Growth: Now, That's A Nice ProblemGrowth: Now, That's A Nice Problem

With the market for business and IT services booming, technology executives at leading providers are ratcheting up their internal IT efforts to ensure that their companies keep up with demand that's expected to grow considerably.

One sign that the services market is healthy "is the absence of the usual summer slowdown," says Cindy Shaw, an analyst at Moors & Cabot. The third quarter is on pace for a particularly strong performance, she says. July and August saw 28 outsourcing deals worth a total of $8.9 billion, compared with 14 deals worth $6.8 billion in those months last year. What's behind the uptick? Many companies are turning to external providers for help meeting Sarbanes-Oxley compliance requirements, Shaw says.

One beneficiary of that trend is Accenture, which provides a range of outsourcing, consulting, and business-process-outsourcing services. To keep up with increasing demand for its consultants, the firm has implemented an ambitious staff-scheduling system called MyScheduling. "Our growing workforce generated an increased number of opportunities to enhance the usability and usage of the scheduling system," CIO Frank Modruson says.

The system was deployed last year and works off of a global database that tracks Accenture staffers--providing data on who they are, what they know, and where they're located. It also helps consultants evaluate opportunities and manage their careers. Being the CIO of a firm that provides technology outsourcing and consulting services means Modruson has a tough set of internal customers. "We have about 150,000 people who have an expert opinion on how I do my job," he says.

IT work isn't the only growth engine for the services market. Business-process outsourcing is hot as companies hand off routine operations, such as accounting and billing, to third parties. The hottest BPO segment is human-resources outsourcing. "HR BPO deals have started breaking loose, and more will be announced soon," Shaw says. Not all deals are made public, but she believes the third quarter will see six major deals worth a combined $1 billion.

All that activity is benefiting companies like Hewitt Associates, which saw net revenue increase 29% year over year in the third quarter to $711.9 million. As an IT-driven services firm that focuses on customers' HR needs, company execs are in a good position to track the general availability of IT talent. To help make sure there's a steady supply coming from North America, Hewitt's internal technology associates recently launched a program that helps ensure that inner-city students get access to IT tools and education.

Global spending on IT and business services is expected to increase at a healthy pace over the next five years, according to research firm IDC. The public and private sectors are expected to spend $609.1 billion on external services this year, a 6.3% increase over 2004, IDC says. Spending is forecast to grow at a five-year compound annual rate of 7% to $803.9 billion in 2009. Trends are expected to include horizontal BPO work, a decrease in the number of megadeals as companies become more selective about what they farm out, and a decrease in the average contract size. In a recent report, IDC analyst Sophie Mayo said, "In 2005, enterprise decision makers will continue to 'chunk' projects into smaller pieces with defined outcomes that tie directly into appreciable results."

Illustration By Paul Watson