IT and BPO services have been on an incredible run for the last quarter of a century, enjoying the relentless double-digit growth of global delivery models fueled by skilled talent pools in more cost-effective regions of the globe.
Who’d a thought the Global 2000 would keep finding more and more reasons to keep spending more and more money on global service providers? Yes, they’ve had a lot of fat to keep trimming, but many have finally cut to the bone, and 2023 has seen a nosedive in growth from most of the major service providers:
Exhibit 1. 2023 has proven to be the great Reality Check for IT / BPO Services*
One can argue that the legacy labor arbitrage model was already running out of steam before the Pandemic, but the rush to the Cloud, driven by those pandemic-driven virtual business experiences, kept that spending on labor-intensive cloud migrations artificially high until everything came crashing down to earth this year:
Exhibit 2. The pandemic fueled the dying embers of Labor Arbitrage, but growth is flattening out
Our latest HFS Pulse data based on ongoing inputs from 600 of the global 2000 enterprises also suggests that labor-driven IT/BPO services growth is expected to be ~5% in 2024, and AI-driven technology spending is expected to increase at ~9% (See Exhibit 3):
Exhibit 3. Labor-driven IT/BPO services growth is expected to be 5%, but AI-driven technology spending is expected to increase at 10%
The industry has matured where most large enterprises (above $5B in annual revenues) have pulled the basic levers of offshoring either through in-house shared services and /or 3rd party service providers. And after playing for 3-5 years in the model, while there are incremental improvements that they can achieve, the transformational benefits start to diminish.
The reality is that costs are like hedges: they grow back after trimming, and the pruning shears are becoming blunt
Enterprises are running out of obvious places where onshore people can be replaced with offshore people, and they have no choice but to investigate new avenues of value that are less obvious. And those avenues are only to be found by exploiting technologies that can scale operations, provide rapid access to data that gives you a competitive edge, and grant you access to ecosystems to expand business opportunities. New technologies that enable you to run things faster, better, slicker, smarter, and cheaper than ever…
It’s past time for the IT and BPO Services industry to jump to a new S-curve driven by technology arbitrage if they wish to get back to another season of hockey stick growth:
Exhibit 4. The new S-curve of Value Creation will be AI-driven Technology Arbitrage
The “scale of technology partnerships” becomes far more important in the technology arbitrage era versus “the scale of people” in the labor arbitrage era.
The fundamental value creation lever in the legacy Labor Arbitrage era has been the centralization of people in a global delivery model. The fundamental value lever in the Technology Arbitrage era is all about architecting and orchestrating the rapidly changing technology ecosystem in line with the client’s business model.
Let’s take the example of the rapidly emerging GenAI ecosystem (see exhibit 5) that an enterprise must build, manage, and keep updated on an ongoing basis as new players emerge, continually enhancing technology capabilities. This becomes too complicated and too costly very quickly, and consequently, the ROI becomes murkier.
Service providers have a significant value proposition to orchestrate this ecosystem to drive real business value for their core customers. Enterprises can’t exploit GenAI alone and need smart partners, which can really help them get ahead of the innovation curve. With GenAI, for example, there are real business pressures from the C-Suite to design AI capabilities that create genuine differentiation in the marketplace. Smart services firms that can engage at the senior level to bring their GenAI ecosystem to life will win in the emerging market, but they need to convince enterprise leaders to take a bet on partnering with them.
Exhibit 5: The technology ecosystem becomes too complicated very quickly (GenAI Ecosystem example)
With the advent of GenAI, this brand-new ecosystem is creating itself right in front of our eyes with new stakeholders that most enterprises will find difficult to engage and build relationships with. Ecosystem orchestration is a fundamental shift in the role that service providers can play in driving value for their clients.
The Technology Arbitrage era is not only about doing more with less but also generating actionable business value
At HFS, we are wrapping up a research initiative where we reached out to 100+ enterprise leaders who are actually doing something credible with Generative AI and interviewing the executives actually leading the GenAI initiatives. Contrary to the popular media narrative, improving productivity is not the #1 use case for GenAI (see Exhibit 6); AI’s predictive capabilities and ability to personalize at scale are tickling the fancy of business leaders:
Predicting with Precision. The ‘Prediction’ theme emerges as the most popular and brings to the forefront use cases that deploy AI to anticipate, forecast, and devise estimations, playing a crucial role in strategic planning and decision-making.
