Information Technology is changing the way we live and work and transforming the economy at a fundamental level. It is responsible for new products and services; creating new companies and industries; revitalizing existing products, services and industries; providing venues for commerce; enhancing our ability to manage information and to innovate productivity. Information technologies are the most important enabling technologies in the economy today. They affect every sector and industry in the United States, in terms of digitally- based products, services and production and work processes.

The computer services industry can be divided into two main categories: Professional and
Processing services. Another category to keep in consideration is Hybrid firm services.
 

Professional services
This broad segment that is the largest includes technology consulting, education, custom
programming, systems integration, and outsourcing among other categories. According to
Dataquest, the two largest components are systems integration (with estimated revenues of
$111.4 billion in 1998) and outsourcing ($83.2 billion). These areas are expected to grow at
compound annual rates of 18.8% and 15.8% through 2002.

Major Players in Professional services- Electronic Data Systems (EDS) with $16.9 billion
(1998), was reported as the largest independent services vendor in this sector. It provides
services systems and technologies, business process management, management consulting ,
and electronic business. Another large independent professional services provider noted
was Computer Sciences Corp., with revenues of $7.4 billion in 1998.
 

Processing Services
This sector comprises of vendors that use their own computer systems (often with proprietary software ) to process customer transactions and data. Revenues for this sector were estimated at $59 billion for 1998. It is expected to grow at annual rate of 7.1% through 2002.

Major Players in Processing services-  The largest independent processing services vendor is Automatic Data Processing, Inc. (ADP). It is a major supplier of employer, brokerage , dealer and claims services- with recorded revenues of $5.2 billion (1998).
 

Hybrid Firms
IT service providers that are engaged in more than the service business.
Major Players in Hybrid Firms- Although designing, manufacturing, and selling computers is their primary business, many hardware vendors are also major players in computer services. However, these vendors usually offer services that incorporate their hardware solutions.International Business Machines Corp. (IBM) is the world's largest computer services firm. In 1998, IBM derived 29% of its revenues from computer- related services.

Software vendors, especially those serving more technical areas, are also large providers of
IT services, example; Oracle Corp.
 

WORLDWIDE INFORMATION TECHNOLOGY SERVICES ( Millions of Dollars)
 
 

	1998	1999	2000	2003	Annual % Growth
Consulting	29,437	34,669	40,743	67,525	18.1
Systems Integration	111,370	132,120	156,056	263,337	18.8
Operation Outsourcing	83,265	95,620	110,456	173,138	15.8
Business Management	7,094	8,422	10,059	17,927	20.4
Education & Training	15,501	17,982	20,729	31,496	15.2
Total	246,667	288,813	228,043	553,462	17.5

 Source: Dataquest
 

Professional services
The professional services category comprises of the following:

Custom programming
Professional services firm involved in custom programming provide clients with

Systems integration
It involves producing a unique computer system that meets the client's specific needs. It is
a rapidly growing sector due to the rapidly advancing technology. Its two major markets are
government and commercial market.

Consulting services
A services sector that is growing at a rapid speed is that of consulting services. Around the world, mergers and acquisition, privatization , technological advancement and the Internet are changing the way business is conducted. This is turn is driving companies to turn to consultants to help them deal with the change. According to Dataquest, worldwide spending on consulting services (including both business consulting and IT consulting) is projected to reach $67.5 billion by 2003.The business- consulting is expected to grow at an annual rate of 22% while the IT consulting is expected to grow at an annual rate of 17% through 2003.According to IDC, the biggest spenders on consulting services are in manufacturing, government, communications and banking.

Outsourcing
The outsourcing market is growing as a viable alternative to in- house information systems
management. Demand for outsourcing is being driven by globalization and technological
innovations throughout the world. These factors are leading to global competition which is
forcing companies to focus on cost cutting measures. According to Dataquest, outsourcing
services are expected to grow at an annual rate of 15.8%, reaching $173 billion by 2003. Major players in this sector are IBM, Computer Sciences, Andersen Consulting and Electronic Data Systems.Outsourcing works out as a perfect cost effective solution for companies that are trying to cope with the rapid technological change but do not want to spend on maintaining an in-house technology office.

Business process outsourcing (BPO)
One of the newer, fast- growth areas of the outsourcing industry is the business process
outsourcing, which entails outsourcing of an entire business function.

Application Outsourcing
Application service providers (ASPs) or software rentals provide a service to deploy, host,
manage, and lease a packaged application software from a centrally managed facility.

Transformational Outsourcing
The computer services firm helps to transfer all of the customers computer processing that was once performed on mainframe to a client/ server system.
 

Industry Trends
The services most in demand reflect the major trends affecting the entire computer industry. These trends, and their impact on the computer services industry are outlined below.

The Internet
The rapid evolution of the Internet- has created a huge opportunities for the computer services sector. The sector helps users design, implement, and maintain their Internet connections; some firms also help clients develop Internet content.
IT service firms also provide the expertise to set up and maintain an organization's Internet link, intranet and extranet.

Electronic Commerce
The fastest growing segment of the Internet holds great scope for computer services that help make electronic commerce more effective.

