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ISBN 1-85765-742-X

This report covers: computer services, operational services, professional services, systems and solutions, maintenance and support, facilities management, infrastructure outsourcing, application outsourcing, desktop outsourcing, network outsourcing, consultancy, education, training, systems development, software maintenance, systems integration, turnkey applications, vendor maintenance, third-party maintenance, contract work, project work, IT disaster recovery, business continuity services, recruitment, databases, VAS, Accenture, Cap Gemini Ernst & Young, CGEY, The Capita Group, Compaq Computer Group, CSC (Holdings), EDS UK, IBM UK Holdings, ICL, Fujitsu, Logica, PriceWaterhouseCoopers, Reuters Group, SchlumbergerSema, Spring Group, Syntegra, Xansa, Bull Information Systems, CMG, Computercenter, Computer People, Hewlett Packard, ITNET, KPMG Management Consulting, MSB International, Oracle, Parity, Unisys,

Companies covered include: Accenture, Cap Gemini Ernst & Young, CGEY, The Capita Group, Compaq Computer Group, CSC (Holdings), EDS UK, IBM UK Holdings, ICL, Fujitsu, Logica, PriceWaterhouseCoopers, Reuters Group, SchlumbergerSema, Spring Group, Syntegra, Xansa, Bull Information Systems, CMG, Computercenter, Computer People, Hewlett Packard, ITNET, KPMG Management Consulting, MSB International, Oracle, Parity, Unisys,

Companies covered include: Accenture, Cap Gemini Ernst & Young, CGEY, The Capita Group, Compaq Computer Group, CSC (Holdings), EDS UK, IBM UK Holdings, ICL, Fujitsu, Logica, PriceWaterhouseCoopers, Reuters Group, SchlumbergerSema, Spring Group, Syntegra, Xansa, Bull Information Systems, CMG, Computercenter, Computer People, Hewlett Packard, ITNET, KPMG Management Consulting, MSB International, Oracle, Parity, Unisys,

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Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

The UK computer services industry market was valued at £19bn in 2000 and is expected to grow to £20.43bn in 2001. In 2000, the market grew by just 7.1 percent, compared with growth of 14.5 percent in 1999 and 23.3 percent in 1998. In 2001, the market will again witness relatively slow growth, with revenue rising by just 7.8 percent.

The market consists of four main types of services: operational services, professional services, systems/solutions and maintenance/support. In recent years, ongoing contract work such as outsourcing has been the fastest-growing sector of the market and this has been especially true in the past 2 years as client companies have cut back on ad hoc, one-off projects. Consequently, operational services and total outsourcing (operational outsourcing, processing and applications management) have been the main growth sectors of the market.

Since 1999, there has been a major reversal in the industry's fortunes as market sales growth has slowed. The ending of Millennium-Bug-related work, economic slowdowns in the US, UK and major markets such as Germany, the bursting of the 'dotcom' bubble and the decline in telecommunications have all helped to slow down demand in the market.

In the face of loss of demand, company profits and margins have come under pressure, leading to the decline of many new e-business-based operators and a greater focus on profitability within the industry. In response, companies have started to cut back on jobs and have put greater emphasis on cost control and operational efficiencies. This, in turn, is putting more pressure on companies to form partnerships with erstwhile rivals, for sales and marketing purposes rather than for strategic reasons, and to look for mergers and acquisitions.

Between 2001 and 2005, industry growth will be modest by the standards of the late 1990s. The major players in the market will be the best placed to exploit the future growth of the industry, as important clients seek to place their business in the hands of trusted names. Overall, the industry will continue to undergo a period of adjustment between 2001 and 2003, as companies seek to restore their profitability. Over this period, companies relying on ongoing contracts will perform better than those dependent on project-based, ad hoc contracts. The need to adjust to the new environment will result in increased pressure to consolidate in the industry, leading to major mergers and acquisitions.

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Text © 2001 Key Note

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Last updated by Jacob van Eldik 24th November 2001