Cash flows back into IT consulting

Companies are spending more on IT consulting again, with the bulk of the spending going on systems development and integration as the dot-com hangover finally wears off.

A report from The Management Consultancies Association (MCA) claims that last year IT consulting spending increased by 13 per cent and systems development increased by 43 per cent.

The MCA report said that more than half (58 per cent) of IT-related consulting was made up of systems development and systems integration in 2004, with the remainder being made up of IT strategy, technical architecture and supplier selection engagements.

For the first time in three years, demand for consulting is substantially picking up in the financial services sector, and this is expected to continue into 2005, the MCA said.

Fiona Czerniawska, author of the MCA report said that much of the increase in IT consulting may be the result of companies finally starting to spend again in the aftermath of Y2K and dot-com overspending.

But she added: "It may also be a sign that clients are choosing to do more IT work in-house with the help of consultants, rather than opt for wholesale outsourcing.”

The biggest markets for IT systems development were telecoms (worth £155m) and utility companies (£131m). The MCA said the increased demand in the telecoms sector is the result of voice over IP and 3G mobile phone technology coming to market.

The report also found that risk/reward deals - where some of the consultant's fee is dependent on the success of the project - are increasing. The trend, which started with the large consultants is now moving down to the small and medium sized consultants, it said.

Analyst house Gartner also said that customers are looking for a closer link between IT project investments and results. It said the role of the IT department is moving from providing all IT services to being a manager of services provided by other organisations.

But according to its research published last week, across Europe consulting and systems integration are growing more slowly than outsourcing.