This category covers establishments primarily engaged in supplying computer related services, not elsewhere classified. Computer consultants operating on a contract or fee basis are also classified in this industry. Establishments primarily engaged in producing prepackaged software are classified under SIC 7372: Prepackaged Software; and those engaged in offering data processing courses or training in computer programming and in computer and computer peripheral equipment operation, repair, and maintenance are classified under SIC 8243: Data Processing Schools.
541512 (Computer Systems Design Services)
541519 (Other Computer Related Services)
More than a decade ago, a handful of companies like IBM Corporation and some smaller rivals dominated this industry. Corporate downsizing and reengineering in these companies forced economic power to shift from a handful of monopolies to hundreds of smaller high-tech specialists, according to the Dallas Business Journal. The power in the marketplace also shifted during the 1990s from those making the computers to those using the computers. A direct and striking result of this trend was the explosion in demand for computer services.
The computer related services industry was only a small part of the computer professional services industry. According to the International Trade Administration of the U.S. Department of Commerce, the computer professional services industry had 1997 revenues of nearly $109 billion—an increase of more than 63 percent from $66.7 billion in 1994. Within this computer services category, the single biggest component was computer system design services, accounting for $51.2 billion of revenue. Computer facilities management services brought in another $15.1 billion. Bringing up the rear within the computer services sector were computer related services, not elsewhere classified, which produced revenue of approximately $4.3 billion.
The growth of firms in the computer related services industry was in double digits toward the end of the twentieth century. Companies increasingly turned to computer specialists to handle their disk conversions, database developments, or troubleshooting. The popularity of the information superhighway and its effects on U.S. companies meant a larger role for consultant services. Although many companies developed extensive in-house computer centers from the 1960s through the 1980s, in the 1990s they turned to computer service firms in increasing numbers, particularly to handle special assignments. Some found that it was more cost effective to lay off or reassign their own computer personnel while using third-party data processors, systems integrators, or computer consultants. Computer services firms made it their responsibility to stay on the cutting edge of technology and to offer services that most in-house departments could not match.
Those computer related services not classified under other SIC codes included hardware and software requirement analysis and diskette conversion services. Some consultants marketed themselves to businesses as experts in a particular area. Those who performed hardware requirement analysis thrived in the computer-centered economy by recognizing the need for business to select the best computer equipment for its goals. These analysts were usually hired on a contract basis to spend several weeks or months working with a company to select the company's computer hardware. Often they discovered that existing equipment was not satisfactory and that either upgrades or complete overhauls were necessary to bring the company up-to-date. At the opening of the twenty-first century, these computer consultants and analysts were in a good position to succeed financially.
The National Association of Computer Consultant Businesses (NACCB) is a nonprofit trade organization, based in Washington, DC, whose members include skilled professional consultants or programmers. Founded in 1987, NACCB supports legislation, provides job fairs and model legal contracts for members, and encourages professional standards among its members. NACCB also lobbies Congress to consider the needs of independent contractors and employees in the industry.
The Independent Computer Consultants Association (ICCA) is a nonprofit trade association based in St. Louis that was founded in 1976. Its members are experts in hardware and software. ICCA publishes tips for hiring computer consultants as a support for its members. It also compiles industry statistics, offers insurance programs for member companies, and develops standard consulting contracts.
Computer related services consultants perform tasks similar to those performed by other computer professionals. Many work for large computer firms before going off by themselves or joining consulting firms. The consulting firms tend to be small to medium in size and can be found in every kind of community in the United States, from large metropolitan areas to rural communities. Those consultants working in the smaller areas commute to their clients' offices, often working there for the duration of a project.
As computers and computer systems became commonplace in the working world, the necessity for computer related services increased. From the 1950s through the 1980s, technology made huge leaps forward. As costs fell in the 1970s and 1980s, more businesses came on line for straightforward tasks. By the late 1980s and early 1990s, very sophisticated computer equipment needed equally sophisticated specialists who could handle disk conversion, database development, and recertification of disks and tapes. These consultants worked to make a niche for themselves among businesses of all sizes and types.
Computer service companies were originally hired to automate such record-keeping tasks as payroll. They expanded into such customer-related areas as fund transfer systems, just-in-time inventory systems, and customer information systems. Many companies could only hire these service firms in the best of financial times given the high cost of the services. Early programming was highly individualized, but the needs of business by the 1990s necessitated more standardization.
New tax laws and proposed health care changes were some of the areas of concern to the computer consulting industry. The National Association of Computer Consultants Businesses (NACCB) wanted computer systems analysts and other computer consultants to be considered professionals exempt from overtime rates. Their staff members worked with the U.S. Department of Labor to create laws that dealt fairly with NACCB's members. The 1986 tax law's Section 1706 indicated that only technical services firms could deduct the use of independent contractors. NACCB actively tried to repeal this part of the law. President Clinton proposed to repeal Section 1706 as part of his health care reform bill, saying that more workers needed to be treated as employees.
