Report estimates £84 billion mid-market opportunity for European IT service providers

The digital transformation of mid-market companies represents a key business opportunity for the IT service provider sector, a new report from global management consultancy Oliver Wyman has concluded.

The company estimates that investment in digital transformation by businesses in this segment will rise by 8.8% at an annual rate between 2021 and 2026, outpacing the 7.6% annual rate of increase for the overall market.

That means that aggregate spending on IT services for companies with annual revenues of £0.4 to £4.2 billion will increase by 52% to £84 billion by the end of the five years. By comparison, the wider market is tipped to grow by 44%.

Samir Javeri, Partner at Oliver Wyman, said the pandemic led many businesses to accelerate their transformation to the cloud, address growing cyber security requirements, and modernise their applications.

“Until now, more than 50% of mid-market customers have opted to manage IT primarily in-house, due to concerns about protecting sensitive data and the cost advantage,” he explained. “However, many of them now face difficulties in managing the full extent of the transformation journey with in-house resources.

“As a result, they are increasingly turning to external providers for help, especially mid-market clients, who are finding it more challenging to attract talent in an environment of a general shortage of IT resource experts."

In 2021, European mid-market companies invested more than £55 billion in IT services, making up 28% of the total £194 billion spent by all companies in Europe.

In the UK, businesses spent £15 billion on IT services last year, with telecoms and financial services leading the way with a spend of £4.8 billion and £3.4 billion respectively.

Mid-market loyalty

On the whole, the study concluded that mid-market companies show a “higher level of adherence to their IT service providers”, with the lower end of the segment tending to be loyal. In fact, only 4% of them were found to have changed their top two providers in the last two years.

By comparison, larger organisations were deemed to be more likely to switch vendors, with 20% switching one of their top two at some time over the same period.

“With a tech talent shortage across the market, the answer isn’t going to be winner takes all as the ecosystem will suffer,” said Javeri. “IT service providers have the opportunity to be part of the solution by supporting the internal capability build and upskilling journey that the market is increasingly focusing on.

“This will not only be a valuable differentiator and source of work in the short term, but longer term will facilitate growth and progress across the board.”