Information Technology Services
SIC 7371, 7373, 7378
NAICS 541511, 541512, 811212
The information technology (IT) services industry provides the following services on a contract or fee basis:
computer programming services
custom computer software design and analysis
modifications of custom software
training software end users and systems administrators
integrated systems design
computer maintenance and repair, including hardware and peripheral installations, upgrades, replacements, and troubleshooting
hardware and software consulting
Additional IT services include computer services outsourcing, disaster recovery, and overall facilities management, which involves on-site management of a customer's computer systems and networks, including computer maintenance and repair. Service firms that provide off-site data processing services are covered separately under Data Processing Services and developers of mass-produced software are discussed in detail under Packaged Software. Certain industry participants provide consulting services unrelated to information technology; these activities are included under Management Consulting Services.
The information technology services market realized exceptional growth in the late 1990s. IT services represented US$350 billion worldwide in programming, systems integration, consulting, outsourcing, education and training, and maintenance services revenues in 1998 alone. By 2004, this value had increased to US$607.8 billion, according to Gartner. The world leader in the IT service sector continued to be IBM, accounting for 7.6 percent of the total sales worldwide.
Following the economic downturn of the early 2000s, which lasted into 2003, the IT services industry suffered through declining revenues and mass job insecurity. By 2004, industry consolidation was the norm; InternetWeek reported 57 mergers and acquisitions in the first half of the year alone. The overall outlook for outsourcing was positive, with more growth expected in management services. As of the mid-2000s, 59 percent of the market, remained with U.S. companies.
IT services constitute one of the largest, relatively unregulated, and most rapidly changing industries dealing with high technology. As a result, the rigid organization and structure of the early days, when mainframe computer manufacturers dominated the industry, has disintegrated into many different webs of mergers, alliances, and commercial relationships among manufacturers, independent service companies, and customers. The constancy for companies large and small, for manufacturers, retailers, and independent service companies, has been more competition for IT services and increasing demands for service and reliability from customers. Though IT service providers prefer to sign lucrative, comprehensive contracts as sole service providers for their clients, most companies still use multiple vendors to meet IT service needs rather than rely on all-inclusive contracts.
New technology, competition in the industry, and growing demands from customers have led to blurred distinctions among programming, maintenance, and outsourcing services. Large mainframe manufacturers continued to rely on services for a large part of their revenues. IBM created a separate division, IBM Global Services, that provides customers with network services (for all products, IBM or not). The company offers a product called ServicePacs, providing maintenance, disaster recovery, and other services for small and midsize businesses. IBM's ServicePacs were offered through resale channels. IBM added two more service-oriented products in 1998—ServiceSuite, for midsize companies, and ServiceSelect, sold directly to IBM's largest customers. IBM also devised a partnership with J.D. Edwards to offer its outsourced energy resource planning services to IBM customers.
Meanwhile, other computer manufacturers concentrated on acquisition to bolster service offerings. Computer Associates (CA) offered clients total "end-to-end" product and service solutions. Wang Laboratories Inc. made an agreement to acquire Olivetti SpA's computer services business. Compaq acquired Digital Equipment Corporation (DEC)—some believe primarily because of DEC's services offerings. Other large companies, such as Hewlett-Packard, not only offered IT services to their customers but then outsourced those services to smaller service companies specializing in a particular area of expertise, such as help desk support or maintenance and repair. Customers calling the support numbers were not always aware that they were talking to a separate service provider.
Computer manufacturers are not the only companies heavily involved in IT services. In partnership with Microsoft, Oracle, and Sun Microsystems, the consulting firm Ernst & Young offered an Advanced Development Center and Accelerated Solutions Environment, places where clients could come to the company to plot strategy and acquire resources from software solutions to mainframe hardware. Xerox acquired a systems integration company to support document-management systems sales and a software vendor to support new application management/outsourcing services to be launched in summer of 1998. And Big Six accounting firm Price Waterhouse entered into a merger with Coopers & Lybrand in July of 1998. PriceWaterhouseCoopers, the result, was the largest IT services firm in the world, generating more than US$13 billion in annual revenue and employing more than 160,000 people. PriceWaterhouseCoopers does business in more than 160 countries.
In response to the changing market, countries around the globe participated in the adoption of an Information Technology Agreement, which in 2000 eliminated tariffs on many information and communication technology products, such as hardware, software, electronic components, and digital photocopiers. It was anticipated that countries participating in the World Trade Organization agreement would realize job growth in almost every industry by accelerating technological development, lowering production costs, and increasing productivity. Twenty-eight countries signed the initial agreement at the Singapore Ministerial in 1996, representing almost 85 percent of the information technology trade. By the beginning of 2001, the Information Technology Agreement had 40 participants that made up about 93 percent of the global information technology industry. A few holdouts were eventually expected to sign the Information Technology Agreement.
In the United States, the IT industry was served by the Information Technology Association of America. With 500 domestic members and partners in 49 countries, the ITAA provided information and services to the industry as well as help in strategic planning and policy.
Computers revolutionized the workplace and made a dramatic impact on world markets for many goods and services. None of that impact would have been possible, of course, without the programming that instructs computers what to do and how to do it. In recent years, a growing number of companies have come to rely on customized services to make computers perform specified functions and talk to other systems within the same organization. Changes in technology and market conditions dramatically altered the technology services industry. These include the rise in popularity of desktop computers and client/server systems; the increasing demand for new, better, and cheaper technology from the business community; advances in packaged software; and the rise of Internet technology. The more computers do for the workplace, the more the workplace demands of computers—a key driver of the information technology services market.
In the late 1980s, networking became a more important part of computer programming services, particularly as more local area networks (LANs) became connected to other LANs, mainframes, and minicomputers. Programmers were increasingly asked to customize network operating systems, workstation operating systems, and network shells (the software that determines whether user commands are processed by individual workstations or by the network). One of the challenges of network programming is to follow the open system interconnection reference model, developed by the International Organization for Standardization (ISO) to develop standard network protocols.
With the world economic recovery in the early and mid-1990s, the computer services industry emerged, reflecting the new popularity of personal computers, laptops, and notebooks and the rise of client-server systems. As prices dropped and competition sharpened, manufacturers were forced to embrace open systems, producing machines that could work in conjunction with other manufacturers' hardware. Sometimes customized services were offered as part of a package. However, it became more common for manufacturers to purchase equipment at the most reasonable cost and then contract independent services firms to make sure all the components worked together and customize the software for specific user needs. As a result, businesses were more likely to buy system components from different manufacturers and shop around among various software manufacturers to meet their needs. In this new era of open architecture, the computer industry has created demand for more flexibility and all-around technical...
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