4.0 Market Analysis
The global IT consulting & other services market had total revenue of $515.6 billion in 2010, representing a compound annual growth rate (CAGR) of 3.9% for the period spanning 2006-2010. The integration & development services segment was the markets most lucrative in 2010, with total revenues of $254.2 billion, equivalent to 49.3% of the market's overall value. The performance of the market is forecast to decelerate, with an anticipated CAGR of 2.7% for the five-year period 2010-2015, which is expected to drive the market to a value of $587.8 billion by the end of 2015. (Data Monitor).
4.1 Industry Analysis
The U.S. information technology services industry includes about 100,000 companies with combined annual revenue of about $290 billion. Major companies include Computer Sciences Corporation (CSC), Unisys, and the technology consulting arms of IBM and Hewlett-Packard. The computer facilities management segment of the industry is also highly concentrated: the 50 largest companies generate about 80 percent of revenue. The rest of the industry is concentrated: the 50 largest companies account for about 50 percent of revenue.
Worldwide IT services revenue is about $800 billion. Leading exporters of computer and technology services include India, the US, Israel, and China, according to the World Trade Organization. Major companies based outside the US include Fujitsu (Japan), T-Systems International (a subsidiary of Germany's Deutsche Telekom), and Cap Gemini (France). (First Research).
The market is fragmented with small players competing alongside large, multinational companies. Buyers range in size: larger buyers, with greater financial muscle, exert more buyer power. Brand recognition is likely to be of significant importance to customers and they therefore often look to a reputable company for services. Entry to this market is increasingly achieved through the diversification of operations by existing companies from other fields. Rivalry between market players is alleviated to an extent with larger players operating in other markets or offering their services to a range of industries. Skilled employees, as suppliers of technical knowledge and expertise, are an important input. On the other hand, some companies show some backwards integration with their own hardware and software capabilities, which reduces their reliance on external suppliers. (Data Monitor)
IBM Global Services is the leading player in the global IT consulting & other services market, generating a6.6% share of the market's value. Hewlett-Packard Company accounts for a further 4.5% of the market. (Data Monitor)
4.1.1 Market Size
According to the U.S. General Services Administration the Top 100 Contractors Report is a list developed annually and tracks U.S. federal government procurement. The Top 100 Contractors Report for Fiscal Year 2010 lists contracts totaling $284.7 billion (2009: $294.6 billion). In the same period, small business contracts totaled $97.9 billion (2009: $96.8 billion). In Fiscal Year 2011, the top five departments by dollars obligated were the Department of Defense ($373.6 billion), Department of Energy ($25.1 billion), Health and Human Services ($19.3 billion), Department of Veteran Affairs ($17.4 billion), and NASA ($15.4 billion).
4.1.2 Industry Participants
The subcontractor market is flooded industry participants.
ITS’s primary competitors can be virtually almost business. In fact, any entity meeting the general requirements is a perspective competitor. The criterion to subcontract with the federal government is relatively simple. In order to do so, qualified candidates must 1) Obtain a small business certification from the U.S. Small Business Administration (SBA). The type of certification depends on the ownership, location or revenue of the subject business. Business certifications include HUB Zone, 8(a), small, women-owned, veteran-owned, Native American, Alaskan-owned and Native Hawaiian-owned. 2) The company must then register with the Central Contractor Registration, and complete an online training course. 3) The company must, be in business for at least two years prior to and apply through the Small Business Administration (“SBA”).
4.1.3 Main Competitors
ITS does not have local competitors, however, due to their proximity to ITS and their similar backgrounds they are mentioned here:
Vialogix Communications Inc
501 N College St
Established in 1996, and operated by Robert Norris. The company has 20 employees and annual revenues of $3.9 million. With a primarily focus in building websites Vialogix does not directly compete with ITS. Vialogix primarily builds web sites, intranets, extranets, Web-enabled applications, wireless applications and databases.
Data Recovery Charlotte
401 S Tryon St # 10
With 7 offices in the Charlotte region, 18 employees and annual revenues of $3.5 million, Data Recovery competes indirectly with ITS. They are primarily computer forensic analysis and recover data that has been corrupted or intentionally deleted. They can identify how a 'hacker' got past the security checks and if fortunate enough, identify the individual who caused the damages.
William Ives Consulting
320 S Tryon St Ste 213
The company has 18 employees and annual revenue of $2.7 million. The company has a primary focus on legal industry; however, they also provide automation with the way the clients chose to do business. They utilize groupware, document management and fax tools network platforms such as Microsoft Windows NT and Novell Netware.
