Small IT services firms show consistent

growth despite economic downturn

Smaller IT services firms are weathering the current economic environment much better than their larger counterparts. According to the National Association of Computer Consultant Businesses (NACCB) annual Operating Practices and Trends Study (OPTS), conducted by Deloitte & Touche LLP, the greatest median revenue growth rate, 7.1%, occurred within the smallest companies (less than $3.5 million in gross revenues), while larger companies (over $25 million in annual gross revenue), median revenue declined by 13.4%. While the business environment for IT service firms remains challenging, the study suggests it is still possible to grow a small firm.

The wide variation of operating profit (EBITDA) between firms in the bottom quartile, at the median and in the top quartile suggests that attention to business fundamentals is more important than ever.

"While there are a number a variables that could contribute to the disparity in profits between the highest and lowest quartiles, a fair assumption would be that those near the bottom should review their management strategies vis-à-vis those at the top to seek out areas of improvement," said Don McLauin, CEO of NACCB.

The economic pressure within the industry has affected headcount as well. According to the NACCB study, of the participating companies, total headcount was reduced on average 4.93%, while technical staff was reduced at an average of 10.7%. By comparison, in the year 2000 headcount grew an average of 17.7%, with technical headcount rising 28.6 %. Despite the down turn in headcount, the use of H-1B visa holders remains important to IT services firms: 64% of survey respondents reported using H-1B's at some level.

Although the data reported clearly indicates 2001 was a difficult year for the industry, respondents remained optimistic and anticipated revenue growth over 10% for 2002.

NACCB, in conjunction with Deloitte & Touche LLP, designed the Operating Practices and Trends Study to provide IT service firms with comprehensive information on operating ratios, compensation rates and performance metrics in the IT services industry. For over 10 years, the OPTS has been an invaluable business tool presenting accurate and timely information with which companies can benchmark their practices against others in the industry. In 2002 over 100 companies reflecting over $2 billion in total revenue participated in the NACCB study.