Insider
Hello. This is Stanton Jones and Sunder Sarangan with what’s important in the IT and business services industry this week.

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Deal Durations
Deals durations are up across the industry as technology and operating model transformation drive more complexity into managed services awards.

Data Watch
Cost Optimization Transformation Are Making Deals Longer Chart
Background

Cost optimization continues to be the primary driver for global outsourcing activity. That activity was quite robust in Q3, with a record $10.9 billion in annual contract value.

That said, savings generated by cost optimization-focused agreements are not from process improvements and labor arbitrage alone. They are increasingly also coming from transformation. For example, moving from a waterfall, on-premises infrastructure model to a modern DevOps, cloud-based model can significantly reduce the costs of operating the environment.

This means that enterprises are relying on their managed services providers to make big changes to their environment. And not just to the underlying technology, but to the operating model as well. These are enterprise-wide changes that often have very complex scopes and transitions.

The result of this is a boom in large-deal activity that often has multiple towers in scope. All of these factors together are why deals are getting longer across the IT and business services industry (see Data Chart). It also represents a change from what we have seen over the last five to 10 years when deals were getting shorter.

The Details
On average, managed services contracts are 20% longer in 2024 than they were in 2023.
Awards with $100 million of ACV or more are 40% longer in 2024 than they were in 2023.

What’s Next

While we don’t believe deal durations will lengthen much more in 2025, we do believe enterprises will continue to focus on cost optimization.

Enterprises that are in their second-, third- or even fourth-generation sourcing agreements have, for the most part, already used all the levers a provider can pull to reduce costs: labor arbitrage, process improvements, workflow, automation, etc.

The way firms will get to savings in 2025 will be through technology modernization, which usually means transformation. We expect to continue to see longer awards, especially larger, longer awards, as enterprises bank on fast-track transformation programs to drive year-over-year savings that they can then redeploy into – you guessed it – AI.
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