IT services providers expect the important themes of 2023 to strongly influence next year's business climate as well, with cost optimization, results-driven innovation and the pursuit of generative AI among the top trends.
The repetitive pattern is hardly surprising given the continuation of such underlying factors as inflation, interest rate concerns, the threat of recession and geopolitical uncertainty.
"I think the patterns we observed in 2023 are setting us up now in our industry for 2024," said John Purcell, chief product officer at DoiT International, a cloud cost management technology and service provider based in Santa Clara, Calif.
The leading macroeconomic factors combined in 2023 to tighten customers' purse strings, Purcell noted.
"We expect to see that continue into 2024, especially given that 2024 is a big election year," he added. "We find that always creates a little bit of turbulence in the macro market."
Rapid developments in AI will also shape business prospects for consulting firms, MSPs and systems integrators. AI could potentially provide a way to deliver new capabilities in shorter timeframes that satisfy the C-level demand for a quick ROI.
The next year will also find the partner ecosystem looking for opportunities to deploy emerging technologies in vertical markets. And technology providers, for their part, will continue to retool their partner programs to suit the rigors of a fast-changing, unpredictable environment.
Read on for the top five IT services industry trends expected for 2024.
1. Cloud cost optimization
Enterprises made cost optimization a top priority in 2023, amid economic challenges and tight budgets. While some factors such as inflation appear to be easing, industry executives believe organizations will keep a close watch over their IT investments next year. That certainly looks to be the case with cloud computing, a technology many businesses now depend on -- and one that is still subject to rising prices.
Business leaders in recent years have become mindful of conscious and careful cloud spending, Purcell said. But the current economic climate compels them to pay even more attention to cloud cost management -- especially when the hyperscalers themselves talk about optimization during earnings calls, he noted.
"I don't see that fading away or becoming less important," Purcell said.
Miles Ward, CTO at SADA, a business and technology consulting firm based in Los Angeles, also cited an aggressive -- and beneficial -- focus on efficiency as a key trend. He suggested customers are now better equipped to get the most out of their cloud investments.
FinOps and performance benchmarking tools, which help CTOs talk credibly with CFOs, have "gotten a lot better in just the past year," Ward noted.
Technical tools such as the open source PerfKit Benchmarker provide apples-to-apples comparisons between clouds, he noted. This approach lets organizations combine application-specific performance data with financial data gleaned from FinOps reporting and metrics tools.
With such tools maturing, a technology team's ability to deliver accurate and understandable financial projections will become a permanent expectation, Ward said.
"It won't be something they can opt out of," he added.
2. Focused transformation, innovation
The balancing act between optimization efforts and more ambitious projects, a pattern prominent in 2023, will persist into the coming year. But some industry executives anticipate organizations will invest more in transformative and innovative initiatives next year.
"I think the needle is definitely moving toward transformation," said Ken Englund, Americas technology, media and telecommunications leader at consultancy EY. "We are seeing momentum building."
That's a shift in sentiment from 12 months ago, when customers slowed down digital transformation efforts and focused on incremental progress instead of comprehensive change. Looking ahead, Englund sees organizations putting more budget -- and more velocity -- behind transformation.
In the technology sector, for instance, customers are spending on supply chain transformation as they look for greater flexibility and resilience, he noted. Englund also sees investment in the quote-to-cash lifecycle, especially among tech companies moving from products and services to subscriptions and consumption-based models.
Such investments, however, will be highly focused and rigorously challenged from a price and performance perspective.
"The filter for success is tighter than it has been in previous years," Ward said. "The horizon you are trying to plan for is shorter -- businesses are looking for results this quarter versus this year."
Prioritizing AI in a challenging environment
In this context, service providers will likely see customers prioritize AI investment in their 2024 innovation budgets. The restrictive financial environment and need for rapid results "plays to the strength of some of these generative tools that have shown a radically shortened path to value," Ward noted.
He pointed to the example of Wendy's which has piloted a generative AI chatbot in drive-through lanes. AI investment becomes a no-brainer when the technology improves customer satisfaction and increases the average order size, he added.
"Once these proof points get made public, the copycat adopters across verticals will move very quickly," Ward said. "With what little experimentation and innovation budget you have to invest in the future of your business, department or function, it seems pretty obvious these tools are the ones that will bear the most fruit."