The Age of ‘Me’. Personalization also dominates. Forget one-size-fits-all; we’re in the era of AI-driven, tailor-made experiences. The eminent theme of ‘Personalization’ has emerged as a dominant application area, underlined by use cases that harness AI to tailor experiences, content, and solutions.
Value isn’t all about Productivity. Productivity improvements must be augmented by Prediction and Personalization in the Technology Arbitrage era if they are going to drive real impact for enterprises. The legacy mindset of simply driving out cost as the core imperative has to change to a value mindset.
Exhibit 6: Prediction, Personalization, and Productivity: The 3Ps powering GenAI use cases for enterprises
Winners in the emerging Technology Arbitrage era will require strong business acumen.
Nearly half of the new technology spending will be outside the CIO/CTO control – it’s with the business (See Exhibit 7). Past surveys before the Pandemic typically showed 70-80% of tech spending under CIO control, but the balance of tech power within major enterprises is clearly shifting.
However, our IT services industry keeps selling to the CIO/CTO. As traditional IT services growth flatlines, the IT service providers must develop a business narrative behind their technology services. For instance, every CPG company wants to go direct-to-consumer today – that is the challenge the business wants to solve. Now it’s obvious that the CPG companies will need to redesign entire business processes and integrate their data repositories in the cloud to make that intrinsic change in the business model. However, most of the current crop of IT service providers do not offer a solution to help them change their business model; they only propose how quickly and efficiently they can migrate workloads from legacy to cloud. This business acumen is exactly where Accenture outshines most other service providers, as it can redesign businesses to be effective in cloud ecosystems and manage them for its clients at scale:
Exhibit 7: CIO/CTO controls only half the technology spend
BPO service providers work with business stakeholders, so they should have more success in tapping into this tech spending. Right? WRONG! The BPO narrative has not changed for decades. Most enterprises leverage BPO for processing transactional, mundane, and frankly boring work. The tired old BPO value proposition is stuck with the labor model.
The first question when anyone discusses BPO is, “How many people?” The BPO model is so obsessed with FTEs that we’ve even converted automation initiatives to “number of digital FTEs.” Both clients and service providers just cannot get beyond this FTE model.
The Big 4 accounting firms (Deloitte, EY, KPMG, and PwC) have realized that they can give the BPO providers a run for their money with managed services offerings. They have C-level business connections in spades, but can they get out of their own way to be successful? EY’s failed Project Everest is a great reminder of how difficult it will be for the Big 4 to make fundamental GTM changes in their partner-led model.
The Bottomline: We need less “easy” and more “hard”. Bold enterprise leaders must stand up and create a new market paradigm. Service providers alone can’t do it.
“Labor arbitrage” in the 1990s was as novel an idea as “technology arbitrage” is today. Back then, it took British Petroleum to make a big bet by outsourcing its finance & accounting jobs on a large scale for the first time. Others then saw how transformational it was, and it created a whole new industry. We need a few bold enterprises to also take a risk with technology arbitrage. Unfortunately, we see most enterprises taking a very risk-averse approach to 3rd party services and persisting with the same old ways of operating.
We fear that this blog will die its own death of time as a potentially great idea that never took shape without any pioneering enterprise leaders who were willing to take a risk and take our industry to a new S-curve of value creation.
To conclude, the blame isn’t solely on the service providers for pushing the same old tired model. It’s also with the buyers of services who are too afraid to make complex changes to take full advantage of Cloud, AI, and automation technologies. Enterprises like easy – they really don’t like hard – but if they were to partner with ambitious service providers to share the risk, they would end up sharing significant rewards. As BP did with Andersen Consulting and PwC in the 90s to create the labor arbitrage model at scale, we need to see a similar risk being taken today by our major enterprises and their service provider partners if we are truly going to prosper in the Technology Arbitrage era.
