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Service providers should brace for new battle

Service providers should brace for new battle

For service providers in New Zealand, 2010 certainly has a more robust feeling about it than 2009 or even 2008. However, are we really emerging from the recession, or are we simply viewing the market through rose-tinted lenses?

This year started with renewed vigour for IT services projects and companies are at last giving the go-ahead for server refreshes, software upgrades and modernisation programmes. Customer spend is also increasing. But companies have spent 18 months adjusting to doing more with less, so what makes us think we will see the services market rebound to its former glory at the first sign of economic recovery?

I get a strong sense of false buoyancy in the market. Despite the increase in customer spending and an increase in projects up for tender, you have to wonder how much this growth is being oversold by projects such as centralised government procurement and the Auckland Supercity. These projects represent a huge opportunity, and millions in revenue to the lucky few successful companies, but we will also see unsuccessful parties locked out of these opportunities for a long time to come. For some, this may spell the end of the line.

Even those left out in the cold from government procurement and supercity projects can benefit from capitalising on gaps left in the market and renewed growth. But while the world’s leading economists are still debating whether we are in a V- or W-shaped recession, the growth we’re currently seeing may not last.

Some providers are better poised to take advantage of market renewal than others. But since the economy is still uncertain to a large degree, one thing is clear – longevity will be the holy grail. For those hoping for an easy ride into a brighter economy, the road will still be paved with challenges.

Many service companies took to “body-shopping” to see them through the recession, and moving away from this model seems to be a challenge for both service providers and their customers.

Without a return to long-term customer value, service providers may find their revenues streams are short lived.

One strategy some companies used to survive the recession was to take on contractors – at extremely low rates due to the shortage of work. Now, with contractor rates on the rise, contractor profitability remains on the decline as service providers raising daily rates open themselves up to being undercut by the competition. Many contractors who have taken on permanent roles over the past 18 months are also beginning to return to independent contracting, leaving service providers with resource shortages.

Service providers operating within a vendor ecosystem – and let’s face it, in the New Zealand market there are very few, if any, service providers that are truly independent – are facing greater competition from their partners as hardware and software vendors continue the habits formed during the recession and place more emphasis on direct sales. For these service providers, maintaining the existing customer base can be as hard as winning new business.

So what does this all mean for the local services market? I believe it is far too early to be drawing a collective sigh of relief at the end of the recession – for we are not out of the woods yet. The economy may be showing signs of recovery, however this in itself creates challenges for service providers of all shapes and sizes. Now is the time for decisive strategies and action, and it will be the bold and the strong that survive – at the expense of the timid and weak.

Service providers are emerging from the recession like soldiers from war – on a reprieve and glad to be alive – but about to embark on a second tour.

Jenna Woolley is a former services analyst and researcher for IDC in New Zealand and Asia Pacific. She specialises in ICT market strategy and can be contacted at blacksheepconsulting@xtra.co.nz


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