2020 was clearly marked by the Covid-19 health crisis and the resulting massive economic crisis. On the IT market, however, PAC has observed a highly differentiated situation in terms of products and segments, industries, topics, and countries. For example, while the consulting and contract staff markets have substantially decreased, cloud-related services have all but maintained their pre-crisis growth dynamics. On the one hand, the crisis has created huge pressure on costs in many industries; on the other, it has led many companies to accelerate their digital transformation.
The growth topics have more or less remained the same. The strongest drivers of growth and change are cloud transformation as well as analytics, AI (artificial intelligence), and automation, supported by agile and DevOps models. These levers are the key enablers of the digital transformation taking place mainly in three areas: front-end processes and customer experience (CX, where transformation started), back-office and front-/back-office integration, and industrial IT/ OT/ IoT.
Security remains a major issue, with increasingly numerous and diverse challenges. Both vendors and customers have difficulty finding skills, especially in topics such as cloud, security, AI, IoT, and CX. The skills shortage leads to rising, or at least stable, rates.
Finally, raising operational efficiency is always part of the equation. While the past few years (2014-2018) were marked by an excellent economic environment, we already saw a slight slowdown in selected industries and countries in 2019. The current situation has dramatically reinforced the importance of this topic.
What changes will be triggered by the current environment? What impact will it have on growth opportunities? Before we present PAC´s top 10 trend topic predictions for 2021, let us mention some generic trends:
- Cost pressure is back at the top of the agenda, favoring vendors with global sourcing and automationcapabilities.
- AI, automation, IoT, and CX projects have remained on the agenda, though only if they are expected to deliver concrete results, in particular efficiency improvements, and not only in the long term. Cost savings and resiliency are key targets, rather than hypothetical growth targets.
- Most companies are still running, or considering starting, new IT projects, but with a much better coordinated, prioritized, and arbitrated approach, involving a more limited number of IT service providers.
- We expected, and are observing, a renaissance of outsourcing, aimed at saving costs.
- Outsourcing opportunities increasingly include a transformational approach, e.g. migration to the cloud.
- Companies are looking for a new DevOps/agile approach – a compromise between innovation and control (cost control, risk management).
This means there are plenty of opportunities on the market. It does not mean, however, that vendors’ situation is easy: overall volumes are smaller, and customers are more cautious, take longer to select and decide, and put additional pressure on costs. Plus, competition is even fiercer than usual, with some vendors fighting for survival, and others working for free to secure long-term customer relationships, using employees on the bench. And the fact that many countries are finding it difficult to master the current second wave certainly gives reason to be cautious about the outlook for 2021.
Pic. 1: IT services - growth rates, source: PAC 2021 (click graph to enlarge)
On the whole, though, PAC expects a substantial recovery in 2021, from a low comparative level. At worldwide level, we expect a similar growth rate as in 2019 for both software and IT services; as in 2020, there will be considerable differences between the segments (products & services, industries, topics, countries and regions). Cloud will remain the key growth driver. Excluding SaaS, we expect the software market (licenses and maintenance) to be nearly flat in 2021 (-0.4%), following a significant decrease (-8.2%) in 2020. Excluding public IaaS/PaaS (i.e. mainly revenue from a handful of hyperscalers), we expect the IT services market to grow by 3.2%, after a 6% slump in 2020.
Pic. 2: Software products - growth rates, source: PAC 2021 (click graph to enlarge)
These are the trends that PAC believes will have the greatest impact on the market in 2021
(For the full presentation, click on the individual trends and continue reading.)
- Automated SOCs
- AI-driven Customer Experience
- Employee-centric new work style and digital workplace
- Enterprise applications in the public cloud
- Mass migration to the public cloud
- Next-generation transformational outsourcing
- Rebalancing supply chains
- Secure access service edge (SASE)
- Smart factory automation
- Sustainability and decarbonization