Spending on IT consulting will drop "dramatically" by 4.6 percent this year from 2002, according to a recent survey of chief information officers (CIOs) done by the research department of investment bank Merrill Lynch & Co.
One reason for the drop is that CIOs are being very careful with their overall IT spending, and IT consulting specifically is very dependent on discretionary spending, which is extremely tight, the report says. "The consulting model is ill-suited for this current environment," the report reads.
Other factors affecting consulting vendors include increasing competition, especially from offshore companies, and the resulting decline in prices, according to the report. IT consulting pricing is down 13 percent compared with last year, according to the report, which was distributed Friday. Among providers of IT consulting services, Accenture and BearingPoint are well positioned to ride the storm out, Merrill Lynch said, because of their "full-service offerings" and "strong client relationships."
In slightly better shape is the outsourcing sector, where spending is expected to grow 1 percent this year, while its pricing is down 4 percent, the report says. "The outsourcing industry is in disarray as it comes off a year with essentially no revenue growth," the report reads. Outsourcing vendors will have to watch costs very carefully with spending remaining almost flat and prices falling, the report says.
The segment of business process outsourcing (BPO) should experience flat growth in spending. Affiliated Computer Services remains the leader in BPO, the report says.
In IT services in general, many CIOs are taking advantage of the pricing crunch: 25 percent of those polled are "demanding early contract negotiations to extract price concessions," according to the report.