PAC Horizons Events 2024

This year, we had the pleasure of hosting three insightful events in London, Munich, and Frankfurt, where our analysts presented the most significant trends and developments in the IT and digitalization sectors. Focusing on the digital factory, SAP S/4HANA migration, AI-driven services, cloud services, and cyber resilience, these events offered valuable insights into the dynamics driving digital transformation in Europe.

This blog post summarizes the key findings that will help companies and service providers align their strategies with current market trends and capitalize on emerging opportunities.

 Key Trends and Insights in the IT Services Market

As usual, the PAC Horizons 2024 conferences began with an overview of the IT services markets.

Overview of IT Services Markets
In 2023, most major IT services vendors experienced a significant slowdown in growth, with many reporting shrinking revenues in early 2024. However, several vendors rebounded in the second and third quarters of 2024. Although recovery remains slower than expected, the trend is positive.

Key Growth Drivers
We analyzed the 7 key growth drivers, reflected in our SITSI “clusters”:

Process Areas:

·      Digital Customer Engagement: After a Covid-related boom, this market slowed in 2023. Recovery began in early 2024 in North America and will follow in Europe 6-12 months later. GenAI is driving growth by improving data processing and personalizing customer interactions. Key players like Adobe and Salesforce illustrate this trend.

·      Industrial IT/OT: Smart products (e.g., ADAS, software-defined vehicles) and processes (e.g., smart factories) hold long-term potential, fueled by IT breakthroughs like cloud, AI, and security. However, Europe’s manufacturing downturn, particularly in automotive, has impacted this market.

·      ERP & Back Office: Core systems modernization continues, with sectors like banking and telecoms recovering from investment slowdowns. Public sector demand remains resilient, and the SAP S/4 transformation is a major driver.

Enablers:

·      Cloud: Cloud adoption slowed in 2023-24 due to rising costs and economic uncertainty, with a focus on optimization (FinOps). However, cloud use began accelerating in H2 2024 in North America, as hyperscalers remain critical for innovation.

·      Analytics & AI: GenAI is a game-changer, driving cloud resource consumption and modest consulting demand while also revolutionizing IT service delivery (e.g., coding, testing). Effective AI use requires clean data and robust analytics infrastructure.

Boosters:

·      Cybersecurity: Growth is driven by regulations (e.g., NIS2, CRA) and customers consolidating security systems to control costs.

·      Sustainability: Despite economic challenges, sustainability investments remain a fast-growing market, driven by regulations like CSRD and ESRS, though growth is slower than initially expected.

Geographic Trends

In Europe, the UK was the first to slow down but also the first to recover. France performed worst in 2024, with a bleak 2025 outlook, while Germany held steady until mid-2024 before deteriorating, especially in the automotive sector. Smaller markets (e.g., Belgium, Austria) stayed resilient, and Spain, Italy, and Norway grew above average.

Outside Europe, the Middle East (led by Saudi Arabia and UAE) and APAC (boosted by Japan and India) saw strong growth. The USA, despite stagnating in 2023, was the first to recover, with a positive 2025 outlook.

AI & GenAI

Spencer Izard, PAC Principal Analyst, presented and discussed the findings of an in-depth CxO survey that PAC performed in 2024. The survey focused on how European business and technology leaders are scaling AI adoption now and over the coming years.

550+ senior leaders were surveyed across five countries, three regions, and ten industries. PAC is repeatedly asked about the factors that impact the demand for organisations to scale AI adoption across an organisation, especially regarding deep learning (DL) generative and agentic AI models.

At the event, Spencer Izard discussed how the survey results reinforced the overall adoption trends that PAC has been seeing in the UK and Germany over the past 2 years. For example, 20% of UK senior leaders and 27% of German senior leaders indicated that their organisation’s current AI strategy is in initial pilots despite all the market hype, and another 20% in the UK and 25% in Germany were in a research phase.

Despite the overwhelming hype and marketing budgets that the technology industry is focusing on AI, PAC attributes the AI scaling cautiousness to underlying challenges organisations have understood need to be addressed first and quickly to take advantage of AI sooner.

This is where the session showed that the importance of data management, responsible AI (RAI), and explainable AI (XAI) are foundational building blocks required to scale the use of generative AI (GenAI) and agentic AI (AAI) at scale. 31% of UK senior leaders and 22% of German senior leaders recognised that without RAI being adopted as an internal business service, the ability to adopt GenAI and operationally address concerns with the technology is just not feasible.

Similarly, 24% in the UK and 28% in Germany, 18% in the UK and 27% in Germany, recognise that data quality and model explainability, respectively, are critical in driving and scaling AI adoption. Encouragingly, 45% of UK CxO leaders and 37% of German CxO leaders consider GenAI and other DL models a high priority with full executive support over the coming year.

