Data Processing Services
SIC 7374
NAICS 518210
Data processing firms provide diverse computer-related services primarily to other businesses. Specialties within the industry include:
•Data entry
•Database management
•Text or graphics digitization
•Payroll processing
•Credit card transaction processing
•Medical claims billing
•Computer time leasing
•Off-site data management facilities.
Certain firms in the industry also perform computer systems design, hardware consulting, contract maintenance, on-site management, and integration services. For discussion of these activities, see Computer Services.
A key beneficiary of the global trend toward outsourcing non-core business functions, the data processing industry obtained double-digit sales growth in leading markets throughout much of the 1990s, and continued to grow well into the new millennium. According to the Bureau of Labor Statistics, the computer and data processing industry was the fastest growing industry in the U.S. economy, with employment projected to increase 86 percent between 2000 and 2010. During 2000, the information technology outsourcing market, a loose measure of data processing receipts, was nearly 20 percent of all outsourcing expenditures in the United States. According to International Data Corp., total global outsourcing spending was projected to reach US$151 billion by 2010.
Long-term prospects for the data processing industry worldwide remain strong. Trends supporting industry growth include a continued swing toward outsourcing for cost savings and, in some countries, a shortage of technologically savvy workers available to firms outside the information technology industries. The Outsourcing Institute reported that, outsourcing related to e-commerce functions continued to be the fastest growing sector, with an annual growth rate of about 18 percent. The institute also claimed that demand for such support would continue to increase. By 2004, the institute reported that while the original intent of outsourcing was to save money, the reasons have ballooned to include the desire for access to the best providers in the industry, but on an as-needed basis.
By 2004, the outlook for data processing services was strong, as the outsourcing of IT services in general began an upswing. The Bureau of Labor Statistics reported more than 286,000 U.S. employees in the industry in 2003, the vast majority of whom worked in computer or administrative support positions.
Data processing companies perform services such as credit card authorization and billing, data entry, medical claims processing, payroll processing, and off-site data center management. Data processing services generally use their own facilities and proprietary software to process their customers' data. Many of the big data processing services tend to specialize. Historically, the largest segments of the industry by revenue were data center management, payroll processing, and credit card transaction processing, but with the proliferation of the Internet and the growing popularity of e-commerce, new sectors in the data processing services industry have become popular including online database management and Web site hosting and management.
Although many industry firms work with multi-year contracts, data processing services are often delivered on either a timesharing or a transaction basis. A timesharing service vendor usually sells customers a portion of time on a large computer. Timesharing is valuable to companies that need access to computing power that they could not otherwise afford. Companies also use timesharing services to handle part of their data processing needs in cases where their in-house facilities cannot accommodate the additional capacity, or when they are upgrading or building their own in-house computing systems.
Firms that provide transaction processing services assume responsibility for a company's high-volume office functions, such as payroll processing. Transaction providers base their rates on the number of transactions processed, rather than on the time it takes to process them (as with timesharing). One disadvantage for establishments that provide this kind of service is that transaction processing is sensitive to shifts in the economy. If a company offers payroll services, for instance, it may find that during a recession a client that trims its workforce needs fewer payroll checks processed.
Many companies turned to outsourcing in the late 1990s because of their increased need to consolidate operations, control costs, and make more efficient use of existing resources. Outsourcing continued to experience substantial growth into the early 2000s. Outsourcing has a particular appeal to companies that often spend hundreds of millions of dollars a year on data processing. Because computers generally account for between 3 to 5 percent of a company's operating budget, using an outsourcing vendor can lower costs significantly. The vendor is able to offer computerization on a large scale and can consolidate its data centers. The vendor will typically charge a fixed (or at least predictable) annual amount, and this gives the customer better control over costs.
With receipts of more than US$78.9 billion in 2000, including both employer and nonemployer firms, the United States continues to command the greatest share of the world's data processing business. This is true in part because U.S. companies have been quicker to outsource various data management tasks, notably payroll management and credit card transaction processing, to independent services that specialize in the various kinds of data handling. The United States also has been quick to adapt to changing technologies brought on by the increased use of the Internet. Indeed, U.S. industry revenues between 1992 and 1996 grew by more than 78 percent in real terms. In 1998, revenues were US$48.3 billion and increased to US$61.9 billion in 1999. Major industry participants in the United States, several of which lead the world in certain service categories, have also aggressively courted business worldwide and are market leaders within other countries, particularly in Canada and Europe. Computer and data processing services also were among the top ten U.S. service exports in 2000, with exports reaching US$6.3 billion. In addition to the leading companies that primarily sell computer services, the global market also is served by major hardware companies such as IBM, which have found...
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