Is the Service Industry in America Anticipated to Continue to Grow

IT services market size set to grow 7.9% in 2023

CIOs next year are likely to summon service providers, once more, into the breach as they look to overcome the skills gap and accelerate digital transformation.

The IT services sector is poised for more growth next year as IT departments continue to battle staff shortages.

Gartner's latest global technology forecast calls for IT services to expand 7.9% in 2023 to $1.3 trillion. That rate makes services the second fastest growing slice of global IT spending, trailing only software at a projected 11.3% increase.

IT services have consistently outperformed the overall IT market in recent years, breaking the $1 trillion mark in 2019, according to Gartner. Next year's projected uptick in IT services market size stems from IaaS demand and the enterprise need for staff supplementation.

"We have an increase in the amount of services that CIOs need, because they're unable to grow and, in some cases, maintain their own internal staff," said John-David Lovelock, vice president analyst at Gartner. "So, while they have more work to do, critical IT shortages across the world are playing against CIOs' need to hire."

CIOs' staffing costs are expected to rise 2% to 4% every year for the next five years, Lovelock said. And IT services will continue to expand in the 7% to 9% range. "This is a trend that we don't see reversing back and it continues to go in the wrong direction for CIOs for at least another five years," he said.

CIOs, meanwhile, are being tasked with accelerating digital transformation. Gartner's annual CIO survey, published last week, found 59% of executives believe digital initiatives take too long to complete. To speed up projects, resource-constrained CIOs must bring on more consultants, reduce the scope of digital initiatives or ramp up agile strategies, Lovelock said.

As they take on such projects, consultants and other IT service providers may encounter contracts with shorter, months-long durations versus multiyear commitments, he added. Price instability influences the breaking up of larger deals into smaller pieces.

chart showing IT services market size and trends — Service providers can expect continuing demand next year, but potentially smaller contracts.

Service providers gear up for shifting market

Digital transformation projects are expected to persist next year, despite staffing shortfalls and economic uncertainty. Optimization will be the watchword, however, as enterprises focus on getting the most out of previous IT investments and prioritizing technologies such as customer experience, cybersecurity and business intelligence/data analytics. And getting all of that done faster, of course, is much on the minds of the C-suite.

Service providers are preparing to meet those customer mandates, a move reflected in recent partnerships.

Accenture's expanded alliance with Sitecore, disclosed last week, aims to help customers "accelerate their response to market changes" and "optimize digital experiences," according to the professional services firm. Accenture has worked on more than 250 engagements with Sitecore, a web content management system vendor in San Francisco.

Bob Markham, North America lead at Accenture Song, said the company's expanded relationship with Sitecore will include having more dedicated global teams to deploy Sitecore offerings in areas such as digital experience transformation, commerce, marketing and cloud migration. He also cited increased investment in training and certifications to boost the skills of Accenture's global teams.

Accenture, also last week, entered a strategic partnership with Atlassian, focusing on customer experience. Service providers see a growth opportunity in Atlassian, which provides software development and collaboration tools for digital transformation.

In addition, Carahsoft Technology Corp., a government IT solutions provider in Reston, Va., last week formed an alliance with Pyramid Analytics, a decision intelligence platform provider. The partnership will make Pyramid Analytics' business intelligence and analytics technology available to federal, state and local agencies through Carahsoft's resellers and federal contracts.

Alliances with software companies such as Atlassian, Pyramid Analytics and Sitecore let IT services firms tap into the only technology segment forecast to grow faster than their industry next year.

CIOs are signing shorter contracts -- they're feeling a little unsure.

John-David LovelockVice president analyst at Gartner

Smaller contracts

As service providers pursue business in 2023, they may encounter programs that have been divided into smaller deals.

"CIOs are signing shorter contracts -- they're feeling a little unsure," Lovelock said. "They're breaking up projects that are three years in nature into several more bite-sized, eight-month chunks."

CIOs pursuing such subdivided projects say they are doing so in light of excessive price volatility, he said. Once prices stabilize, they expect to go back to signing longer contracts, he added.

Another wrinkle in IT services is globally sourced IT staff. Lovelock said some enterprises are hiring IT personnel in Europe, for example, because it's too difficult to find staff locally. This practice, however, is not yet widespread enough to be viewed as a major trend, he said.