliers to win new customers,” said Bhanap.