IT Services Spend Is Surging, And There's More Than Meets The Eye

In 2024, CIOs and IT managers are working to come to grips with changing business conditions and needs, new technologies, and a complex skills and talent situation. Understanding and managing IT spend -- forecasted at $5 trillion worldwide in 2024 -- is imperative in the current environment extending into the next years.

A significant part of that challenge will be IT services. According to Gartner, external services will be the largest ($1.5T in 2024) and one of the fastest growing IT spend categories in the coming years, presenting new challenges for IT managers (not the least of which will be visibility, or the lack thereof). This article provides an IT services "lay of the land" in 2024 and some high-level take aways.

IT Services Challenges

Services, in general, present well-known procurement and management challenges in a way that goods and materials do not. These unique challenges carry over to IT services, which are also complex for other reasons, including the rapid pace of technological change, ongoing supply side evolution, and the dichotomy of human-based services (e.g., MSP, consulting) and purely digital services (e.g., cloud services).

Some categories of IT services (human-based services) can be substitutes for internal IT resources/employees. That means that management must always be evaluating the optimal substitution between internal resources and external services, something which is more important in today's IT labor market where skills and talent availability are constrained.

According to the above data, which represent a shifting playing field, use of external services is now considered about as important as using internal employees going forward. And services will be deliberately applied across a broader range of use cases (see below).

IT Services Snapshot

There are a wide range of sources that give us insight into the current IT services phenomenon. Here are some key points derived from these sources.

• Depending upon industry and service category, IT services spend will be growing by about 4-15% in the coming years, with an average of about 9%.

• Human-based/professional services spend, managed infrastructure, and managed software application support represent the bulk of IT services spend and are evenly split.
• Growth of IT services will outpace growth of internal IT resources by a factor of 3, implying that IT organizations will be substituting more external services for internal resources as labor market constraints persist in the years to come.

In 2023, Flexera indicated where external IT [services] would be increasingly used going forward.

It is a broad range of areas, but the top 5 are:

1. AI/ML (which now will be augmented by GenAI)
2. Cybersecurity
3. Big Data/Analytics
4. Automation
5. Cloud

IT services spend will be spread across the IT organization's portfolio of ongoing activities (e.g., dev ops) as well as initiatives and programs/projects (e.g., digital transformation investments). This will present increasing visibility and management challenges.

What About Tech?

As is the case for most services categories, there is a irregular and spotty landscape of tools and information for dealing with IT services (delivered by 3rd party providers and contractors).

When it comes to IT services source-to-pay lifecycle enablement, technology and data tend to be fragmented (versus holistic) and tactical (versus strategic). IT enablement tends to be concentrated across the source-to-contract segment of the full lifecycle, while enablement through technology and data management in the post-contract/execution segment of the lifecycle is wanting .

Along a different vector, generic spend analytics tools can be applied to IT spend to support strategic sourcing and spend category analysis. But these tools are typically ex-post data oriented, latitudinal, and do not help with continuous data (e.g., what is happening right now, today, this week, etc.). In other words, they do not enable management insight into and intervention in ongoing activities or projects as they are happening.

Finally, internal employees, external contract talent, and 3rd party services remain spread across different technology and data silos. The needed unified perspective will require new integration tools and data management capabilities.

Implications

The main take aways of the above are:

• IT services are being used and will be used more extensively in the years to come, as demands on IT increase in the face of IT labor market constraints.
• Tools (technology enablement and data) to gain visibility into and manage IT services (in the post-contract, execution phase) are simply not mature and practically-speaking unavailable in the form needed.
• New tools are needed to track, analyze, and manage IT services spend at a deeper and more granular level as the spend is occurring (not as ancient history) to afford IT management current insights and real possibilities of value-adding interventions.

Related reading: IT Services Spend Is Growing: Are CIOs Prepared?