Managing your downside risks with IT services investments
IT Services companies typically have some combination of: (i) software and/or hardware solutions or pass-through, (ii) professional/technology services (IT specialists, systems integration, business advisory) and (iii) managed services (multi-year servicing/outsourcing).
Secular trends influencing this sector and the challenges they present from a profitability perspective are well known and include:
- Sustained price pressure, typically exacerbated by low-cost (“off shore”) players
- Consolidated strategic sourcing approach to procurement, especially within government and large enterprises
- Increased vertical specialisation
- Movement towards cloud, mobility and open source
- Growth in managed services and solutions (and away from time & materials)
The combination of these trends has meant that, on average, IT Services firms have performed at the median compared to other Technology sectors (as the figure below highlights).