Pennsylvania enacted a 6 percent sales-and-use tax for computer related services. It met with strong resistance from the industry, whose leaders said that computer services firms were in the early stages of development and could be harmed by the steep tax. At the same time, these firms were contending with an influx of products that were designed to be operated by average office personnel without the assistance of specialists.
Prepackaged software also took away some of the steam of these companies, as more users of computer hardware and software became familiar with their equipment, needing less support from computer services professionals. There was also a longer lag between the purchase of computer equipment and the need for computer professional services, which forced these companies to operate "leanly." As more companies integrated computer systems into their operations, new additions to the installed base increased slowly because many purchases were just upgrades.
By the mid 1990s, an increasing connection existed between the computer and telecommunications industries, especially in Europe and Japan. This was expected to help computer professional services firms as consultants were called in to connect changing technologies so that performance was seamless.
The Independent Computer Consultants Association (ICCA) encouraged its member consultants to use formal contracts that outlined such details as payment terms, length and scope of the project, and copyright information on the finished project. Custom software developers, for example, usually held the rights to the computer code they developed, and the customer was allowed to use the system, but not to sell it.
Beginning in 1988, the Internal Revenue Service (IRS) penalized companies for calling employees independent contractors and not paying taxes for them. The IRS used several factors to determine whether a part-time worker was an employee or an independent contractor. These included employee training, working hours, payment practices, and the company's right to discharge the worker or the worker's right to terminate the working relationship. As long as the employer controlled what the work was and how it was to be done, the worker was considered an employee.
Many in the industry were also concerned about competition from foreign computer experts. NACCB fought the abuse of immigration laws that allowed foreign workers to do computer consulting work at illegally low rates and without proper visas.
Worldwide revenues of the information technology industry rose to more than $1 trillion in 1998, up from $688 billion only three years earlier, according to the Information Technology Industry Council (ITIC). These revenues represented sales of computers and related equipment, software and services, business equipment, and telecommunications equipment and services.
U.S. Census Bureau data put revenues of the U.S. computer services industry at nearly $109.0 billion in 1998. Spending for computer-related services, not elsewhere classified, accounted for a little over $4.3 billion of this total.
More than 80 percent of the companies in this industry were smaller, entrepreneurial firms with annual sales below $2 million. Many of these computer services companies were owned by minority Americans, according to a 1987 Census Bureau survey of minority-owned enterprises. Many non-computer firms joined the industry by adding divisions or by acquiring computer services companies. Banks, publishers, airlines, and telecommunications companies were among those whose information technology divisions were involved in this industry.
There was much industry consolidation in the 1980s and early 1990s. Larger firms laid off workers, and some smaller firms merged, while large firms acquired computer related firms to enhance their position in the industry. Many U.S. companies attempted to meet all of their computer needs with one large contract. This trend forced some smaller computer-related services firms to join forces with other small firms in order to get the bigger projects.
Computer professional services included custom software, system design, and outsourcing services. Among the major players in this industry in the late 1990s were Automatic Data Processing (ADP), Ceridian Corp., and Perot Systems Corp. Acxiom Corp. ADP, headquartered in Roseland, NJ, employed 37,000 workers worldwide and posted sales of $5.5 billion in fiscal 1999, the twelve months ended June 30, 1999. Based in Minneapolis, MN, Ceridian employs a workforce of nearly 10,000 and reported 1999 sales of $1.3 billion. The employer of 6,000 people, Perot Systems Corp., based in Dallas, TX, posted 1998 sales of $993.6 million.
The Information Technology Association of America (ITAA), looking forward to 2005, predicted that computer services would have the largest increase in personnel among information technology fields—including computer hardware and telecommunications industries. According to the Information Technology Industry Council, export and employment statistics forecast were also strong. The information technology industry employed 2.06 million Americans in 1997, according to a study commissioned by the Computer Research Association. That was up more than 63 percent from an IT workforce of 1.26 million in 1988. The composition of the IT workforce, however, changed considerably over those nine years. In 1988, computer programmers made up 45 percent of all IT employees, against computer scientists at 38 percent. In 1997, computer scientists made up 60 percent of the IT workforce, compared with 30 percent for programmers.
Those consultants and analysts who took advanced training in new technologies and who had a broad base of knowledge were better placed to succeed in the competitive world of computer services. The ICCA had its own certifying organization known as the Institute for Certification of Computer Professionals. This institute administered a standard computerized examination at more than 140 sites around the world. Those who passed the exam were designated Certified Computing Professionals and could market themselves as experts in computer systems.
The United States comprised the largest market for computer services, with almost half of the information services used by consumers worldwide used in the United States. Computer consultants and consulting firms, therefore, were on solid ground in the U.S. market. Many foreign companies used U.S.-based computer related services as they tried to enter U.S. markets or as they concentrated on their own markets.
