IT service clients look for shorter budget cycles

The client ecosystem is sensitive to the fragile economic situation across industries and geographies, and this is being felt across the IT services sector.

“For projects with defined start and end points, such as cloud migrations and security assessments, we are definitely seeing a move to shorter-term budgeting. This is dominating the focus for much of the industry at present,” said Phil Fersht, chief executive of IT research firm HfS Research.

Clients are also increasingly making decisions on the go.

“The planning is more on a monthly or quarterly basis, depending on what works for the clients in the current inflationary environment. This is especially true for new engagements although this has not impacted existing programs,” said Vivek Agarwal, president, Tech Mahindra.

Tech Mahindra said during its third quarter results announcement that it was changing its methodology to ensure that CXOs and chief stakeholders meet monthly rather than on a quarterly basis to effectively assess their business needs.

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IT service companies are communicating on a quarterly and monthly basis with clients and top leaders to push these short-term mandates.Clients in the UK are also locking deals at pre-inflationary rates with IT vendors, Fersht added.

The situation should improve within the next 3-6 months, said Ray Wang, founder of Constellation Research.

“The recent reduction in workforce by clients of tech companies has made them look at IT services firms as they rebalance their requirements. For non-tech company clients, there is some budgetary pressure but many of these contracts are long-term (3-5-year) ones. New contracts are under some pressure,” Wang said.

Tata Consultancy Services (TCS) chief executive Rajesh Gopinathan said during its Q3 earnings call that the situation could improve within a few months.

“We think the immediate caution that is there will probably dissipate a few months into the year. In Europe, we will have to wait for some major event to happen for it to change,” he had said.