For PAC, the value of this session was clear because it drove a range of ongoing discussions with attendees both at the event and after because the results clearly showed a range of opportunities for service providers to support CxOs with the right consultative approach and ongoing services.

Findings from the PAC INNOVATION RADAR on AI-related Services in Europe 2024

PAC principal analyst Kartsen Leclerque found out that many user organizations lack experience in implementing and integrating AI into their business models. They need service partners with in-depth AI knowledge and with the necessary skills and experience to reliably implement mission-critical projects and take them to the operational stage.

Against this background, PAC has benchmarked 28 leading IT services providers in terms of their ability to support companies on their AI and GenAI journey. The results of the vendor benchmark have been published in a series of eleven individual PAC INNOVATION RADARs on “AI-related Services in Europe, France, and Germany 2024”. Through this in-depth RADAR analysis, PAC gathered a very comprehensive picture of the market:

Even if AI has seen new dynamism due to the recent breakthrough of GenAI, machine learning and deep learning have a long history in the IT industry. Both internally and externally, AI and automation solutions have often been addressed by many vendors for more than 10, sometimes for even more than 20 years.

So far, the topic was particularly prominent in the delivery of IT operations services, but also in BPO, for instance. But the breadth of vendor-internal use cases is huge, and largely corresponds to what we also see on the reference project side. E.g., many providers are experimenting with internal co-pilots that cover various use cases, which are then also made available to their customers.

The organizational embedding of a specific topic is a good indication of its strategic relevance for a vendor. Given AI’s data-centricity, most AI units emerged from data-focusing units, and often, both business areas are still closely meshed. However, most vendors have established dedicated AI business units, often at the global and local levels.

The sheer number of experts varies greatly depending on the size of the considered companies and ranges between dozens and tens of thousands. Also, the proportion of certified employees within these organizations varies greatly—from single-digit percentages to almost a hundred percent among the few fully data—and AI-focused specialists. As the current AI-related services business is widely consulting-driven, it is still a mostly local business.

When looking at typical services portfolios, it became clear that we are still at an early stage, especially when it comes to GenAI. There is still a lot of demand for basic consulting engagements. It’s still widely about identifying use cases, developing a general AI strategy, choosing the right technology, etc. But we also see increasingly concrete implementation projects.

Obviously, the bigger an organization, the more comprehensive the ecosystem can be. What is common is the collaboration with representatives of these major provider groups: data specialists, automation specialists, hyperscalers (all with their own AI and GenAI offers), LLM providers, business application software vendors, AI “silicon” vendors, and not least a big field of start-ups and niche players.

So far, we have seen very little M&A activity. Investment in R&D, in contrast, is extensive. Vendors have been investing in the establishment of AI labs and centers of competence and in proprietary IP (intellectual property) assets.

The share of addressed business processes within the overall AI-related services business is quite heterogeneous; however, back-office processes, IT operations ,and customer engagement stand out within the AI-related project business.

Major reference projects can be found in all verticals, but we have seen the widest range of references in the manufacturing sector. Back office and customer engagement have proven to be the most distinctive areas for AI also in manufacturing, but we have also seen examples for developments in autonomous driving, in analyzing IoT data to avoid supply bottlenecks, and quality control in production.  The providers also mentioned many lighthouse projects for verticals such as financial services, retail, public sector and transportation.

European Cloud Services

Éric Baudet, Senior analyst at PAC, shared his insights on the European cloud market’s drivers, prospects, and challenges.

According to PAC figures, the cloud services market is expected to post growth above 10% per year over 2024/28. Cloud computing is indeed essential for companies to fully leverage their data, manage vast amounts of information efficiently, and gain easy access to advanced AI and machine learning (ML) tools, enabling them to analyze, extract insights, and make informed decisions in real time.

The cloud also streamlines operations and improves overall agility, allowing them to innovate faster. Finally, it is seen as a way to address the growing sustainability requirements thanks to access to more modern and efficient data centers.

Nonetheless, the maturity of European countries and the ecosystem of providers vary greatly from one country to another. Countries such as the UK and Germany are more advanced in their cloud adoption and IT outsourcing journey, and the top-10 IT service providers are dominated by global giants such as Accenture, Capgemini, TCS…On the other side countries such as Italy and France have a very rich ecosystem of strong local IT Service providers. In France, seven of the top 10 IT service providers are French (Capgemini, Atos, Sopra Steria, Orange Business, Inetum, Neurones, Devoteam…).

As such, even if the overall cloud services market remains dynamic, IT service providers have to understand the market they are serving and its local flavor in order to benefit at best from the arising opportunities.

