The global IT and Business Services market witnessed some softening in 2023 with revenue growing (in constant currency) from $1,17-trillion in 2022 to $1,22-trillion, according to the International Data Corporation (IDC) Worldwide Semiannual Services Tracker.

This translates to year-over-year growth of 4,6%, which slightly outperformed IDC’s forecast of 4,5% growth. In nominal dollar denominated revenue based on today’s exchange rate, the market grew 4,1%.

Despite economic headwinds, enterprise demand for cloud and digital transformation services remained strong, driving an uptick in growth in the second half of 2023 compared to a deceleration seen in the first half of the year.

Support Services and Managed Services drove most of this uplift, with the largest improvements seen in managed services.

The trend towards cloud-based services continues to be a large driver for markets within managed services, as companies recognize the need to leverage scalable infrastructure while simultaneously reducing costs and improving flexibility; IT Outsourcing, Key Horizontal BPO, and Network and Endpoint Outsourcing Services drove these rebounds in growth.

On the flip side, the Project Oriented market (professional services), saw a slight slowdown in 2023.

“Continued delays in decision-making and a tightening of end user spending, particularly on smaller projects, contributed to market softening but there are some bright spots during these uncertain times through migration and modernization service offerings,” says Eileen Smith, program vice-president, IDC Data and Analytics.

“Service providers are emphasizing agility and supporting companies and businesses in their transformation to digitize their operations, with cloud at its core.”

Overall, a more stable performance during the second half of 2023 sets the stage for moderate growth in the upcoming year.

Worldwide IT and Business Services revenue is expected to grow to $1,28-trillion in 2024, or 4,7% year-over-year growth (in constant currency).

As organisations worldwide navigate digital transformation, the demand for innovative services solutions continues to surge, driving growth and reshaping the landscape.

The short- to mid-term outlook for the market has been increased slightly because of stronger than expected vendor performance along with growth indicators from adjacent markets and the five-year compound annual growth rate (CAGR) is now projected to be 5,1%.

After strong bounce-backs in 2021 and 2022 followed by moderate growth in 2023, given the current economic conditions, IDC expects a general cool down, especially in the latter years of the forecast.

In terms of primary markets, while the Project Oriented market is still expected to outperform Managed Services and Support Services, achieving a 6,1% CAGR across the observed period, its momentum is expected to slow down, especially compared to the robust growth seen in 2022.

Geographically, IDC has raised its outlook for the Asia/Pacific region and the Americas while growth was adjusted downward mainly for Europe, the Middle East, and Africa (EMEA).

“Organisations continue to recognize the value of technology investments even amidst uncertainties and continue to turn to service providers to enhance operational efficiencies, streamline processes, and improve customer experiences,” says Stacey Soohoo, research director, IDC Worldwide Services Tracker. “In the short term, service providers will focus on personalized offerings as organisations recognize that one-size-fits-all approaches no longer suffice.

“It is therefore no surprise that we see overall services growth driven by foundation markets like Custom Application Development and Hosting Infrastructure Services, where customisation and flexibility are key, allowing businesses to tailor tools and infrastructure to their unique requirements.”

Jason Bremner, research vice-president: Worldwide Services at IDC, says: “Greater spending on security, cloud, and intelligent automation technologies combined with the global shortage of IT skills are increasing spending on business and IT services as organisations invest in applications and infrastructure to compete in the digital business era more effectively.

“The outlook for spending growth in the worldwide services market over the next five years will be higher than the average spending growth we saw in the past 15 years, indicating the underlying market drivers for business and IT services remain strong.”