As we discussed on the 1Q22 Index call, the IT services industry saw unprecedented levels of activity in the first quarter. There were over 600 managed services awards. That’s only the second time the industry has seen that level of contracting activity.
While award counts are hitting all-time highs, award durations and values are reaching all-time lows. In the first quarter, the average award duration dropped to less than three years, and average award ACV dropped to below $15 million (see Data Watch).
Enterprises are increasingly favoring smaller, shorter engagements. There are a lot of reasons for this: companies need to realize the results of outsourcing faster, they need to reduce transformation risk and companies are carving out and rebidding less successful components of larger transactions. And finally, there are fewer technology assets – like servers and software licenses – included in awards than in the past.
The movement to greater numbers of awards that are smaller in scope has big implications on both the buy and sell-side of IT services. Providers are building smaller, more autonomous teams to pursue these awards with the goal of landing and expanding over time. And enterprises are accelerating the provider evaluation and contracting process, prioritizing quick wins over long-term transformation.
We’ll have an updated view on this data during the 2Q22 Index call on July 13th. Hope you can join us.