EY research underscores widespread support for AI among business and technology leaders. The consultancy's CEO Pulse Survey, published in October, reported 99% of the 1,200 global chief executives polled plan to invest in generative AI. The company's survey of technology industry executives, meanwhile, found 80% of the respondents plan to increase their investment in AI over the next year.
Meeting two needs with tech investment
But even in this emerging field, customer investment is tinged with the need to boost efficiency.
John PurcellChief product officer at DoiT International
"Most discussions have been on the optimization side," Englund said.
He cited somewhat less interest among clients in customer and employee experience projects. Yet improving efficiency and experience aren't mutually exclusive goals, he added. AI-based automation can ratchet up productivity and also open new ways to serve customers and support employees.
"You can get a double benefit," Englund said.
3. Investment in generative AI skills
As customers gear up for generative AI deployment, service providers, anticipating demand, will boost their investment in employee training and specialized services.
"We have a full-blown mobilization across the company for enabling all of our consultants," said Arun Ramchandran, president and global head, consulting and generative AI practice, at Hexaware, a technology and business process company. Ramchandran also leads the company's generative AI consulting unit.
Hexaware trains its personnel using online courses from Coursera and Udemy, identifying foundational, intermediate and advanced courses in generative AI. Thus far, more than 10,000 consultants worldwide have obtained foundation-level certification, around 1,300 at the intermediate level and more than 500 at the advanced level. Hexaware is headquartered in Mumbai with North American operations based in Iselin, N.J.
In addition, Hexaware is training a large majority of its 14,000 business process services employees, Ramchandran added.
EY is also ramping up its upskilling efforts in generative AI.
"We are devoting a lot of energy toward developing our internal training," said David Guarrera, principal with EY Americas Technology Consulting. He leads the company's generative AI initiatives.
Different sets of professionals and the specific generative AI skills they need complicate curriculum development. Consultants, for example, need prompting and interaction skills, while data scientists need to learn about techniques such as chain-of-thought reasoning to build generative AI applications, he noted. The chain-of-thought approach aims to solve complex problems beyond the reach of conventional prompts.
Global consultancies and systems integrators face the task of training thousands of employees on generative AI. IBM Consulting plans to train 10,000 consultants on leading use cases and best practices regarding AWS' generative AI services. And Capgemini has embarked on getting 65,000 employees up to speed on Google's generative AI technology.
Such AI training regimens will ramp up in 2024 but take time to complete. Guarrera compared the mass-education task to learning how to effectively use the web in the 1990s.
"Coming to terms with the digital fluency to surf the web didn't come in a day," he said. "There is going to be a process where we all have to learn what GenAI is good at and what it isn't."
4. Vertical market focus
IT services providers will be looking for opportunities to apply emerging technologies -- such as AI and data analytics -- within and across vertical markets. The growth of enterprise AI will heavily depend on industry-specific use cases. IT service providers believe their domain knowledge and technology partnerships give them an edge.
Deloitte's ServiceNow Assets and Solutions Group, for example, will initially focus on the government, manufacturing and life sciences sectors, working with clients to deploy enterprise AI offerings. The group aims to help customers narrow myriad potential use cases to a set of priority projects, noted Asish Ramchandran, principal and lead alliance partner at Deloitte.
"It's going to come down to use cases -- which use cases are effective in which industries?" he said. "We need to have a very good method of modeling which of those have got real market traction and interest from customers. That's the pathway that seems to be emerging for all things AI."
With priorities established, the next step is launching AI pilots and working with clients to tweak them, Ramchandran said. Deloitte can then determine whether the resulting asset is appropriate for broader deployment in a particular industry. Such as telecommunications or healthcare, he added.
Nisum, a technology consulting firm based in Silicon Valley, is finding vertically oriented data analytics opportunities. The company expects to see activity next year in the sports and entertainment market, as organizations seek to learn more about their fans and reach higher levels of personalization. Nisum recently entered a partnership with Monumental Sports & Entertainment, which owns the NBA's Washington Wizards, WNBA's Washington Mystics and the NHL's Washington Capitals.
Tina Wung, Nisum's vice president of growth marketing and revenue, sees a connection between sports and entertainment customers and clients in other verticals -- retail in particular. Retail has been a key market for Nisum, which counts The Gap, Williams-Sonoma and Safeway among its customers.
