Tech Consulting is About to Get Even More Crowded

Historic change is underway in the IT consulting field.

The latest wave of tech innovation –spearheaded by ML/AI, cloud computing and IoT, among other trends– has pushed businesses into a mad scramble towards the transformation of their processes, operations and, in some cases, philosophies. These changes promise shifts in the market, as well as a chance to resist the headwinds and gain an advantage in a landscape under a virtually permanent state of crisis. 

IT consultancy firms have gained a prominent role over the past decade as guides and facilitators of such processes. With the recent explosion in tech transformation spending, their relevance is expected to grow even more.

This has attracted the attention of market players who have remained at the edges or entirely outside of the IT consultancy field.  Big consulting and auditing houses like Bain, Deloitte, KPMG and PwC, which already have a foothold in the IT business, play in the same field as tech services providers such as Infosys, Accenture, Capgemini and TCS. To that one must add the growing interest from BPO/CX providers like Concentrix and Teleperformance, as well as media/marketing firms such as Publicis Groupe, Omnicom and Dentsu.

“What we are seeing is that the landscape is becoming very competitive,” said Parul Trivedi, Practice Director for Digital Services at Everest Group, during a webinar hosted recently by the firm. “Increasingly, the global system integrators and the IT services providers are also trying to take a share of the consulting pie.”

“Media majors and business processes service companies, who are not traditional players [in the IT consulting field], even they are trying to gain some share in consulting, which is a testament of the growing of the consulting services market and the growing demand from enterprises,” Trivedi added.

Thomson Reuter’s most recent Future of Professionals Report points to a scenario in which several professions (particularly those related to tax, legal and other regulatory issues) drift towards consultancy. As technology takes over the simpler tasks within these professions, tech consultants will come into even more prominent roles in the business world.

“Within the tax & accounting profession, for example, more consulting, including IT and security, expertise will be needed with less needed on narrowly focused tax law, much of which will be supplanted by AI,” the report states.

Across various professions, operational enhancements take the lead as key priorities within firms. Notably, 50% of law firm employees and 55% of accounting professionals highlight internal efficiency as their second and third most crucial areas of focus. https://t.co/zCSIDWQzjE

— Thomson Reuters (@thomsonreuters) September 7, 2023

A Look at the Numbers

Everest Group estimates that digital transformation consulting reached a market size between US$82 billion and US$84 billion in 2022. The firm expects the market to reach between US102 billion and US$104 billion by 2025, with a CAGR of 8.5%-9.5%. The biggest shares in demand would come from North America (47%) and Europe (20%).

The International Data Corporation’s (IDC) latest FutureScape report for worldwide services estimates that digital transformation spending in business will reach US$6.3 trillion by 2024, making up 55% of global tech investment. 

Worldwide spending on public cloud services is forecast to reach $1.35 trillion in 2027, led by strong investments by the Banking, Software and Information Services, and Telecommunications industries. https://t.co/ATkceoP6dW pic.twitter.com/ZjvtT9tzFM

— IDC (@IDC) August 29, 2023

Expectations are certainly high, but the financials of some companies in the field indicate that the impact can already be felt today.

Accenture’s consulting revenues reached US$34.1 billion in 2022, a 25% increase compared to the year prior. In 2021, the segment achieved US$27 billion in revenue, or a 13% annual growth.

Those numbers were driven, according to the company, by clients’ demand for digital transformation initiatives in the cloud, cybersecurity and “adoption of new technologies” segments, as well as improvements in operational efficiency and customer experiences.

Tata Consultancy Services (TCS) attributed a 17.6% growth in its revenues for FY 2023 (compared to 16.8% in the year prior) to “accelerated spending on digital transformation initiatives, cloud adoption and increased outsourcing”. For FY 2024, the company expects growth to be driven mainly by tech transformation and IT modernization projects. 

Though Globant makes no explicit mention in its financial reports of its consulting business, it does highlight research which underscores the growing relevance of tech transformation and consulting services for enterprises. In other words, the South American firm knows what’s coming, and expects to bank big on it.

“Managing consulting companies tend to be lagging in terms of growth, whereas typical service provider on the technology side seem to be leading the market in overall growth,” commented Suseel Menon, Practice Director of Digital Services at Everest, during the firm’s webinar. 

A Hiccup and a Pick-Up

The first half of 2023 has been a rough patch for the IT consulting industry. Everest Group described market growth during the period as “tepid”. At NSAM, we’ve recorded some of those struggles, with sources citing a “slowdown” in their projects pipeline.  

Big players in IT consultancy have seen it too. Accenture reported a 4% decrease in revenues for Q3 of FY2023 (ended May 2023) and a 1% fall in revenues for the first nine months of FY 2023 (September 2022-May 2023). During the earnings call for Q3,  company CEO Julie Sweet pointed to a “holdback” by clients as the main reason for the decrease in revenues.

TCS CEO K. Krithivasan described a similar situation in their finances during the latest quarter, citing high client “scrutiny” over smaller IT projects. 

“We continue to see reprioritization of projects in favor of those which are considered business-critical and where ROI realization is likely faster”—TCS CEO K. Krithivasan

In spite of the slowdown, IT consulting firms and service providers expect the landscape to grow friendlier in the latter half of the year. Clients might start focusing their efforts, though, preferring transformation processes for which they can show more solid ROI numbers.

“While larger transformation programs like cloud migration are continuing apace, some of the smaller programs or subprograms are coming under scrutiny,” Krithivasan told investors. “We continue to see reprioritization of projects in favor of those which are considered business-critical and where ROI realization is likely faster.”

“Our clients are kind of holding back on the small stuff and doing the bigger stuff,” Accenture’s CEO stated during the earnings call. “It is going to take a little while for the turnaround. And we’re not going to go to next year because we really want to see how Q4 evolves.”

Some players in the market expect things to pick up as soon as September 2023, right after the summer break lull. If those expectations turn out to be accurate, the slowdown suffered during the first half of the year will be regarded as a “hiccup”, at most. 

The predicted pick-up in the tech consulting market will fuel the enthusiasm surrounding it even further, putting it under a brighter spotlight and potentially fostering even greater interest from parties outside the  field.

We can’t speak of a saturated market, but there’s good reasons for current players to avoid growing lazy in a landscape where demand is plentiful. They’ll need to step-up their game as competition  ramps up and the neighborhood grows even more crowded.