2023 was a year of disruption after the 2021-22 digital catch-up. As the year unfolded, IT services spending slowed down, initially in the U.S. in the financial services, telecom, and high-tech sectors.

We expect 2024 to be a year of transition with a modest rebound in IT services spending, continued consulting interest in GenAI, a rebound in cloud infrastructure adoption after a slowdown in 2023, and an uptake in discretionary spending. U.S. spending will rebound and outgrow U.K./Europe.

A Modest Rebound in IT Services Spending

IT services spending growth in 2024 will increase by a modest 1 pt to +4%, driven by managed services/IT outsourcing spending in H2 2024.

Spending in the U.S. will rebound in H2 despite much uncertainty due to the U.S. elections, both in terms of stock market perceptions and also the possibility of squeezed federal government spending. In contrast, Europe will remain soft, as Germany suffers from its exposure to the quiet Chinese manufacturing sector. More information here for our subscribers.

Digital and GenAI Drive Consulting

Consulting remains a cyclical activity, and revenues in key sectors such as financial services, traditionally large buyers of consulting services, and telecom have been declining. A positive impact is the very high interest by firms across sectors in understanding the potential applications of GenAI in their organization. Interest also remains around UX/UI, SaaS, and front-office applications, though it is slowing down. Industry 4.0 generally remains solid but will be impacted by the manufacturing slowdown we predict for 2024. Sustainability has mid-to long-term potential.

IT infrastructure Services: Cloud Rebounds

Despite a slowdown in 2023, notably in the high-tech and financial services sectors, the migration of IT infrastructure and applications is a secular shift. NelsonHall sees no market saturation for public cloud migration in the short term. Security will continue to thrive.

Transformation of the digital workplace accelerates with a focus on Experience Management Offices (XMO) for centrally coordinating the UX and deploying XLAs such as user satisfaction in contracts. Vendors will continue to verticalize their persona-based offerings. e.g., nurses and doctors in healthcare, plant operators in manufacturing. Clients turn to vendors for guidance and OCM on GenAI, with agent assist utilizing KM as a typical early use case.

Application Services: Agile and Data/Analytics/AI Continue to Dominate

Data, analytics, and AI will be 2024’s priority, with GenAI (and traditional AI and IoT) driving spending growth. Another major theme is hosting data on the cloud. Key themes for other service lines include:

• ADM: agile transformation continues to be the major theme. Along with APIs, LC/NC tool usage, and sustainability. Many organizations will seek advice from their vendors about the role of GenAI in ADM (e.g., documentation, code migration, code development)
• Quality engineering/testing: continuous testing (i.e., agile testing transformation) is, like in ADM, a major theme along with functional automation. Traditional AI promises to automate the requirements/user stories-test case-test script cycle. GenAI will continue to monopolize the boardroom’s attention
• S/4HANA transformations with phased roll-outs will continue to be solid. Organizations will also assess the benefits of SAP initiatives such as Clean Core and BTP to lower maintenance costs and rearchitect applications. The agile transformation will continue
• Salesforce has made a strategic shift and now favors profitability over revenue growth. The company expects a 10% CC revenue growth (primarily organic) in 2023 and pushes its GenAI agenda. MuleSoft remains the core driver, while core Sales and Service Cloud grow faster than more recent products such as Commerce and Marketing Cloud. 2024’s key question will be whether Salesforce will push again on revenue growth for its subscription and service ecosystem.

U.S. Will Grow Faster than Europe

Growth in discretionary spending is likely to resume from H2 2024, led by the U.S. once inflation rates start declining and businesses have greater visibility on the likely outcome of the presidential election.

U.K./Europe’s recovery will be delayed by a semester (H1 2025). There will be increased uncertainty in the U.K. with a general election in H2, in both commercial and government sectors. Germany will continue to be impacted by less manufacturing equipment sales to China. France will have anemic growth, also impacted by a manufacturing slowdown.

2024: A Year of Transition

2024 will be a year of a transition from the slowdown of 2023, with the U.S. regaining its role as a traditional driver in IT services spending. IT services spending will return to stronger growth from 2025 as organizations reignite discretionary spending in digital, cloud, and security. Notably, GenAI and AI bring the potential to fundamentally transform how businesses operate across functions; none will want to be left behind.

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