UK IT industry reaching 'the nadir'

Ovum Holway, a leading software and IT services analyst is predicting tough times ahead with the IT market shrinking and the trend being to continue moving or partnering abroad; and 'multi-sourcing' rather than 'uni-sourcing'.

In a new report, Market Trends 2003, the company forecasts total revenues in the UK software and IT services market will decline to £22 billion this year, down three percent from last year in real terms (excluding inflation). The market had shrunk by just over four percent in 2002 making it the worst year for the UK market growth. Ovum Holway forecasts that the growth rate of software and IT services will remain below that of GDP until 2006 at least.

Anthony Miller, research director for Ovum Holway and lead author of the report said: "These results are very much in line with a trend we identified last year.

"Last year we warned the industry that it was in denial when talking about 'when market conditions improve'. For us, things will get better when they stop getting worse - and we think that won't be until next year".

It predicted that any money being earmarked for IT is now primarily to make existing systems (both hardware and software) work better together and last longer. Any business case to spend 'new' money on IT had to be able to demonstrate a sound return in the same financial year, else it would never get past first base.

It forecast that this will continue to impact negatively on growth and with no new 'big thing' in sight, things won't radically change.

According to Ovum, the following trends will shape the rest of the decade:

• Multisourcing: the era of the one-stop-shop 'unisourcer' is coming to an end, at least in the megadeal market. Consortium-style 'multisourcing' arrangements are becoming increasingly prevalent both in the public and private sector because, potentially at least, it serves the customer better, by banding together 'best of breed' suppliers, and serves the suppliers better, by spreading the risk.
• Offshore outsourcing: While the price gap between offshore and onshore is narrowing, it's still big enough to be an enticing proposition, and we think it's likely to remain so. The message for 'onshore' suppliers is clear; build, buy or partner offshore.
• Business Process Outsourcing (BPO): The best opportunities will be more likely found in industry-specific BPO, both in the public sector (local and central government) and in the private sector (especially insurance). Ovum Holway expect a number of partnerships between business services specialists with IT outsourcing specialists to take place, at least at a transactional, if not strategic level.
• Security: The review of companies' disaster recovery plans and the increase in hacking, virus attacks, SPAM, e-commerce fraud, etc means that system security will remain prominent on the CIO agenda.

Mr Miller concluded: "It's not as bleak as it sounds, though. "Those suppliers that concentrate on gaining market share at the expense of their competitors are the ones that will grow. But first they must make sure they are profitable and generate cash else they won't survive".

UKTECH has asked Ovum what it believes its findings mean for freelancers in the IT sector. We will include the response.