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Home Technology

Managed services contract values trending upwards in 2022

FutureCIO Editors by FutureCIO Editors
September 2, 2022
Photo by Sora Shimazaki from Pexels: https://www.pexels.com/photo/woman-filling-job-application-form-in-office-with-boss-5668858/

Photo by Sora Shimazaki from Pexels: https://www.pexels.com/photo/woman-filling-job-application-form-in-office-with-boss-5668858/

Research firm IDC’s Services Contracts Database showed more than 720 managed services deals were signed worldwide in the first half of 2022 (1H22) with $48 billion in contract value.

While the total number of deals declined compared to the same period in 2021, the average deal size increased by 20%. Moreover, the average deal size in terms of Total Contract Value (TCV) has almost doubled when compared to 1H21.

Supriya Kamath

"The impact of COVID-19 has accelerated the adoption of digital technologies, specifically focused on providing a digital workplace, to ensure the continuation of business and minimize disruptions while improving flexibility and enhancing productivity," said Supriya Kamath, senior research manager of Global Services and Market Trends at IDC.

She explained that the push to become a digital-first organisation has created opportunities for managed service providers with the expertise and resources to facilitate these efforts.

What services are in demand

About 94% of the 1H22 deals were in the IT Outsourcing market, while the remaining 6% were Business Outsourcing deals. The IT Outsourcing contracts were largely focused on digital transformation, cloud migration, and technology modernization.

1H22 saw a 40% decline in business process outsourcing (BPO) deal signings with an almost 50% decline in total contract value compared to 1H21. This trend is due to the increased adoption of automation and AI-enabled technologies that are fast replacing traditional BPO engagements.

This has affected large BPO deal signings as well, with 1H22 recording just one deal above the US$500 million threshold compared to two deals during this time the previous year.

What services are APAC buying

On a geographic basis, nearly 58% of the deals were signed in the United States. Western Europe accounted for 32% of the deals. The Asia/Pacific region (excluding Japan and China) has seen deal signings increase slightly compared to 1H21 with Australia and India mainly driving growth.

From an industry perspective, public sector deals contributed about 60% of the TCV for 1H22. This is nearly 10% higher than 1H21.

Accenture's deal with Mount Sinai Health System worth around US$450 million was a significant win this year in the healthcare industry. This along with several large contracts, including the one between Microsoft and Government of New South Wales for cloud migration worth around US$590 million, contributed to the increase in public sector contracts.

About 12% of the TCV was from the financial services sector, which includes the banking, financial services, and insurance industries. The largest deal recorded in this sector was between Kyndryl and Deutsche Bank, valued at more than US$800 million, for consolidating core banking systems into one platform and the migration of specific applications to the cloud.

"With the imminent economic slowdown that is expected in various sectors and regions, the overall number of deal signings in 2022 could be affected, although not severely as IT spending, especially towards digital services, has become an integral part of most companies growth and stability plans," added Kamath.

Related:  Seizing opportunities beyond physical borders
Tags: AccentureIDCIT outsourcingKyndrylmanaged servicesMicrosoft
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