Computer consulting at a crossroads

Computer consultancy services in Australia are set for more of a steady growth than anything exponential. By JASON BAKER of IBISWorld

By Jason Baker

The booming computer consultancy industry is now facing cost-sensitive clients seeking better value for money. The industry has seen large growth in the past 10 years. This massive growth is expected to taper off in the short term but revenue will continue to grow.

The growth of IT solutions and especially to the trends to outsourcing of ITC by the government and business sectors, has benefited the industry. But increasingly clients are asking for actual cost reductions in specialist consultancy contracts and/or outsourced ITC contracts or tenders.

From 2008 and onwards the industry is expected to experience relatively stronger revenue growth. Coming up is the announced $10 billion upgrade of the Telstra network, improved broadband and with its required associated services on the fibre optic cable service. There are $3 billion worth of Federal Government outsourced contract renewals to be put in place by the end of 2007-08. However, since most of these are existing contract renewals, they will not add additional revenue for this industry.

The industry is also expected to benefit from the continuing need to upgrade existing systems and hardware, and from new projects associated with education and training, transport, health and medical services.

It is, however, still expected that some previously outsourced contracts or segments will be taken back in-house, and some components will be moved overseas to India and China, with the CBA and NAB banks continuing to lead. The reviewing of existing outsourced IT contracts is expected to continue to undergo benchmarking studies and evaluation by independent consultants, on behalf of client companies and organisations.

The current growth areas include network management, developing firewall security systems for clients, e-commerce, internet site development, VoIP, e-commerce and in the new area of installation of “thin servers” for clients to replace existing servers and possibly ISPs. Business process outsourcing is also increasing.

Until recently, a major barrier to industry growth was the availability of suitably skilled staff to meet the growth in demand. However, the collapse of high technology stocks in May 2000 led to many companies falling on hard times, with many closures and staff consolidation, and reduced positions in universities.

In the outlook period, skilled IT staff shortages will emerge, but partially resolved by a significant increase in working visas, along with some project components being sent overseas.

Also, increasing use of outsourcing to nations with lower wage costs and available trained staff (primarily India) will result in slow growth in employment, as more low-skilled jobs are sent offshore.

A positive result of this will be an increase in the average wage, as the remaining jobs available in Australia will most likely be more highly skilled and therefore command a higher wage.

Signs remain positive for growth in this industry, and although revenue is not expected to hit the peaks of the 1990s again, growth will continue at a steady rate in the years to come.