Digital transformation is no easy feat. Ever more often, user companies are faced with new technologies like blockchain, AI or IoT, or topics like digital marketing and process automation – and they do not have the internal know-how for either of them.
They need external support to tackle the challenges of the digital age. Therefore, it is not surprising that the market for IT consultancies and IT service providers is booming.
IT service providers have developed into key players regarding digital transformation with the highest market growth in years, according to the Luenendonk survey of 2018 titled “The market of IT consultancy and IT service in Germany“.
In the course of this survey, 78 IT service providers, including the 25 leading IT consultancies and system integration companies in Germany, as well as 137 user companies from different industries, like manufacturing, logistics and telecommunication, were interviewed.
The survey consists of recent figures, data and facts regarding digital transformation. Its goal is to provide insights into the market sector of IT consultancies and IT service providers and to make predictions about market growth and shifts for the years to come.
Demand for holistic support
“The majority of the interviewed IT service providers expects an even stronger growth than the general market and therefore a gain in market shares“, explains the head of the survey Mario Zillmann, partner of the market research and IT consultancy Luenendonk & Hossenfelder. “One reason for this is, for example, the increasing demand for support with automating processes, but also with migrating from legacy systems to the cloud as well as the deployment of new business software.“
It can be overwhelming for user companies to have all these new technologies and requirements coming their way. They are looking for external support not only in the deployment of new software, but also in the initial stages of digitization projects.
Dieter Loewe, Chief Client Officer of NTT Data, thinks that this increasing demand for holistic support with agile projects might be a driving factor for the success of IT consultancies, “If IT service providers want to remain competitive in the market, they also have to be able to support customer projects from start to finish. Which also means providing creative services normally reserved to internet agencies.“
IT drives business
The survey also found that specialized departments have more and more digitization projects of their own, as opposed to just the IT department. In fact, a third of the 137 interviewed user companies stated that they had 50 percent more projects regarding digital transformation than in the year prior. This also comes as no surprise because, as Mario Zillmann put it, “IT drives business.“
Dieter Loewe sees these figures as testimony to a new trend. “Instead of outsourcing IT tasks, companies are increasingly building up their own know-how. This is a relevant turning point which should not be underestimated.”
At the same time, however, many of those additional projects are never completed. 38 percent of respondents said that they had shut down 20 percent of planned projects. The reasons for this development are manifold, ranging from shift in management to a lack of specialists.
Heiko Packwitz, Chief Marketing and Communications Officer of Lufthansa Industry Solutions, has a different take on the same topic, “The lack of know-how and experts could be explained by the rising number of digitization projects in specialized departments. Of course they would have a lack of IT specialists; they are, after all, not IT departments.“
These figures show that the need to digitize is way higher than the actual realization of digitization projects. Holger von Daniels, Executive Partner at Valantic, has a possible explanation for the disparity between plans and reality, “The IT know-how at executive level is missing. More often than not, the responsibility of know-how for digitization projects rests with the CFO, where it does not belong.“
Digital Customer Experience
Digital Customer Experience is one topic on the importance of which everybody can agree on. It is crucial for companies to orient themselves towards servicing the customer, digitizing their customer interfaces and developing user-friendly front-ends for websites and apps. What is more, digital marketing is increasingly getting more importance.
The expectations of IT consultancies gives testimony to this development: Companies plan to generate 20 percent of their revenue through Digital Customer Experience Services. “This is not a small number”, Mario Zillmann says. “Demand is the driving factor behind it, of course. User companies need support in developing digital solutions.”
It is here that the line between digital agencies and IT consultancies is beginning to be blurred. Services that typically are provided by digital agencies (creative services, as they are called in the survey) are ever more often also provided by IT consultancies to meet the increasing customer demand for holistic support with projects.
Frank Wallner, CEO of bridgingIT, sees this development as rather positive, “If you pitch ideas with customers, you have to get creative. This could have a positive influence on IT service providers, because they usually work in a field that is seen – and experienced – as rather boring. It could motivate them to come up with new methods and a more creative working environment.“
IT service providers have long since accepted this development, according to the survey: 58 percent of respondents thought it was very likely that they have to provide an integrated portfolio of management and IT consulting services, creative services as well as system integration to remain competitive in the market. By the way, most big IT consultancies, including the 25 leading companies in Germany, have already bought and integrated digital agencies to meet customer’s demand.
Expected market growth
Luenendonk predicts that the number of market shares of IT consultancies and system integration companies will remain constant. IT consultancies, however, expect to grow exponentially and gain market shares, which indicates a positive prevailing mood in the IT market.
IT service providers are increasingly adapting their portfolio to support customer projects for the implementation of new technologies. They see the highest potential for projects concerning automation of business processes and Digital Customer Experience. This will be the focus of all 25 leading IT-consultancies in Germany.
They see less potential with projects involving blockchain and RPA. Holger von Daniels explains, “Blockchain is a very important topic in the financial sector. The potential for cost reduction and higher security is enormous, but blockchain is not a prime source of revenue. I, for one, am curious to see in which direction this technology is headed in.“
More investments in IT
In general, the willingness to invest in IT is increasing. Especially the modification of business and IT processes is gaining more and more importance. The maintenance of IT architecture is a challenging task, and this can also be seen in an increase in investments: 25 percent want to invest up to five percent more.
One area, though important, is still often underfunded: IT security. “Everybody can imagine security measures like a lock on the door or a burglar alarm, but IT security is hard to visualize”, says Holger von Daniels. “For CEOs, it is often not easy to think about IT security like they would about physical security measures. That’s why it is very difficult for the IT department to even get a budget.”
“The bottom line is that the market is going to change. For the service providers, new possibilities arise to position their company with adapted business models and structures as a partner of digital transformation“, concludes Mario Zillmann.