Back- office automation
A major segment of the software industry is enterprise resource planning (ERP). Computer
services help purchasers of ERP software with integration and training. According to IDC,
the worldwide ERP consulting and integration services market is expected to grow at an
annual rate of 17%.

Front-office focus
Computer service firms also help with front office management in order for companies to attract and retain business. This market includes software that automates sales, marketing, call center, and field service operations.

Sophisticated software
Due to the rapid technological advances there an array of software that is increasingly functional and sophisticated. Computer services firms help companies decide the software, the specifications and provide training and ongoing support.

Labor Shortage
Since computer programmers and systems analysts are in short supply, the demand for the
computer services firms is greater. It works out cheaper for a firm to hire a computer services firm than to maintain an in-house computer services department.

Vertical Markets
With every sector of the economy becoming more digitized there is a greater demand for computer services in virtually all sectors of the economy. For example manufacturing, finance, travel, healthcare, communication and energy all enlist computer service vendors.

Federal Marketplace
The U.S federal government remains the single largest consumer of computer services in the United States.  The services for which it contracts range from traditional systems integration to outsourcing to advanced technical undertakings, and complex project management.
 

Statistics

• Information technology’s share of the U.S economy nearly doubled between 1977 and 1988, growing 4.2% to 8.2%.

• IT contributed to more than one third of the real U.S. economic growth between 1995 and 1997.

• Traffic on the Internet is doubling every 100 days. This rapid growth in traffic is generating demand for both hardware and software, as well as for skilled IT workers to implement and manage these systems.

• Between 1998 and 2003, U.S. business- to - business commerce over the Internet is projected to grow from $48 billion to $1.3 trillion (an annual growth of 99%), with an $1.8to $3.2 billion in global e-commerce; and U.S. consumer sales over the Internet are projected to rise from $3.9 billion to $108billion.

• According to the industry estimates, the markets for computer and communications hardware and services, and for software have grown to one trillion dollars. With the current growth rate estimated at 10% the global market for these products and services may be growing by $100 billion annually

• The International Data Corp. (IDC) reports the total worldwide computer services industry revenues at $296.4 billion in 1998. This amount represents more than one-third of total spending on information technology (IT).

• The U.S market share accounted for 47% of the worldwide market for computer services with revenues estimated  at $139.1 billion.

• The industry is estimated to grow at a compound annual rate of 9.5% through 2002, reaching $425.7 billion.

• The service sector is expected to account for the lion's share of growth in the core IT occupations during the 1996- 2006 period. By 2006, the service sector is projected to increase its employment of computer systems analysts, scientists, and engineers by 177 percent and computer programmers by 47 percent

Flows between firms and flows between countries-

The growth in the IT sector is fueled not only by rapid diffusion of information technologies throughout the economy, but also by the tendency of firms in all industries to out source both routine and complex information activities in order to concentrate on core business. However, the labor shortage of skilled IT workers has led to companies drawing upon talent pools from outside the United States.
 
A country that has been a beneficiary of the shortage of IT workers faced within United States is India. This year, software products should account for $5.7 billion in exports and one-quarter of the growth in India's $400 billion economy. Because its strength dovetail so nicely with the needs of the West, moreover, India could become a more influential global player. Information Technology has also become a major driver of bilateral relations between the United States and India. Since most companies are drawing upon talent pools outside the U.S to  meet their demands for IT workers. 1n 96-97 outsourced software development accounted for 41% of India's software exports.

In advanced industrial economies, strong growth rates in the IT  sector continues to propel demand for IT workers. Canada IT sector has been growing by 10% annually. Europe enjoys key elements necessary to start a new economy. The jump in technology spending is enormous. European companies shelled out $200 billion on information technology and are expected to spend upto 30% more this year.
 

Major issues facing the industry

As statistics show, these are boom times in the information technology industry. But, there is one very troubling, dark cloud looming on the horizon. There simply aren't enough employees with the right mix of IT skills to go around. The skills shortage spells trouble for the industry as  whole, particularly in the United States. The  result of this shortage shows that after having led the world into Information Age, the United States is having substantial trouble keeping up with the demand for more information technology workers.

The labor market for IT workers is expanding rapidly, due to the amazing advancement and diffusion of information technology. People with knowledge of these new technologies are constantly in demand as IT occupations are evolving in new directions. The initiation of information systems in every industry has only fueled more demand for skilled workers. As now there is demand for  IT workers who can create, apply and use information technology  cuts across to manufacturing, energy, healthcare, education and transportation among several others. According to Information Technology Association of America there are an estimated 190,000 IT jobs that are currently vacant and the number of computer science graduates is falling.

In surveys, managers in North America name the lack of qualified employees as one of their chief barriers to implementing new client/server systems. This high tech employee shortage has also driven up costs. A recent study by  the Meta Group on IT salaries showed salaries rising in this sector at 20 percent a year, well above the rate for non-IT workers in the  United States, and faster than that of IT workers overseas. This translates into a cost disadvantage for US exports of high tech merchandise since the cost of producing goods in the US is higher than in foreign countries. And that spells a competitive disadvantage for U.S. companies.

Since information technology is an enabling technology that affects the entire economy, as is clear from the recent run ups on the Nasdaq, our failure to meet the growing demand for IT professionals could have severe consequences for America’s competitiveness, economic growth, and job creation.