*The service provider results reported above are taken from the earnings releases, where some are in constant and others in current currencies. For this article, we merely want to show the general trend in the industry, not zone in on individual performances
Retailers and CPG firms have never had it so tough. They are grappling with increasing costs of raw materials, wages and rising interest rates, in addition to the rapidly changing tastes of typical shoppers exacerbating the situation further.
The new-age shopper is tech-driven, environmentally conscious, convenience-oriented, has heterogeneous personal tastes, considers that CX trumps pricing, and engages via new channels, such as social commerce. The double blow of increasing operational costs and heightened customer expectations has created this digital dichotomy where enterprises need to innovate but don’t have the budget. Therefore, they are engaging in innovation projects to combat the digital dichotomy to get more value without huge upfront investments.
CPG and retail firms are working on both unique and common initiatives
In these challenging times, CPG firms focus on areas like supply chain command center solutions, digital engagement platforms, direct-to-consumer channels as extensions to their existing retail channels, and optimizing supply chain performance to reach customers at never-seen-before speeds.
In comparison, retailers want to create a seamless and similar CX across all engagement channels, working on customer loyalty, collaborating with their vendor partners to combat any future supply chain disruptions, devising community-driven brand strategy underpinned by purpose and ethics, and formulating multi-channel hyper-personalized experiences throughout the customer lifecycle. Read More
HFS has published its first intelligent document processing (IDP) Horizons report covering the broad landscape of IDP vendors landscape engaging with major enterprises. IDP is all about documents in the loose sense—extending beyond paper to include emails, digital forms, attachments, chats, and paper. It has quickly gained importance as a transformation enabler that uses automation to reduce manual effort and process the data present in documents faster and more accurately. IDP systems mimic human cognitive abilities to understand and analyze structured and unstructured data in documents.
However, that is only the primary use case for IDP. It can do much more, and through our analysis, we have seen how many IDP vendors link IDP with data and insights to drive enterprise decision-making.
Enterprises continue to struggle with making the most of their existing and new data, and IDP provides a base to extract data from documents and restructure it into more digestible formats. With the advent of generative artificial intelligence (GenAI), IDP has become an even more vital tool, giving enterprises higher accuracy and lower time to value.
Enterprises are building on the basics to target improved CX and EX
While efficiency gains and cost reductions are the essential outcomes enterprises seek, the intent for more mature results such as improved customer and employee experience (CX and EX), impact on top-line growth, and business model development are also gaining importance.
To deliver on these outcomes, IDP vendors have invested heavily in technology and internal IP or partnered with tech vendors to plug internal gaps and augment delivery. GenAI capabilities have become integral to most IDP initiatives; many vendors have already integrated them into their abilities.
The future of IDP lies in vendors using NLP (natural language processing) and image recognition to improve accuracy and efficiency, and—much in line with the outcome of combining IDP and large language model (LLM) capabilities—identifying patterns from data.
OCR is a thing of the past as IDP goes beyond document processing to unlock insights from masses of data
While efficiency gains and cost reductions are the essential outcomes enterprises seek, the intent for more mature results such as improved customer and employee experience (CX and EX), impact on top-line growth, and business model development are also gaining importance.
We assessed 26 key vendors (see Exhibit 1) in the HFS Horizons: Intelligent Document Processing Products, 2023 report.
Exhibit 1:Leading IDP vendors are building robust partner ecosystems, focusing on creative commercial models, and building internal IP to augment client delivery
Note: Service providers within each Horizon are listed alphabetically.
Horizon 3 is crowded with many vendors differentiating to deliver strategic outcomes to clients
Market leaders like ABBYY, AntWorks, Automation Anywhere, Automation Hero, AYR.AI, Google, Hyperscience, Pega, Microsoft Power Automate, Rossum, and UiPath are creating an ecosystem by partnering and working on tech advancements to help enterprises make that push toward getting more insight out of existing data and seeing them transform at an ecosystem level.
These vendors have a strong product roadmap planned and a vision and strategy aligned to achieve that goal. IDP for this group of vendors is more about being enablers to large-scale transformation efforts.
