Up to 20 of the world’s top 100 IT service providers could disappear by the end of 2014.
Gartner predicted these suppliers could fold or be taken over as a result of the tough economic backdrop, the inability of traditional infrastructure outsourcing (IO) models to deliver continuous financial returns and the fact that new delivery models are not yet mature.
Gartner said that, over the last ten years, service providers have dragged their feet in restructuring their business to cope with the new businesses environment. IT services firms have been slow to adopt and offer industrialised IO services.
In its Market Insight: The Five Regrets of the Dying Infrastructure Outsourcing Service Provider report, Gartner said: “In the past decade many outsourcers have procrastinated, failing to make the changes needed to transform challenges into opportunities.
Gartner's five regrets of failing IT service providers
- “We should have built, validated and implemented a long-term strategy”
- “We should have rationalized the portfolio and adopted service life cycle management processes”
- “We wish we had aligned and connected our sales force to our strategy, portfolio and delivery capability”
- “We should have gutted the marketing function and rebuilt it so that it could articulate the tangible value we deliver”
- “We should have resolutely leveraged our global delivery investment while aggressively pursuing automation and virtualisation”
"Many will disappear – some slowly, some rapidly. But the question is, which ones and how fast?”
Gianluca Tramacere, research vice-president at Gartner, said traditional IO providers are at serious risk of extinction.
“On one hand, the traditional IO approaches are unable to deliver continuous cost reductions to clients or operational efficiencies to service providers and the model is not producing the financial returns expected by most IT outsourcing (ITO) providers. On the other hand the new industrialised, cloud-oriented models are still a work in progress,” said Tramacere.
“Traditional infrastructure outsourcers can no longer survive in their current state. The market won’t allow it and customers are demanding much more.”
Gartner says there are five outsourcers’ regrets, which will result in their own complacency or inability to act timely, leading to their demise (see panel).
Consolidation in the IT services sector is already underway. Recent examples include Atos’s acquisition of Siemens IT Solutions and Services and the takeover of Logica by CGI.