Mega IT outsourcing deals decline as flexibility takes priority: analysts
CHENNAI, INDIA — The IT outsourcing industry is witnessing a sharp decline in mega-deals, with contracts exceeding $500 million or spanning over a decade becoming increasingly rare.
Organizations are now opting for smaller, short-term contracts lasting 3-5 years to remain agile in a rapidly evolving technological landscape. Analysts highlight that these shorter agreements reduce risks associated with underperforming providers and allow businesses to pivot quickly if needed.
Biswajit Maity, Senior Principal Analyst at Gartner, explained, “The trend of signing large deals in IT outsourcing is declining as organizations have learned from past experiences where such large-scale agreements often failed to deliver the expected returns and were difficult to unwind.”
Technological advancements drive demand for agile IT contracts
Rapid innovation in technologies like generative artificial intelligence (GenAI) and machine learning has made it challenging for companies to predict their long-term IT needs. Short-term contracts provide the flexibility to renegotiate terms regularly, ensuring alignment with technological advancements.
Pareekh Consulting CEO Pareekh Jain noted, “Several GenAI-related developments are happening, so people don’t want large deals and be caught up in something for 10 years, especially with how fast technology is changing.”
In-house IT capabilities transform outsourcing strategies
The democratization of IT tools has empowered businesses to handle tasks internally that were previously outsourced.
This shift has led to a “best-of-breed approach,” where companies work with specialized providers for specific needs rather than relying on total outsourcing solutions.
Geopolitical risks push businesses toward short-term agreements
Geopolitical uncertainties and economic volatility have further fueled the preference for shorter contracts.
Long-term agreements expose businesses to risks such as changes in provider ownership, declining service quality, or misalignment with evolving priorities.
Analysts note that even government contracts are incorporating flexible exit clauses.
Smaller IT deals dominate the market amid evolving trends
Smaller deals under $50 million are surging in popularity. Infosys CFO Jayesh Sanghrajka highlighted this trend during the company’s Q2 FY25 earnings call, stating that their pipeline of smaller deals has grown double-digit.
Similarly, Wipro CFO Srini Pallia reported a balance between mid-size and smaller deals that contributed to their bookings.
While some vendors still pursue large-scale agreements to maximize profits and showcase capabilities, the overall market is shifting toward shorter, more flexible contracts. This trend reflects a broader industry focus on agility, innovation, and risk mitigation in an era of rapid technological change.
