What's Next
The return to historical levels of extension and renewal contracting activity started right around the time the economy began to slow. Firms homed in on cost optimization, slowed decision-making and prioritized risk reduction (a pattern we continue to see in 1Q24).
Under circumstances like these, enterprises tend to stick with incumbent providers. They also tend to reduce their engagement with new providers because they are doing less project work, and project work is often a pipeline for managed services work.
This means providers that are laser-focused on delivering value, keeping prices in
market range and finding ways to help their clients optimize costs (and drive those savings back into transformation) have a better chance at winning a portion of the growing extension and renewal activity up for grabs.
But it’s also important to remember that this cost-constrained environment will end. We believe discretionary spending will start to loosen up in the second half of the year, which means new scope awards – especially in areas like application development and maintenance – will likely rebound.
When this happens, providers that
have the expertise enterprises are looking for (and are struggling to find in today’s market) stand to benefit.