Gartner Dataquest Forecasts Consolidation for North American IT Staff Augmentation Industry
SAN JOSE, Calif., November 19, 2002 — The North American IT staff augmentation market is emerging from one of the worst years in its history, but a fast recovery is not foreseen, according to Dataquest Inc., a unit of Gartner, Inc. (NYSE: IT and ITB).

Gartner Dataquest analysts said the North American IT staff augmentation market is on pace for revenue totaling $20.7 billion in 2002, a 0.8 percent decline from 2001 revenue of $20.8 billion. The market is projected to reach $21.4 billion in 2003, a 3.3 percent increase from 2002 estimates. In 2001, the industry suffered its worst decline, as revenue dropped 11.1 percent. As the vendors try to rebound from difficult market conditions, the industry will face some serious changes.

"It appears the IT staff augmentation industry may be entering a period of radical change that is fueled by the fact that major market inhibitors are anticipated to outweigh major drivers during the next 15 months," said Ted Kempf, principal analyst for Gartner Dataquest's IT services group. "Barring an unforeseen sharp pickup in the U.S. economy, the IT staff augmentation space will most likely enter a period of consolidation to bring demand more in line with supply."

Staff augmentation provides technical workers in a support capacity to IS organizations or end-user business units on a time and expense basis. There are two major classes of IT staff augmentation services. Once class is equivalent to what Gartner Dataquest defines as IT professional services (IT consulting, application development, systems integration, education and training, and outsourcing). The second class is what Gartner Dataquest defines as product support services (hardware and software maintenance and support).

For established IT staff augmentation vendors looking to weather this storm, Gartner Dataquest recommends that the following strategies must be taken into consideration to achieve future growth.
  • Offshore capabilities - North American-based IT staff augmentation vendors should look to develop their own offshore facilities or partnerships with offshore services providers to meet their clients' needs. The use of offshore services providers is expected to continue to grow as more countries develop the skills and infrastructure to support these services.

  • Market specialists - IT staff augmentation vendors need to differentiate their capabilities through the creation and marketing of vertical market-specific IT services. Past strategies of offering a broad set of horizontal IT capabilities to the market are being undercut by offshore providers offering identical services.

  • Vendor management systems (VMS) - Most enterprises in North America do not have a formal strategy for identifying, qualifying, selecting and managing IT staff augmentation contractors. As a result, these companies spend excess money supporting an assortment of fragmented business IT procurement processes. There is a need for VMS, and it is likely that more IT staff augmentation vendors will slowly have the entire IT staff procurement process outsourced to them as companies realize the savings from doing so. Vendors that have VMS strategies will be in the best position to capitalize on this opportunity that is beginning to emerge in North America.
Additional information is available in the Gartner Dataquest report "North American IT Staff Augmentation Projections: 2000-2005." The report provides a market forecast and looks at the top drivers and inhibitors, as well as the key strategies for success for established IT staff augmentation vendors.

This information is produced by Gartner Dataquest's IT Services group. This group provides a complete picture of the IT services industry including network integration and support, hardware services, consulting and system integration, outsourcing, life cycle service, strategic partnering and services marketing, vertical markets, and software support. To subscribe to Gartner Dataquest's IT Services programs, please call 408-468-8000. Reports can be purchased over the Internet at www.gartner.com.

Gartner Dataquest is the recognized leader in providing the high-technology and financial communities with market intelligence for the semiconductor, computer systems and peripherals, communications, document management, software, and services sectors of the global information technology industry.

Gartner, Inc. is a research and advisory firm that helps more than 10,500 clients leverage technology to achieve business success. Gartner's businesses consist of Research, Consulting, Measurement, Events and Executive Programs. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has 4,000 associates, including more than 1,000 research analysts and consultants, in more than 75 locations worldwide. Fiscal 2002 revenue totaled $907 million. For more information, visit www.gartner.com.
Contact:
Christy Pettey
Gartner
+1 408 468 8312
christy.pettey@gartner.com