Cloud modernization and infrastructure as a service (IaaS) investments are expected to be a major factor as the annual IT services spend tops $2 trillion by 2028 and grows nearly 5% annually, according to a Forrester report.
Even as the IT services market picks up steam, companies will face challenges in the form of growing competition from software and engineering firms, while they leverage generative AI (GenAI) to evolve IT service delivery.
“IT services companies that thrive will scale globally, adapt regionally and add value through skills and capabilities across government, industry and defense,” the report noted.
Kausik Chaudhuri, CIO of Lemongrass, said IT services firms are also encountering bottlenecks in innovation that stem from talent shortages, rising operational costs, cybersecurity threats and increasing client demands for customized solutions.
He said to maintain profitability, firms should implement automation across business practices.
“Overall, automation can manage routine tasks to allow employees to focus on higher-value work, such as using AI for predictive analytics, enhancing security measures, updates, and personalized client interactions,” he said.
Automating development operations (DevOp)s processes would streamline development cycles and improve software quality, and customer support automation through chatbots and virtual assistants will ensure 24/7 service and faster response times.
The report noted GenAI is fundamentally transforming the delivery of services across various industries, enhancing IT service productivity by automating complex tasks, leading to significant reductions in project delivery costs.
In the United States, Forrester projected 57% of job losses in professional services due to automation will be attributable to GenAI.
Adoption of GenAI will allow organizations to allocate more resources to address project backlogs, improving overall efficiency and accelerating the completion of critical initiatives.
Ari Weil, cloud evangelist at Akamai, explained most enterprises would ultimately consume commercial large language models (LLMs) and create AI powered applications using inference on the data that originates closer to their users.
“This changes the equation for cloud providers as the need to scale out becomes as critical — one could argue, more critical — as scaling up,” he said.
Chaudhuri said he agreed interest in AI and GenAI among enterprises has been significant.
“However, while interest is high, actual adoption remains very low, indicating that these technologies are still in their early stages within the business sector,” he added. “As enterprises become more familiar with GenAI capabilities, adoption rates will accelerate.”
This will expand beyond basic applications to more transformative AI-driven processes—such as coding, system maintenance, data analytics, and even client interactions—that will significantly impact industry practices and operational efficiencies.
Weil explained cloud computing has dismantled the traditional constraints of business operations and ushered in an era of unparalleled agility and scalability.
“It enabled organizations to quickly adapt to market demands by provisioning resources on demand,” he said.
The business and architectural models that enabled apps today are evolving to models that not only allow companies to scale up to meet demand, but also scale out to meet their users closer to where they are.
“Today, there is no one-size-fits-all approach to application architectures,” Weil explained.
Just as cloud-native applications led to the evolution from monolithic applications to microservices, edge-native applications are driving IaaS growth by forcing a rethink of where compute resources are deployed and scaled.
IT Services Firms Compete with Engineering Firms
The Forrester report projected competition between IT services firms and engineering firms will continue to evolve, particularly in consulting, security and digital services.
Digital services, encompassing areas like cloud computing and AI, are seeing heightened competition as engineering firms invest heavily in these technologies to provide comprehensive solutions.
Chaudhuri said as demand for services in these sectors increases, their offerings are merging with those of other traditionally separate sectors; some enterprises prefer a “one-stop-shop” approach.
“For example, engineering firms are increasingly encroaching on territory traditionally dominated by IT services firms by leveraging their deep technical expertise and industry knowledge,” he said.
In consulting, engineering firms are expanding their offerings to include IT strategy and digital transformation advisory services, challenging IT firms’ historical dominance in this area.
“With security, the growing importance of cybersecurity is driving both types of firms to enhance their capabilities, leading to a more competitive landscape,” he said.
Coupled with higher demands for these sectors is the workforce skills deficit, where businesses must compete for qualified workers.
“In the future, you may see a consolidation of different sectors via more mergers of various specialty firms into larger advisory services firms,” Chaudhuri said.
