As justifications for cancelling public offerings of shares go, it was remarkably candid. ICL, the information technology services company owned by Fujitsu of Japan, last week called off its planned UK flotation on the grounds that it was not the e-business services company it aspired to be.

The public admission - accompanied by the resignation of Mr Keith Todd, its chief executive - may be unusual, but the problem is not.

In the past few months, a succession of IT services companies in the US and Europe have shown signs of distress in their struggle to reinvent themselves for the new economy. Companies such as Computer Sciences, EDS, Computacenter and WM Data have issued profit warnings, and the value of the European IT services sector has fallen by half, according to Commerzbank.

It is a far cry from the 1990s, when the sector enjoyed rapid growth. The companies were buoyed by demand for their services from big industrial and service sector groups. They installed and ran large and complex software packages made by companies such as SAP of Germany, which boosted efficiency by knitting together dull "back office" activities. Demand for the skills of IT services companies also soared as companies dealt with the millennium bug.

But the climate has changed. Not only has the millennium bug scare passed, but many corporate IT directors are no longer concentrating on internal processes. Instead they are trying to use technology - in particular the Internet - to change the way their companies interact with customers and suppliers.

That requires small teams of consultants working against time on discrete projects, which does not play to the traditional strengths of big IT services companies. "It is payback time. Many of these companies are living in the past," said one analyst.

The biggest shock to IT services companies has been the fall in demand for enterprise resource planning (ERP) - the large projects aimed at sorting out internal processes. According to Commerzbank, after reaching average annual growth rates of 30 to 40 per cent over the past few years, growth rates in ERP software and services are expected to fall to 5 per cent. Many big companies have reached saturation point.

This change has not only hurt sellers of business software, such as SAP and Baan of the Netherlands. It has also hit services companies such as Diagonal, a UK-based company which implements SAP's software.

In July the company said its profits had halved in the first half, after a period of "exaggerated inactivity". Larger companies, such as Siemens Business Services of Germany, have also been badly affected.

Meanwhile demand for so-called "e-services" - helping companies implement e-commerce or change supply arrangements using the Internet, has grown rapidly.

According to IDC, the research consultancy, e-services will account for 30 per cent of all IT services spending by 2003, compared with only 10 per cent now. That would represent an annual turnover of $79 billion (€87 billion).

But instead of helping traditional companies compensate for the decline in ERP, this demand has spawned new types of competitors. Companies such as Sapient of the US and Pixelpark of Germany combine skills in Internet design with a "reinvent-your-business" style of consulting.

They are enjoying rapid growth as a result. In May, Pixelpark reported revenues for the first nine months of the year up 175 per cent on the previous year. Last week, Sapient said its second-quarter revenues had doubled.

The consultancies are also squeezing traditional IT services companies in other ways. The latter are struggling to hire people trained in e-business skills such as Web design, but have had a hard time competing with the less hierarchical culture of consultancies.

Mr Friedrich Froschl, chief executive of Siemens Business Services, talks with bemusement of the attitudes of some employees of e-business consultancies he visited in New York. "They need to work in a loft. They need to have 10 feet above their heads, otherwise they can't think. One of them had a sushi chef on their payroll," he said.

Companies such as Siemens recognise the need to change. But it can be hard to create a new culture inside institutions that have been geared towards a different way of working. As a result, IT services companies are likely to struggle to adjust themselves to the initial stages of e-services work, such as Web design and consulting.

That does not mean all is lost in the longer term. As demand for e-business services matures, and the focus moves from small pilot schemes to larger projects, their strengths should once again be in demand.

"Web consultants may be good in phase one and two, designing websites. But phase three and four is where the million-pound contracts are. That is where the integration skills of bigger companies will pay off," said Ms Vanessa Beresford, a Commerzbank analyst.

There are some similarities with the experience of Internet retailers. For all their boasts about first-mover advantage and nimbleness, many e-tailers found they struggled because of their lack of an established infrastructure.

The result has been a growing number of alliances between pure Internet retailers and traditional companies. Alliances may also come to be struck between Web integrators and the traditional IT services companies in complex projects.

Furthermore, European IT services companies may have more room for manoeuvre than their US counterparts. Mr William Farrell, an analyst at Morgan Stanley, says pure e-services companies started earlier in the US and have been able to build up broader businesses.

In Europe, there are fewer e-services consultancies, and they have not managed to build up the same range of activities. "The Internet didn't sneak up on traditional integrators in Europe the way it did in the US - European integrators still have time," he said.

That does not mean companies such as ICL can rest easy. Given the rapid rise in the demand for e-services, they inevitably face a period of wrenching change. But the cancellation of ICL's IPO is not the end of the story. "Traditional firms may go through a bad patch," said one analyst. "But don't write them off."