Technology services predictions for 2024

With each quarter of 2023, the technology services environment has become increasingly challenging, driven by an increasingly profit-oriented mindset rather than an orientation to building for the future. The discretionary spending component of the market has all but evaporated. Here we analyze whether it will continue to impact the technology services market in 2024 and what it means for companies’ spending decisions.

Before we try to predict what will happen within technology services next year, let’s define “technology services.” This is both the technology services that a company provides internally for its own business, and the technology services that are provided by third-party service providers.

2023 began with a decline in technology spending, followed by discretionary spending on technology services. The strong post-COVID-19 growth has turned into alarm, and the discretionary spending component of the market has now all but evaporated. Market sentiment has shifted from building for the future to wanting less.

As we at Everest Group look forward to 2024, we believe that the mindset of wanting better will continue through at least the first two quarters, and perhaps beyond. That will definitely lead to poor discretionary spending. However, we believe that this “more is okay” sentiment will bring about change and even growth in the market.

Growth areas for technology services in 2024

New greenfield opportunities. Many of the jobs that could be moved offshore have not yet been moved offshore. Companies are looking to reduce costs, especially in the legacy area, and are reconsidering whether there are cost-saving opportunities by offshoring legacy assets (and some other jobs). This is a surefire way to get more for less.

Vendor consolidation opportunities. The second aspect of the growth area is as companies added more third-party service providers to their mix during the COVID-19 boom and resulting talent shortages. We are currently seeing a significant move towards portfolio rationalization or vendor consolidation. Companies want to reduce the number of providers, sign larger contracts with the remaining providers, and use that contract volume to reduce costs.

modernization movement. Well, one of the market factors in 2023 was a slowdown in modernization movements, especially the move to the cloud. The move to the cloud and the modernization that comes with it has created a key element of the industry’s rapid growth during COVID-19. After the coronavirus outbreak in 2023, the pace slowed dramatically.

We believe modernization will continue to be slow in 2024 (at the very least, companies will need to invest in moving large assets from legacy to cloud as an option value so they can continue doing business as usual). Digital transformation efforts with a more flexible set of technologies).

There are still large estates that companies wish to relocate, but without a strong and convincing business case to relocate them, there is significant capital in the market to relocate these properties. I no longer do it.

The business case that the cloud will save your company money has been proven to be largely false. Unit costs may be lower in the cloud. However, in a cloud environment, the cost of components increases depending on usage. Therefore, in a world where cost is equal to the product of price and quantity, prices are likely to be the same or lower. The flexibility and ability for companies to use technology increases volume and increases total cost.

Therefore, moving to the cloud to reduce costs is not a convincing argument. That said, there are many cases where modernizing the underlying technology can reduce FTE and reduce costs. We have a strong desire to continue this and call it self-financed modernization, but modernization efforts will clearly lead to lower occupancy going forward.

Still, growth is expected in this sector in 2024. The drive to modernize continues, but the bulk of the budget appears to be available only if companies can clearly demonstrate cost savings. The overall modernization market is clearly slowing down and is unlikely to return to the heady days of 2021 or 2022.

Digital run opportunity. Another growth area is in digital execution. The digital run includes companies that have already invested heavily in digital technologies for their business sectors, instead of companies investing in areas that have not yet been modernized. They want to invest more in these areas with high-density technology, as business operations and digital technology stacks are closely linked. As business needs change, you have the funding to adjust your technology stack and make it more aligned to meet your business goals.

Generative AI opportunities. A big growth area in 2024 is generative AI. This is clearly a very powerful tool. 2023 was largely a year of experimentation, as the power of generative AI was recognized, driven largely by the marketing coup his ChatGPT created, captivating the imagination of the world it spawned.

There have been many pilot projects, but we have yet to see them commercialized in any meaningful way. Looking ahead to 2024, it’s clear that the experiment is expected to continue for at least his first two quarters. Only toward the end of 2024 can we expect a major move that will help businesses overcome change management, legal, and security issues and be happy enough to move into production.

BPS Opportunities. An area that is expected to see accelerated growth in 2024 is that of business process services (BPS or BPO). This leverages the long-term theme of becoming more profitable and modernizing, where companies can combine technology and business operations to reduce operating costs. We see them reaching it, achieving their goals of modernization and at the same time the need to save money. Therefore, the BPS segment is expected to have another strong year and is likely to outperform the technology services component of the market.

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