Shifting Tides: From Long-Term to Shorter Engagements
Leading Indian IT firms HCLTech and Birlasoft are among those that have recognized this trend. According to them, the typical length of a big deal has significantly decreased, usually ranging from three to six years. This move away from long-term agreements emphasizes how clients’ and IT vendors’ needs are changing.
Client Preferences: Agility and Efficiency
According to experts, clients are placing a higher value on agility and adaptability. The swift progression of technology demands a readiness to promptly modify IT infrastructure and service models. Although they provide a feeling of security, long-term agreements may limit this flexibility. Furthermore, clients want shorter engagements that yield speedier results and faster returns on their investments (ROI).
Macroeconomic Uncertainty: A Factor in Shorter Deals
The current state of the global economy, which is characterized by rising interest rates and inflation, also influences people’s inclination for shorter contracts. Businesses find it difficult to plan long-term due to macroeconomic uncertainties. Customers are reluctant to commit to long-term agreements because unanticipated financial events may affect their requirements and spending plans.
A Look at Recent Deals: Shorter Terms Becoming the Norm
Examples from recent large deals showcase this trend. Infosys’ contracts with Liberty Global, Danske Bank, and BP all have durations of five to six years, with options for potential extensions. HCLTech’s Verizon deal spans six years, while Cognizant’s partnership with Gilead is a five-year commitment. These examples demonstrate that shorter durations are becoming the standard for large engagements.
The Case for Shorter Deals: Benefits for IT Vendors
Angan Guha, CEO and MD of Birlasoft, emphasizes the advantages of shorter deals for IT vendors. Frequent renegotiations after two or three years allow vendors to adjust contracts to reflect evolving client needs and technological landscapes. This flexibility fosters a more dynamic partnership and reduces the risk of long-term contracts becoming outdated or misaligned with current requirements.
The Downside of Long-Term Deals
The CEO of EIIRTrend, Pareekh Jain, is one of the outsourcing specialists who highlights the possible disadvantages of long-term agreements. He draws attention to the possibility of renegotiations, in which clients can want changes a few years later, undermining the original conditions of the contract. Furthermore, IT providers may lose out on more profitable engagements with newer technologies as a result of long-term contracts that become outdated as a result of technical improvements.
Lost Mega-Deals and Shortened Engagements
Recent examples demonstrate the possible difficulties associated with long-term deals. Important multi-year contracts were terminated for TCS and Infosys during the preceding fiscal year. TCS lost out on a ten-year contract with Transamerica, even though they also signed numerous long-term agreements longer than nine years. In a similar vein, Infosys lost a global client’s 15-year AI contract in less than three months. These incidents highlight the dangers of long-term commitments in a setting that is changing quickly.
Innovation Cycles Drive Shorter Contracts
Hansa Iyengar, a senior principal analyst for enterprise IT at Omdia, a UK-based research organization, highlights how deal structures are shaped by rapid innovation. She says that shorter contracts are necessary because of shorter innovation cycles. Companies are no longer prepared to dedicate ten years of resources to a single technology because they anticipate that better, faster alternatives may appear in the near future.
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