Horizon 2 innovators deliver outcomes beyond essential cost reduction and efficiency, enabling improved CX, PX, and EX
Appian, Botminds.AI, Kofax, LAIYE, Newgen, Nividous, OpenBots, Parashift, SS&C Blue Prism, and WorkFusion are the enterprise innovators driving enterprise-level outcomes.
These vendors work closely with partners to co-create and collaborate to bring a united front to enterprises in their transformation goals and work through loads of unstructured documents and data types.
Horizon 1 disruptors are enabling digital transformation at a functional level
Datamatics, InfiniaML, KnowledgeLake, Parascript, and qBotica are the IDP disruptors. These vendors are doing a great job helping clients get the basics right—an essential step in helping deliver clear functional outcomes. These vendors have robust IDP products and deliver fundamental value to clients.
The Bottom Line: Enterprise leaders looking to accelerate their digital transformation journey should seek an IDP vendor that matches their needs and maturity.
Don’t make your decision based on which vendor offers the broadest range of bells and whistles. Instead, choose the vendor that provides capabilities that align best with your enterprise’s needs and innovation scope.
Nearly 80 years before Edison invented the lightbulb, electricity had already existed. What Edison did through the invention of the lightbulb was to bring about a practical and accessible way to convert electrical energy into light. This innovation paved the way for widespread adoption in homes, businesses, and cities, fundamentally altering how people lived, worked, and interacted with their surroundings.
Similarly, while AI has been around for several years, what we are witnessing today is its increasing accessibility thanks to recent advancements in GenAI. We recently had the opportunity to sit down with Cliff Justice, KPMG’s US head of Enterprise Innovation, to delve into the transformative power of AI and its implications for individuals and businesses. Our enlightening discussion shed light on this exciting frontier.
Here’s a breakdown of our key insights from our conversation….
From Edison’s lightbulb to GenAI’s brilliance, we stand on the brink of unimaginable transformation.
During our discussion, Cliff drew parallels between GenAI’s impact and the electrical revolution ignited by Edison’s invention. At that time, electricity had existed for decades, but its practical applications were limited. However, with the advent of the lightbulb, a transformative shift occurred. As Cliff put it, “Once the practical light bulb came along and the average middle-class home could illuminate their house, and factories could install them, enabling 24-hour productivity, investment in electricity generation and the transmission grid followed, enabling many subsequent innovations adjacent to the lightbulb, like electric motors, electronics, and air conditioning.”
Much like the lightbulb, the development we’re currently experiencing has been unfolding over the past 5-7 years, where AI has transitioned from specific, tightly controlled use cases to becoming a practical and cost-effective tool with broad accessibility. This shift has led to a “network effect,” attracting more data, investment, and excitement, resulting in rapid progress—the implications of this progress span across various sectors, from education to fueling entrepreneurial ventures. ” in 2022, not many people knew what GPT was, and now it’s in your kids’ vocabulary and on their phones.”
While we witness its growing productivity capabilities, AI’s transformative influence will extend far beyond productivity. Cliff contemplated in our discussion, “What’s after GPT 4? What’s after the diffuser model? What comes next? There are a lot of potential technologies that come next. The innovation dollars flowing into these technologies will accelerate that.” The horizon is filled with unimaginable possibilities. It’s “going to happen a lot faster because we already have the electrical grid – it’s called the cloud.”
Geopolitical realities and human adaptation could throw a wrench in AI’s advancements.
Amidst this promising landscape, Cliff noted several limiting challenges. However, these challenges are less about the technology itself and more rooted in human factors and the supply chains that underpin it:
Legacy operating models: Established companies with entrenched operating models may need help adapting to AI effectively. “Organizations that are very traditional and have a deeply entrenched operating model will face challenges in making the necessary changes to compete with AI-native businesses.”
Reskilling the workforce: Achieving AI integration demands a workforce skilled in using AI technologies effectively. Cliff highlights the importance of this by noting that companies must quickly reskill their employees to work confidently with AI tools while ensuring policies are in place to prevent potential risks. “Talent and skillsets in this area are one of the pillars that you have to pursue, and you have to pursue it aggressively…. The companies that can do that faster will have an advantage.”
