How IT service providers can ride the winds of economic change

Posted by Mike Vizard on May 21, 2015 1:23:22 PM

4370352638_1237b3f906_zDepending on the macroeconomic trends that exercise the most influence at any given moment, IT spending forecasts launched at different times in the same year can yield different views on where IT spending it headed.

Conflicting findings

For example, a new survey of 1,507 business and IT executives released by CompTIA finds that on average U.S. companies plan to increase IT spending by 5.4 percent in 2015. That study comes on the heels of a revised IT spending forecast from Gartner that suggests global IT spending will decline primarily because of changes to the value of the U.S. dollar.

The reality of the situation is that no one is quite certain which direction the economy is heading. The first half of 2015 seems to indicate  some contraction. But at the same time, the increase in  new housing starts, along with a low unemployment rate, also seems to suggest that the economy is about to heat up once again.

What this means for IT spending

Historically, those economic forecasts would have a major impact because IT spending accounted for a huge percentage of the capital budget at most organizations. But thanks to the rise of cloud computing, more companies are starting to treat IT as an operational expense, so shifts in the economy have had a less pronounced impact  on IT spending. No matter what the state of the economy is, individual product categories within the IT sector can still thrive. In fact, constrained access to capital can push more organizations to consume cloud services that are treated as an operational expense.

How geography is affecting IT service firms

Naturally, every organization tends be adversely affected when the economy takes a major hit. But right now it’s apparent that different vertical industries are moving independently through their own economic cycles. For example, the oil and gas industry is trying to cope with reduced budgets brought on by a fall in oil prices, and healthcare spending as a percentage of the overall economy continues to increase.

Different geographies also tend to go through differing economic cycles. The CompTIA study finds that India is expected to see the biggest increase in IT spending with an average increase of 6.9 percent. Close behind are Brazil (6.8 percent), Malaysia (6.7 percent), the Middle Eastern countries of Oman, Saudi Arabia, and the United Arab Emirates (6.6 percent), and South Africa (6.5 percent). Keep in mind, these are  from smaller economic bases than the U.S., but it shows that operating in multiple geographies helps IT services firms temper a downturn in a single region.

The critical thing for IT services firms is to pick the right spot. Focus too much on one vertical industry or technology, and your firm can suddenly find its fortunes tied to factors beyond its control. IT services firms that operate in the oil and gas industry are experiencing that first hand.

Hiring challenges and the demand for IT expertise

The CompTIA study finds that only 15 percent of respondents report being exactly where they want to be when it comes to technology utilization. Another 41 percent say they’re very close. That leaves just about half of businesses a long way from where they need to be.

In fact, the CompTIA study notes that about two-thirds of all businesses express concern about the availability of the IT labor pool. Hiring challenges are especially critical in maturing economies, where 83 percent of organizations voice concern about their ability to find workers with the right mix of skills and experience.

The study also finds that 48 percent of companies expect to increase their hiring of IT staff during 2015. The most bullish hiring forecasts come from large organizations with 500 or more employees, with 57 percent expecting to add staff this year.

Put that all together, and it becomes clear that regardless of the state of the overall economy, demand for IT services expertise should remain relatively protected  from isolated economic storms that unexpectedly arise in any given vertical industry or local geographic region.

Photo Credit: Kevin Dooley on Flickr. Used under CC 2.0 license. 

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Topics: IT Services Trends

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