IT Projects Get Smaller As AI Adoption Goes Up

K Krithivasan, CEO, TCS, had said that deal cycles are also reducing, indicating improvement in discretionary spending

Bengaluru: IT projects are increasingly getting smaller as clients are dividing large outsourcing projects into several small ones in order to bring in more cost efficiency. Increasing adoption of AI & generative AI-led solutions are supplementing this trend as rising automation is prompting clients to have a multi-vendor approach than locking in with any large player. According to analysts, such phenomenon augurs well for mid-tier and small IT firms and technology startups with specific solutions for an industry.

“AI is bringing in a lot of efficiency through automation. Enterprises are asking their IT vendors to pass on that efficiency. They are also looking at multi-vendor approach for cashing in the maximum cost advantage,” said an official of a mid-tier IT firm.

“With breakneck speed of growth, AI is emerging as a breakthrough technology. Many technology firms are coming up specific solutions to particular industries. That is the reason that clients are not giving large projects to one vendor and want to diversify the risk & reward among multiple IT vendors,” he further said.

This has played out in the Indian IT industry during the third quarter of current financial year. For instance, HCLTech, which posted the fastest revenue growth among top-tier firms, had a total contract value (TCV) of $2.1 billion. The management of HCLTech has said that smaller deals are growing at a faster pace than large deals.

Not only, HCLTech, Tata Group company TCS has also said that smaller deals are growing at a faster pace than large ones. The company, which signed deals worth $10.2 billion during the third quarter, has seen deals worth $20 million and above, growing at a faster pace.

Company’s CEO, K Krithivasan has said that deal cycles are also reducing, indicating improvement in discretionary spending.

Importantly, last six month of the ongoing financial year saw complete absence of mega deal wins by large IT services firms. Mega deals usually have a deal value of more than $1 billion, spanning over multiple years. Such deals were the mainstays of Indian IT industry during the post-Covid period, when companies were focussed on cost optimisation initiatives.

Sources in the know also said that IT firms are also witnessing early renewal of deals with smaller sizes. Due to rising adoption of AI, clients are renewing deals before the due period, but are dividing those contracts into smaller ones, they added.