Cyber Resilience

Wolfgang Schwab, Principal Analyst at PAC, fueled the discussion on cyber resilience with some insights on the topic.

·      Definitions:

•  Cyber resilience is a company’s ability to weather cyber threats without long-lasting disruption to business processes. This includes quick responses to security incidents and effective recovery.
• Cybersecurity comprises measures and technologies for protecting computer systems, networks, applications, and data against cyber threats. The goal is to ensure information confidentiality, integrity, and availability.
• Information security protects information and data, both digital and physical, and aims to ensure confidentiality, integrity, and availability.

·      The principles of cyber resilience

• Risk governance: The overarching goal is to ensure the effectiveness of cyber security measures in line with the relevant business strategies.
• Risk management: The goals here are to minimize threats and limit the impacts of cyber incidents.
• Crisis management: Team play of IT department, the executive board, the risk management team, the legal department, the HR department, the finance department, and the communications department.
• Cyber hygiene: A culture of cyber hygiene includes behaviors, practices, and measures for ensuring digital security.

·      Recommendations for service providers

• •  Cyber Resilience is the next hype topic; fuel it with offerings:
  •  Consulting is the key to success (strategy, incident response and disaster recovery plans, etc.)
  •  Project services and managed services are step 2 and 3
  • Cyber security is not enough anymore
  • Cyber resilience is linked to IT resilience
  • Both are linked to enterprise resilience
  •  Therefore, services are decided on the C level (usually CEO, CIO, CSO, and CFO!)
  •  They must be addressed right!

Based on these fundamental insights, the audience discussed the following questions:

·      Is cyber resilience just the next thing to be hyped?

·      How do you bridge the gap between cyber resilience and enterprise resilience?

·      How are AI technologies like deep learning and machine learning shaping the future of cybersecurity and resilience?

S/4HANA migration strategies

Joachim Hackmann, PAC Principal Analyst, has given an update on the market for SAP S/4HANA-related services. To set the scene, he referred to the high growth rates in the German SAP services market (5.5%), which are significantly higher than those of the overall IT services market in Germany (4.1%). The detailed analysis of the SAP services market reveals that growth is being driven almost exclusively by demand for C&SI services for SAP S/4HANA, for example, an increase of over 30% in 2023/24.

Demand will remain at a high level, which is to be expected given the results of the PAC CXO survey on the status quo of S/4HANA migration in Europe. At the PAC Horizon events in Munich and Frankfurt, Joachim Hackmann presented a special analysis of the data, which only covers the results of the German participants. According to this, almost half of the companies surveyed still have the S/4HANA migration ahead of them.

In addition, the German participants are open to SAP’s RISE offering. Around a third of respondents have signed or want to sign a RISE contract, and as many as 75% can imagine following SAP’s clean core approach. Overall, the survey results show that the organizations that took part in the study are very open to modernizing their business processes as part of the SAP S/4HANA migration.

Trends and Status Quo of the Digital Factory – a Use Case Analysis

Arnold Vogt, principal analyst at PAC, provided his perspective on the latest digital lighthouse factories, emphasizing key trends and use cases driving efficiency and sustainability in manufacturing

Research topic: In December 2023, the World Economic Forum (WEF), in collaboration with McKinsey, published a list of new digital lighthouse factories worldwide. Lighthouses are manufacturing companies that show leadership in applying digital technologies at scale and achieving significant improvements in cost, operational efficiency, and sustainability by transforming factories, value chains, and business models.

The initiative started in 2018 by scanning thousands of leading manufacturers, looking for the most advanced factories. This led to the identification of the first 16 lighthouse factories. Today, 153 lighthouse factories are listed; 17 of them are additionally recognized as sustainability lighthouses for the technology-enabled improvements they have made to their environmental footprint.

Scope: PAC reviewed the list of the top 5 use cases of the 21 lighthouse factories (16 factory lighthouses and 5 end-to-end value chain lighthouses) and 4 sustainability lighthouses added in December 2023. The aim was to identify trends around the most value-driving use cases related to the digital factory.

Identified trends

·      From industrial data visualization and analytics to control towers and decision support systems

·      From individual solutions for computer vision to standardized tool kits for accelerated adoption at scale

·      From predictive maintenance to AI-enabled predictive quality

·      Digital twin simulations, 3D printing, AI, and vision technology help make changeovers of production systems more efficient.

·      From AI-supported to digitally automated manufacturing tasks, processes, and operations

·      From AI-supported to autonomous planning and scheduling

·      From energy management to smart microgrids

·      VR-based training and expert systems enabled by knowledge graphs are the first value-generating use cases to emerge around the industrial metaverse and GenAI.