"There are a lot of synergies across the industries in terms of the challenges they run into," she said, citing customer loyalty, customer engagement and extracting long-term customer value.
Jeff DeVerter, chief technology evangelist at Rackspace Technology, a multi-cloud solutions provider based in San Antonio, said he sees investment in the manufacturing and logistics sectors as well as healthcare. In the latter market, IoT and the influx of patient data collected via wearable devices sets the stage for analytics.
"All that data lends itself to AI and ML," DeVerter said.
5. Partner programs, reconsidered
Service providers can expect to see their technology allies tweak partner programs in the coming year. The movement away from programs built around tiers named for metals -- bronze, silver, gold and platinum -- is one trend poised to continue in 2024.
JFrog, a software supply chain platform company in Sunnyvale, Calif., will enter the new year with a program that emphasizes co-selling and partner specialization rather than a metallic pyramid structure. That traditional model committed partners to building a comprehensive set of capabilities around a single vendor, said Kelly Hartman, senior vice president of global channels and alliances at JFrog.
"With the pyramid model, you start at the bottom and build your way up, which means you have a lot of investment from the start and barriers in front of your company," she said.
Specializing to differentiate
JFrog lets partners differentiate through specializations rather than ascending program tiers. The company focuses on three core use cases -- DevOps, IoT and security -- and looks for partners that can solve customer problems in those areas.
A partner's enthusiasm for collaborating with JFrog offers another point of differentiation. JFrog gives partners a dedicated partner manager from the beginning, a benefit that vendors typically reserve for partners in their highest tiers. But Hartman said she prioritizes that perk for whoever's the most motivated to create a business plan with JFrog.
Hewlett Packard Enterprise (HPE) has also gone metal-less with one of its partner programs.
"I think a lot of us are getting away from metals," said Jesse Chavez, vice president of worldwide partner programs and operations at HPE. "A lot of my competitors are thinking about it because [a metal designation] doesn't say much about a partner other than that they're highly invested and certified. But it doesn't really say anything about their capabilities and their product certifications."
HPE Partner Ready Vantage program, geared toward partners pursuing the as-a-service model, launched in 2022 without a metal-based tiering system. The HPE Partner Ready program, the company's foundational channel program that includes traditional, transaction-oriented partners, will maintain its metal structure for now, Chavez said.
The company in November updated its Partner Ready Vantage program with Centers of Expertise in fields including customer success, managed services and professional services. Those centers will help service providers expand their offerings, according to HPE. Participants in the professional service center, for example, will be able to use an HPE tool for migrating applications to hybrid clouds.
HPE also plans to offer new partner competencies next year in hybrid cloud and AI/data analytics. Chavez said the company is still working out the details of the AI competency.
"We have a fairly broad portfolio on AI," Chavez said. "We just need to figure out what portion of that is actually relevant from a partner perspective."
Supporting a broader ecosystem
Another twist for partner programs: recognizing the partners' need to work with numerous vendors to solve customers' problems.
JFrog's rejection of a tiered structure aims to make it easier for partners to maintain multiple vendor relationships. A partner's investment in climbing the rungs of a conventional partner program limits the number of major alliances it can maintain, Hartman said. Eliminating that obstacle, however, makes it easier for partners to support several product options. Multi-vendor support becomes particularly important in DevOps, where software delivery toolchains feature a variety of vendors that could be relevant for partners.
The multi-vendor strategy is also important in cybersecurity. In November, Egress Software Technologies, a cloud email security company based in London, rolled out an integration with CrowdStrike and also implemented a bidirectional API with KnowBe4. Those links let Egress extend its email security platform to CrowdStrike's identity management and KnowBe4's security awareness training, said Dan Hoy, director of strategic partnerships at Egress.
"Interoperability is massive for Egress," he noted. "The broader we can be in terms of risk [mitigation], the better for our customers."
And for partners.
Joseph Hedegaard-Ganly, solutions architect at Saepio Information Security, a consulting firm and Egress partner in High Wycombe, United Kingdom, said integration speeds up risk reduction for customers obsessed with time to value. Historically, cybersecurity tools took a few months to implement, he noted. But chief information security officers now want to see results within the first month rather than in a quarter or half a year.
The emphasis on speed calls for "leveraging existing tooling or integrations with other security tools," Hedegaard-Ganly said.
John Moore is a writer for TechTarget Editorial covering the CIO role, economic trends and the IT services industry.