A change is taking place in the IT services market. This becomes clear from the ever shorter terms of the framework agreements, and the service quantities agreed therein. ISG has investigated the background to this trend.
According to research by the first quarter of this year, the term of newly concluded managed services contracts fell to an average of 31 months in the Information Services Group (ISG). Compared to 2021, this means a decrease of five months. Since January, the long-standing trend towards shorter and shorter framework contracts for IT services has intensified. In addition, the annual contract values resulting from the new agreements are significantly lower.
Averaged across all contracts, the metric decreased $0.8 million year-over-year and stood at $14.3 million at the close of the first quarter. The average ACV is slightly above its previous low in 2018 ($14.2 million). In determining the ACV, ISG included all service provider contracts with annual revenues of at least US$5 million.
As a result, companies prefer more minor, shorter agreements. From the point of view of the consultants at ISG, there are several reasons for this. For example, many procurement teams face the challenge of achieving the results of their outsourcing decisions much more quickly than in previous years. They are also challenged to mitigate the risks that increase with the volume of service contracts. ISG sees another important reason for the switch to cloud-supported forms of operation. These contribute to the fact that significantly fewer assets, such as servers or software licenses, are included in the contracts for IT services than in the past.
The Information Services Group (ISG) is a global market research and consulting company in the technology segment. ISG supports public organizations and service and technology providers in achieving operational excellence and faster growth. The company’s focus is on services in the context of digital transformation, including automation, cloud and data analytics, sourcing consulting, managed governance and risk services, network operating company services, design of technology strategy and operations, change management and market research and analysis in the fields of new technologies.
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