Tough times for suppliers mean the UK remains a buyer's market for IT.
UK investments in software and IT services will slow down further this year - down three per cent on the previous year, excluding inflation to £22bn - and are likely to be flat next year, according to analyst Ovum Holway.
Research director Anthony Miller told vnunet.com: "The focus will be on doing more with less. These are the new rules of the game. Any supplier who misses this point just won't make it over the long haul.
"Today's chief information officer [CIO] is down the gym working off the excesses of the 1990s. But although technology investment will be constrained for the best part of the next decade, it isn't stopping them from wanting to get more out of their IT."
Ovum Holway predicts that IT decision-making will be recentralised, with the CIO once again becoming a single point of contact. But suppliers are having to jump through hoops as the competition for business hots up.
Offshore IT services companies have played a significant role in changing the rules of the game. Not only have they succeeded in slashing fee rates, setting an uncomfortable precedent for their domestic outsourcing competitors, but they have raised the delivery bar.
"They're setting new expectations for quality," said Miller.
Outsourcing and business process outsourcing (BPO) are the only sectors bucking the industry's downward trend, driven by customer desires to slash costs. Increasingly, this is an area that customers cannot afford to ignore, Ovum Holway warned.
"If [suppliers] can't offer 20 per cent cost reduction net, there's no point in entering into an agreement," said Phil Codling, Ovum Holway analyst. "In a lot of cases customers will expect more and will also expect process improvements."
The analyst organisation also predicts widespread consolidation across the sector, particularly among software companies, as suppliers look to take market share from their competitors.
"It does create uncertainty for customers, who are hedging their bets and looking for havens and suppliers that are likely to stay the course," said Miller.
John Higgins, director general of trade body Intellect, told vnunet.com: "As IT becomes more commoditised there is an increased pressure from the board for return on investment, and adding to this is the hangover from the dotcom boom and bust hype.
"People are not prepared to 'keep up with the Joneses' anymore. They will not invest in the next big thing."
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