Geopolitics and materials: Geopolitical tensions surrounding the competition for rare earth materials, crucial for advanced chips and green energy technologies, pose a significant challenge. As Cliff mentions, “You’re competing with the same rare earth materials that are needed for green energy and like solar panels and electric motors, and there are geopolitical tensions right now which are impeding the importation of those materials at the scale.” To continue progressing at the current pace, new mining operations and chip manufacturing facilities need to be established rapidly – not a simple task by any means.
Overcoming these hurdles is essential for sustaining AI advancement in the coming decade. While navigating the complexities of geopolitics, intricate supply chains, and human adaptation, the pace of AI development may experience occasional disruptions.
Cliff envisions a quantum leap in AI…alongside some disillusionment.
During our discussion, Cliff hinted at three predictions on the future of AI, highlighting a forthcoming AI leap, empowered by Quantum computing, alongside the possibility of disillusionment driven by resource constraints and inflated expectations:
Advancements in AI and Kurzweil’s Predictions: Cliff discussed the progress of AI and its convergence with human interactions. He aligns his prediction with Ray Kurzweil’s predictions that by the 2020s, we’ll have interesting conversations with AI, and by the late 2020s, we will form relationships with AI. “he’s dead on in terms of interesting; You can’t argue that our conversations now are not interesting.”
Convergence of Quantum Computing and AI: Cliff anticipates Quantum’s advancements to potentially increase in the next five years or more, indicating it may become “usable, productive and economical.” It will be a “gradual…. gradual…. all of a sudden, quantum is here.” Cliff predicts that as quantum computing becomes more accessible and converges with AI, “that’s when you see the Ray Kurzweil type of AI, where it’s indistinguishable, maybe even smarter than human intelligence.”
Disillusionment Crash in AI: Cliff acknowledges the potential for a disillusionment crash in AI due to inflated expectations and computing resource limitations. He warns, “I think there will be a disillusionment crash because, as amazing as this technology is, the expectations can always get inflated.” He emphasized the challenges related to data infrastructure and chip shortages that could impact AI development.
Cliff’s insights reveal both the promise of a quantum-boosted future and the looming disillusionment, underscoring the need for a balanced and realistic approach to AI’s transformative journey.
The Bottom-Line: As we enter the promising world of AI, it is imperative to maintain a tempered perspective to unlock the full potential of AI.
Just as Edison’s lightbulb changed the course of history, AI has the power to reshape our world. With tempered optimism acknowledging the challenges ahead, we can unlock the full potential to illuminate a brighter future.
COVID-19 shone a bright light on life sciences with unprecedented results—enterprises getting the new COVID-19 vaccine to market in less than a year. Life sciences enterprises’ ability to create new life-saving therapies, sophisticated medical devices, and other health vehicles continues to be astounding. That progress, however, has been possible because of an ecosystem approach that includes technology and service providers, academia, startups, and various other stakeholders.
The ecosystem approach will be particularly critical to managing pricing headwinds due to Medicare in the US, democratizing research with GenAI, and expanding hyperpersonalization.
In the HFS Horizons: Life SciencesService Providers, 2023 study, we evaluated 29 service providersfor their ability to address the cost (Horizon 1), experience (Horizon 2), and health outcomes (Horizon 3) for health consumers globally.
Exhibit 1:Eightproviders can address all attributes of the triple aim of care: reducing costs, enhancing the experience of care, and improving health outcomes
Note: Service providers within each Horizon are listed alphabetically.
Service providers bring a renewed level of sophistication unseen pre-pandemic
While life sciences get credit for the incredible successes of life-saving therapies or life-improving devices, the reality is those achievements are possible only because of partnerships with service providers and other stakeholders. Service providers have made significant investments in attracting expert domain, functional, and technical talent, adopting emerging technologies to develop critical accelerators and solutions, developing strategic ecosystem partnerships, and creating infrastructure capacity to be a service provider and force multiplier for the life sciences industry.