201 W Morehead St Ste 400
The company has 8 employees and annual revenues of $1.5 million. This is a newly established company similar to ITS. The key principal, Fae Schaefer, has 10 years experience, comparable to Ms. Jayne’s. Refresh Technologies focuses more on companies utilizing her contractors to free up their employee resource pool. Her company provides comparable services, by offering services remotely or within a hosted environment, data backup & recovery, business continuity, server and storage monitoring and management, managed security, email management, application and database monitoring and managed network services. The company also reportedly saves its customers an average of 40% when compared to its peers but this information could not be verified publicly.
4.1.4 Market Segments
The US Government is as diverse as the U.S. secondly itself. However, with a few exceptions, the majority of the U.S. government contracts are awarded to the following industries: aerospace, telecom, automotive, defense, insurance and social service, energy and life sciences, banking/finance, rail/naval, distribution/sales assistance, aeronautics, space, and utilities.
4.2 Market Tests
While working as an independent consultant, Ms. Jayne focused her company’s efforts on two highly sought after government contract areas: energy and healthcare. She began contracting for some of Charlotte’s lager energy provides, providing them with IT services. She currently has 30 customers including: Duke Energy, Toshiba America Nuclear Energy, Westinghouse Electric, Power Group, and The Shaw Group.
To date ITS has been awarded two government subcontracts: 1) with the Betchel Group, and 2) with General Electric. Both projects are currently underway with all milestones to date meeting/exceeding expectations. Both prime contractors had a mandatory requirement to subcontract a portion of their work. The fact that ITS is a WOSB, combined with its proven track record, and ability to move quickly on short notice, made the award process that much more appealing to the conglomerates.
4.3 Target Market Segment Strategy
ITS’ strategy is twofold: work directly with prime government contractors (such as Duke Energy) and obtain contracts indirectly (word of mouth) such as the their experience with Betchel.
4.3.1 Market Needs
In general, the government sectors require old broken outdated software systems to be upgraded and stagnant legacy systems to be streamlined and operating more efficiently. Operating efficiency has become vital as the government seeks to get its arms around the largest databases in the country. The U.S. government’s information systems are clogged with a variety of old and disparate sources. Legacy systems, databases, and data warehouses are ‘clogging’ the systems As these sources and data volumes multiply, over time, it becomes to critical to incorporate, regiment and apply rules of order to avoid further data ‘glut’.
4.3.2 Market Trends
Many areas of high technology are highly competitive and are subject to rapid, unanticipated changes. The dynamic business climate poses significant challenges requiring companies to adapt rapidly to evolving conditions. In addition, during sharp industry declines such as 2000-2001 or 2008-2009, cash balances can be depleted very rapidly. (Standard and Poor’s)
While the timing of technological change and obsolescence is difficult to predict, rapidly changing technologies with marked potential for materially eroding companies' business and financial profiles are one of the few constants in the high technology sector. Cyclicality and technological change can create sharp declines and significant shifts in competitive dynamics, customer requirements, and buying patterns, which can rapidly reshape industry subsectors. The ongoing transformation of the data storage and semiconductor industry segments is an example of these market dynamics at work. (Standard and Poor’s)
High technology companies' earnings and cash flows are subject to cyclicality created by the business and/or consumer cycles. In many developed countries in recent years, volatility in business/corporate sector demand has tended to be markedly greater than cyclicality in the consumer economy. Historical recessions have largely been business-driven, rather than consumer-led, but in the current recession, demand is down sharply across both consumer and business markets. (Standard and Poor’s)
Consolidation remains a long-term trend in many high technology subsectors as growth rates have slowed. Managements of larger companies view their subsidiaries as components of a portfolio that should be actively managed, a strategy generating ongoing acquisition and divestment activity. Customers want integrated solutions; in response, high technology companies are broadening their offerings through acquisitions. (Standard and Poor’s)
4.3.3 Market Growth
While prime contractors saw a decline in growth when comparing fiscal year 2010 to fiscal year 2009, sub-prime contractors actually grew over the same time period. Sub-prime contracts were reported to be $96.8 billion in year 2009 compared to $97.9 billion in 2010 representing a 1.12% increase.
Based on the growth in this market and the current government mandates to award to small businesses, it is ITS’ contention that annual grown of 20% in revenues and 25% in assets does not appear unreasonable. Further this aligns ITS with its peers of similar size which enjoy the same growth. ITS will achieve this growth with the addition of more staffing. With the addition of billable hours and the built in cushion ITS has in its billable hours, the company feels these are sound achievable financial goals. (For more information regarding this ‘cushion’ please refer to the financial analysis portion of this business plan).
ITS has set itself apart from its competitors by 1) its narrow and targeted market focus (energy and defense) and by completely understanding industry trends. ITS is truly the market expert. 2) ITS’ extreme attention to detail in its subcontracts and project planning sets them apart from their peers. 3) Because of its small size, ITS has the ability to not only meet /exceed deadlines, but they can adapt quickly as well and on short notice. 4) All these factors lead to cost savings which in turn are passed on to their clients.