IT service providers need to smarten up their own digital acts

The world has changed and the tech services sector needs to catch up

We have all been through a period of turmoil and obstacles to ‘Business As Usual', but in IT services the goalposts have been moved not once but several times recently.

Cloud computing has removed many of the complex systems integration challenges that were once the staple of service providers tasked with somehow unravelling them. Similarly, low-code environments and Agile methodologies have accelerated the sorts of long-running waterfall development projects that were once everywhere. There has also been a seismic shift in the market as offshorers have attempted to add more high-end consulting capacity at the same time as established giants have built up their offshore muscle. And of course, the most radical change of all, the last year and a half has seen consulting become a largely remote provision in a remarkable turnabout for a sector responsible for way more than its fair share of business air miles and hotel bills.

This has all been hugely difficult, but you could also argue from a position of strength that the catalyst of Covid-19 has led to better value for clients and the removal of several layers of fat in the business model. The verbatim verdicts from clients certainly seem to suggest that service levels did not degrade once people became accustomed to virtual models. For decades, on-site, white-glove treatment was considered the gold standard. Businesses still expect to look into the whites of the eyes of consultants they're paying millions to for change management and re-engineering. But for most of the work IT service providers do, we know we can live without that experience a lot of the time.

While the old image of consultants and contractors working years in offices when nobody realised they weren't permanent staff may persist, in reality professional services is a relatively lean business today. Service Performance Insight (SPI) says that over 59 per cent of professional services revenue and 60 per cent of billable hours were delivered remotely in 2020 and almost 20 per cent of sector revenue is coming from recurring revenue models such as usage-based consumption, subscription billing and managed services. Today, the growth businesses are in adding value through cloud, analytics and other means.

Today, achieving profit margins of at least 20 per cent EBITDA for IT services companies is dependent on high levels of utilisation (85 per cent utilisation being in the ‘leaders' category), project execution excellence, cutting overheads and introducing efficiencies so that the pipeline opportunity is clear and there are tight controls of what will get done and by when. In other words, the days of inflating billable hours and new business for growth have gone and we live in a world of consultants multitasking across projects and using slick systems to orchestrate that work.

It took a while but the IT services sector is being remodelled by changes in IT itself

This new world accentuates the need for multi-disciplinary teams, including T-shaped employees, who are experts in one field but capable in several others and E-shaped individuals, who have expertise, experience, execution and exploration skills. This should be developed alongside the adoption of modern technology and tightly integrated systems. Ironically, it took a while but the IT services sector is being remodelled by changes in IT itself. Robotics Process Automation (RPA) is widely deployed to automate repetitive tasks and artificial intelligence (AI) and Machine Learning are helping firms to look ahead of the curve.

Veteran consulting firms can be hobbled by patchwork quilts of various enterprise applications that require task switching, shelling in and out of apps and user training. Also, it's critical to productivity that software is easy to use and mobile-friendly so small but critical tasks such as time, expense and absence reporting are not delayed.

Again, the pandemic has been a catalyst here with many businesses across vertical sectors rushing to cloud suites to address the urgent need to support remote workers. However, even some of those suites are disjointed, having been assembled by acquisitions and with little attention being paid to code base integration.

Providers need to work smarter in a world rendered virtual in the space of a year and a half

By smartening up their own digital acts, IT services providers will be able to deliver what they need and clients want:

• A better and more timely customer experience where project deadlines are hot time after time
• Smarter decisions based on relevant, real-time data
• Reduced financial and operational risks. (Analyst firm IDC advised late last year that "77 per cent of European companies need to develop real-time data integration to improve business resiliency")
• Streamlined workflows to manage complex client engagements
• Smart invoicing and billing to reduce errors, track payments and augment financial forecasting
• High rates of employee satisfaction to improve hiring of the smartest people and to reduce attrition, improve loyalty and motivation.

IT service providers need to change as global offshoring threatens more margin erosion and a new breed of cloud-first, digital-savvy operators nibble away at market share. That means providers need to work smarter in a world rendered virtual in the space of a year and a half. Change is hard of course… but the alternative is much worse.

Mark Gibbison is head of strategic motions for new business at Unit4