Spending on IT consulting will drop "dramatically" by 4.6 per cent this year from 2002, according to a recent survey of chief information officers (CIOs) by the research department of investment bank, Merrill Lynch & Co.
One reason for the drop is that CIOs were being careful with their overall IT spending, and IT consulting specifically was very dependent on discretionary spending, which was extremely tight, the report said.
"The consulting model is ill-suited for this current environment," the report said.
Other factors affecting consulting vendors included increasing competition, especially from offshore companies, and the resulting decline in prices, according to the report.
IT consulting pricing were down 13 per cent compared with last year. Amid providers of IT consulting services, Accenture and BearingPoint were well positioned to ride the storm out, Merrill Lynch said, because of their "full-service offerings" and "strong client relationships."
The outsourcing sector was in slightly better shape. Spending was expected to grow one per cent this year, while its pricing was down four per cent, the report said.
"The outsourcing industry is in disarray as it comes off a year with essentially no revenue growth," the report reads. Outsourcing vendors would have to watch costs very carefully with spending remaining almost flat and prices falling.
The segment of business process outsourcing (BPO) should experience flat growth in spending.