The combination has given most service providers the ability to address the entire value chain, including clinical research with wet and dry labs, clinical trials, smart manufacturing, intelligent supply chains, and a deep understanding of regulations at a global scale. One could argue that several providers can independently take molecules to market.
The key to differentiation and sustainable success is the ecosystem
The study unearthed the different levels of ecosystem maturity service providers have cobbled togetherand the rationale driving those partnerships. At one end of the spectrum, we have providers with the rationale that leveraging scale and brand recognition drives an ecosystem of enterprise platforms and hyperscalers. On the other end of the spectrum, the rationale to create differentiated offerings, accelerate outcomes, and be at the leading edge of changes drives ecosystems that include academia, startups, and life sciences–specific players buttressed by enterprise platforms. The efficacy of the different types of ecosystems will likely be reflected in the sophistication of offerings, quality of outcomes, and growth.
Despite progress in capabilities, there continues to be a bias toward selling services versusdelivering outcomes
Value-based constructs (VBC)on the front end (payer to pharma) are growing in Europe but not in the US. However, given that the US Centers for Medicare and Medicaid (CMS) has now been authorized to negotiate prices on select drugs starting in 2026, it’slikely VBC may not remain so foreign in the US. Despite that direction, there is still a very strong bias for life sciences and service providers tolargely engage in capabilities based on contracts rather than outcomes. This legacy orientation will continue to drive costs up without any true accountability. We need life sciences enterprises and service providers to step up and address outcomes in contracts to make a difference to the true cost borne by all those who pay.
The Bottom Line: Life sciencesenterprises’ desire to cure diseases fasteris only matched by the enmasse increase in the sophistication of service providers’ capabilities.
Climate change, political and societal polarization at home, and armed conflicts continue to make the world a dangerous place. The frequency of pandemics, increase in rare diseases, and prevalence of chronic conditions make the situation dire. In this context, a life sciences orientation combined with service providers’ capabilities give us more than hope that we will have some of the tools to keep us healthy.
Generative AI has become core to our very future and how we interact with the Internet. It is forcing us to unlearn the habits of our lifetimes, continually generate new ideas, and relearn new ways of doing things.
It’s what inspired us at HFS to trademark The Generative EnterpriseTM and rethink how value is being created across enterprise ecosystems as AI is increasingly able to mimic human behavior and make us so much slicker and smarter at what we do.
To this end, we are just so thrilled to announce Ray Kurzweil as our first confirmed keynote at the HFS Spring Summit 2024, scheduled to take place from May 8th to May 9th in New York.
Ray Kurzweil is one of the world’s leading inventors, thinkers, and futurists, with a 30-year track record of accurate predictions, including the age of mobile computing, digital books, wearables, self-driving cars, and high-speed wireless data transmission. Called “the restless genius” by The Wall Street Journal and “the ultimate thinking machine” by Forbes magazine, HFS is thrilled to welcome Ray to the stage this May.
Ray was the principal inventor of the first CCD flat-bed scanner, the first omni-font optical character recognition, the first print-to-speech reading machine for the blind, the first text-to-speech synthesizer, the first music synthesizer capable of recreating the grand piano and other orchestral instruments, and the first commercially marketed large-vocabulary speech recognition software.
Ray Kurzweil, author of The Singularity Is Near (2005), and his forthcoming book, The Singularity Is Nearer, will be released in the summer of 2024
Ray has written five national best-selling books, including The Singularity Is Near (2005) and How To Create A Mind (2012), both New York Times bestsellers, and Danielle: Chronicles of a Superheroine, winner of multiple young adult fiction awards. His forthcoming book, The Singularity Is Nearer, will be released in the summer of 2024. He is a Principal Researcher and AI Visionary at Google, looking at the long-term implications of technology and society.
This summit promises to be an exceptional gathering of industry leaders and innovators across industries, providing valuable insights into the latest trends and technologies across emerging technology and IT/business services—a rare chance to network and meet face-to-face with fellow decision-makers and influencers.
Ravi Kumar, CEO of Cognizant and one of the leading voices in the global IT and business services industry for the last couple of decades has spent this year reshaping Cognizant as the firm surpasses the $20 billion services revenue milestone.