Overall, U.S. computer professional services were highly successful abroad. Computer related services were encouraged by the passage of the North American Free Trade Agreement (NAFTA) and the expansion of the General Agreement on Tariffs and Trade (GATT). The 1989 U.S.-Canada Free Trade Agreement led some U.S. computer services companies to expand into other markets by buying Canadian firms. As an export, computer related services thrived in Canada, which was the major importer of U.S. computer services as well as of computer software, hardware, and telecommunications services. Some U.S. companies also had subsidiaries in South America and Europe.
Computer related services were being exported by U.S. firms at an increased rate in the 1990s. The U.S. Department of Commerce described the industry as having outstanding prospects for exporting success. According to the Bureau of Economic Analysis, the export of U.S. computer services was $2.04 billion in 1998, while imports were only $365 million. This represented an increase of more than 97 percent in exports from a level of $1.03 billion in 1990. Imports, on the other hand, climbed more than seven-fold from $44 million in 1990. The Information Industry Association (IIA) and ITAA both supported the efforts of U.S. firms overseas.
As countries around the world began to allow corporations to operate privately, computer services firms stood to gain new entry into foreign markets by helping the companies bring their operations up-to-date. Many consulting operations increased their marketing campaigns abroad in response to waning interest at home.
The European Community encouraged mergers and acquisitions among Western Europe's computer professional services firms. This trend had potential to create steep competition for U.S. companies. At the same time, a few Japanese, Canadian, and British computer services firms bought U.S.-based computer services firms in the early 1990s.
Such new technologies as computer-aided software engineering, or CASE, allowed some companies to handle their own computer programming without bringing in consultants. Some consulting companies fought this trend by offering skilled specialists who could perform computer tasks at rates far below the company's cost to do the work in-house.
In the early 1990s, an increasing proportion of computer related services was in electronic mail systems and services. This technology included the proliferating voice mail systems as well as electronic messaging systems that traveled across computer networks. Other telecommunications areas were expanding into computer consultants' territory as well. Integrated services digital networks, or ISDNs, provided computer professionals with another field in which their services could be used. The key for companies in the computer related services industry was to stay ahead of the corporate world and to continue offering services that enabled corporations to focus on their business while the consultants took care of their computer needs.
In the late 1990s, as the dawning of the new millennium neared, computer consultants reaped a bonanza as American businesses, large and small, spent heavily to have their computer systems safeguarded against the so-called Y2K bug. The widespread fear was that computer systems would fail to recognize the arrival of the year 2000 and would either stop functioning altogether or would malfunction. As it turned out, perhaps because of the billions spent on preparations or perhaps because the threat was never so big as it was reported to be, the new millennium arrived with virtually no dislocation in the computer sector. However, as long as bugs in software continue to pose a problem, computer consultants will have plenty of business trying to track down and eliminate them. Examples of the damage such a bug can cause are numerous. In January 1990, AT&T's long-distance switching system crashed because of such a bug. Sixty thousand customers lost service for the nine hours it took to get the system up and running again. In another case, the results were deadly when a Therac-25 radiation therapy machine produced a "Malfunction 54" error message. Unaware that the message meant "radiation overdose," the machine's operator reset the machine and continued to treat patients, several of whom later died.
The new uses of the Internet, especially the potential for e-commerce, promises to spur further growth in this industry. Since Web site errors have the potential to drive customers into the arms of competitors, the explosive growth in the Internet undoubtedly will produce a wealth of business for computer consultants. In a mid 1999 example of the new opportunities for computer consultants, Neal N. Gibbons Services Plus+, a computer consultancy based in Magnolia, Texas, announced a new service for auto dealers with Web sites. The product, called Auto DIA (Auto Dealer Internet Audit) monitors the Web sites of new car dealers continually for errors, ensuring smooth operation.
Behr, Peter. "By the Numbers: Why It's Not Easy to Get a Tech Job." Washington Post , 14 June 1999.
Brown, Joseph. "Y2K Isn't the Last Word in Computer Bugs." Tampa Tribune , 9 January 2000.
Byrne, Harlan S. "Golden Days: Business is Booming for the Computer-Service Companies." Barron's , 9 December 1996.
Darnay, Arsen J., ed. Service Industries USA , 4th ed. Detroit: Gale, 1998.
Gumucio, Marcelo. "High-Tech Specialists Take Over Computer Industry." Dallas Business Journal , 19 August 1994.
"New Service Monitors Auto Dealer Web Sites for Costly Problems." Business Wire , 15 July 1999.
"Record U.S. IT Industry 1994 Revenues Exceed Expectations." Information Technology Industry Council , 18 April 1995.
U.S. Bureau of the Census. 1997 Economic Census. Washington: GPO, 1999.
U.S. Department of Commerce. Bureau of Economic Analysis. Survey of Current Business , October 1999.
U.S. Department of Labor. Bureau of Labor Statistics. Occupational Outlook Handbook, 1998-1999 Edition. Washington: U.S. Department of Labor, 1998.
The U.S. Information Technology Industry Profile 1992. Arlington, VA: Information Technology Association of America, 1993.
"U.S. IT Industry 1995 Revenues Top $688 Billion." Information Technology Industry Council , 1 July 1996.
Comment about this article, ask questions, or add new information about this topic: