Global IT services spending is poised to surpass the $2 trillion mark before the end of the decade — an expansion likely to create staffing challenges for service providers.
The services sector is already on track to become the largest segment of the overall IT market in 2024, according to Gartner’s latest forecast. The research company expects the IT services market to reach $1.5 trillion this year, growing at an 8.7% rate. IT spending overall will approach $5 trillion in 2024 on 6.8% growth.
“It was inevitable that IT services would be the largest market,” said John-David Lovelock, an analyst at Gartner.
The COVID-19 pandemic drove the demand for services as enterprises scrambled to accommodate the suddenly remote workforce and convert to a digital economy. Enterprises investing in organizational efficiency and optimization projects will propel IT services growth this year, Gartner’s forecast noted.
That expansion is set to continue. Spending on IT services will roughly double from $1.2 trillion in 2021 to $2.1 trillion in 2027, Lovelock said.
Staffing pressure in the IT services market
IT service providers will face pressure to expand their headcounts as services spending eclipses the $2 trillion mark. The industry’s biggest players, which already have hundreds of thousands of employees, will grow significantly larger if they expand staffing levels by 80% or more in the coming years, Lovelock noted.
But hiring won’t be the only answer to the question of how best to meet rising demand. Other approaches will include automation, including generative AI, and acquisitions.
“At a certain point, if you need 50,000 employees it will be cheaper to buy a company with 50,000 employees rather than hire 50,000 employees,” Lovelock said.
Reskilling current employees is another likely tactic that IT service providers currently emphasize. A December 2023 report from Everest Group, a market research firm based in Dallas, cited “learning and development” as a strategic priority for most service providers over the next 12 to 18 months. That focus comes amid a “tectonic shift” from hiring to developing talent internally, the report noted.
The large IT service providers Everest studied cut their employee rosters by 3.26% over the past five quarters. The transition from hiring, which spiked during the pandemic, to reskilling personnel is reflected in service providers’ utilization rates. Everest Group said utilization rates among some providers increased from the 70s to the low-to-mid-80s on a year-over-year basis.
Training becomes more specific
Tata Communications, a communication technology company based in Mumbai, is among the service providers boosting internal training and development. The company recently trained more than 2,000 employees on AI, said Srinivasan CR, Tata Communications’ chief digital officer and executive vice president of cloud and cybersecurity services. Coding tools and frameworks based on generative AI can improve productivity — an important consideration in a challenging macroeconomic environment, he noted.
“It is important for us to be more productive,” Srinivasan said. “How can the same person deliver more using more intelligent tools and frameworks?”
John-David LovelockAnalyst, Gartner
Training methods are changing to accommodate the increasing emphasis on internal talent development. Training programs, for example, are becoming more specific as they drill deeper into a particular technology, he said.
In addition, the scope and on-demand availability of online training content let employees learn as much as they wish across multiple domains.
“How much can you pick up and run with? That is essentially the change in the training and development approach,” Srinivasan said. “The analogy is, ‘If we can consume 10 hours of Netflix, why not 10 hours of learning content?'”