Overview of relevant digital factory use cases

Conclusions: Leading factories are gradually but consistently moving in two directions: first, scaling digital use cases from the machine and process levels to the operations level; second, from digital transparency and AI-based insights and recommendations to autonomous systems. Autonomous operations (“lights out”) is the ultimate target, and we observe leading factories making clear progress in this direction.

Digital Sustainability

Aida Oganesov and Nick Mayes have given an update on the market for digital sustainability. The 45-minute session explored three critical subtopics: the evolving drivers of ESG strategies, the growing market for digital sustainability services, and the impact of AI on sustainability efforts.

Moving Beyond Regulatory Drivers – While regulatory compliance has traditionally driven environmental, social, and governance (ESG) initiatives, shifting preferences among customers, employees, and investors are pushing companies to integrate sustainability into core operations. This requires breaking down organizational silos and embedding sustainability practices across departments like procurement and R&D.

Though some companies have made progress, many remain focused on regulatory metrics rather than operational improvements. The analysts emphasized that organizations should leverage ESG for competitive advantage, improving efficiency, emissions reduction, and logistics.

Growth in Digital Sustainability Services – The digital sustainability services market is expanding rapidly, especially in Germany, where it is forecasted to grow at a 28% compound annual rate from 2024 to 2028. The analysts noted that companies have started transitioning from isolated sustainability projects to comprehensive change programs.

This shift signals a progression from merely formulating commitments and strategies to implementing broad-based, functional sustainability practices. Chief Sustainability Officers (CSOs) still direct the majority of sustainability spending, but Chief Financial Officers (CFOs) are increasingly involved, indicating the financial integration of sustainability within business objectives.

AI’s Dual Impact on Sustainability – AI enhances ESG data management and operational efficiencies, with tools like Microsoft Sustainability Manager improving carbon reporting accuracy. Applications in agriculture, logistics, and predictive maintenance also optimize resources, reducing waste. However, AI’s energy demands, especially for complex models, pose environmental challenges. The industry is exploring efficient AI models and responsible usage to balance AI’s sustainability benefits with its environmental footprint.

Shifting Opportunities in SITS

Nick Mayes, Principal Analyst, shared PAC’s views on the changing nature of opportunities in the software and IT services (SITS) sector.

While the economic backdrop remains volatile, the role of technology has become so fundamental to corporate strategies across all industry sectors, that the budgets of enterprise IT functions are being supplemented by funding from other parts of the business.

Even in those sectors that are facing the greatest pressure to cut costs, accelerating the pace of digital transformation is seen as vital to their short-term preservation and future development. We cited several examples from local government and higher education where significant new investment has been released for major new SITS initiatives.

PAC also looked at how there had been an increase in the number of SITS contracts in the first half of 2024 and that one of the main drivers has been the rise in greenfield opportunities coming to market in those sub-sectors that have lagged behind in terms of digital maturity. For example, new competitive and market pressures facing the legal and recruitment sectors have encouraged organizations to enter into their first generation of major outsourcing deals.

Many of the companies entering into this engagement fall into the lower end of the enterprise bracket (between £1bn and £10bn annual revenue), which has often been underserved by the very largest SITS vendors. However, they are increasingly leaning on external partners to help them harness the potential of data and AI, shore up their cyber defenses, and ease the pressure on their stretched internal IT teams.

PAC also explored what is shaping up to be one of the most significant drivers of SITS investment over the course of the next decade: the huge asset modernization programs that are being launched in the energy, utilities, and transport sectors.

More than €500bn is set to be invested in the European energy grid, and close to £100bn will be channeled into the UK water industry. These programs are increasingly being viewed as data projects as much as asset replacement initiatives, and we are already starting to see closer collaborations between SITS vendors and engineering and construction firms.

Our events this year underscored the profound impact of technologies like AI, cloud services, and autonomous production systems on the digitalization landscape. At PAC, we remain closely connected to these developments to support companies on their journey and to shape forward-thinking strategies. The trends we identified in 2024 highlight that organizations engaging early with cyber resilience, AI, and sustainable digitalization are best positioned for long-term success. We look forward to providing fresh insights and innovations in the coming year.

Attendee survey: Investment areas of IT providers for 2025 and beyond

As is tradition at our annual events, we surveyed participants to gain insights into their planned areas of investment for 2025. This valuable feedback allows us to better understand the priorities, trends, and emerging focus areas within their industries, providing a comprehensive overview of where they intend to allocate resources and drive growth in the coming year.

What are your organization’s development priorities for 2024 and beyond?

In what industry do you expect your organization to focus on revenue growth in 2025 and beyond?