Talking with Ravi and hearing his developing thoughts, he has a deeper-than-ever focus on reversing the alarming commoditization trend of tech services by developing a talent strategy with a mindset grounded in creating new value through technology arbitrage value, not simply labor arbitrage.
Our most recent candid interview – as part of our GenAI Leaders Series – is to learn how Ravi is shaping things up at Cognizant in light of the opportunities and potential threats posed by GenAI…
Enterprises must do more with less and innovate in tandem
So, what are Cognizant clients doing to navigate the new business climate steeped in cost-cutting concerns alongside excitement and uncertainty about GenAI potential? Ravi described an accelerated pace of change that is occurring within the enterprise landscape, with technology as the foundation; all companies are now aspiring to become tech businesses and AI is becoming deeply embedded in business. Cognizant customers are looking to drive out costs and innovate in a hurry with equal determination. They are also focusing on the foundational elements of an AI-powered organization, including data readiness, privacy, security, and responsible AI.
This means firms like Cognizant must pivot their value proposition; getting stuck in Horizon 1 of cost-cutting and process optimization means continuing to live in the legacy world of commodity cost-savings-focused engagements. Cost savings are important, but ambitious providers have to keep striving for the co-creation of new sources of value to stay competitive in today’s era of rapid AI deployment. Many service providers have maximized the cost and efficiency levers in recent years, and now the focus is firmly shifting to genuine business transformation to provide faster, smarter data to drive rapid decision-making. That is the new lever that must be pulled in these engagements to deliver new thresholds of performance out of the business and support the growth agenda. Providers must support their clients to optimize and innovate at an equal pace in order to keep up with the competition and do the same themselves.
Gen AI creates a whole new workflow paradigm: enter, the jagged frontier
Ravi describes his view of the evolution of GenAI as a “jagged technological frontier.” This jagged frontier implies an uneven edge, where task allocation is irregular and the output quality is very disparate. Some operational tasks are easily done by AI, while other tasks of a seemingly similar difficulty are outside the current capability of AI. For a workflow designer, this means GenAI-capable tasks can fluctuate over the course of an employee’s workflow, with some tasks falling inside and others outside the frontier. You always need a human in the loop, at least with the AI we have today. The jagged edge GenAI creates for workflows is driving a whole new workforce dynamic that is both exciting and daunting. Let’s dive in on how this jagged frontier is playing out within Cognizant and for its clients….
GenAI is poised to amplify human production; the bottom half of workers will benefit most, but will overall improve productivity
There are two core areas where Ravi sees GenAI as having the most impact: the amplification of productivity within the delivery of services, particularly for developers and customer service staff, and augmenting customer ecosystems.
When we wrote about the new S-curve of value creation for GBS, we noted the rapid maturation of GenAI promises a significant productivity improvement (not just incremental) in voice-based work, coding, testing, and transactional processing. There’s also the promise of AI-driven operations to support autonomous decision-making, exception processing, and the capability to handle a more creative scope of work beyond mundane and boring activities.
This aligns with Cognizant’s view of the evolving GenAI capabilities, where human talent is both augmented and accelerated. Ravi sees a particularly significant impact on developers for equalizing performance; he cites a report that concluded that the bottom low-performing developers benefit much more from GenAI than high-performers when evaluated on the quality of output performance. This levels the playing field for talent across proficiency levels and offers a big opportunity to improve the developer productivity lifecycle.
“Every job can be upwardly mobile if you can use the power of technology, the power of AI, and make people do more value-added jobs and more prosperous jobs so that they see the value in embracing technology. So, while technology related to AI is going to eliminate jobs, it’s going to create upwardly mobile jobs.” –Ravi Kumar
The future workforce is driven by capability equalization and net new, different jobs
While Ravi also reminds us that any big disruptive opportunity is also a threat and cautious enthusiasm is the right tone to strike, Ravi firmly believes that the evolution of GenAI will create new jobs and impact the future workforce in a positive way. The shifting of agency to the end user brings a new opportunity for tech to be used to empower ourselves and our employees in their jobs. Generative AI still requires a human in the loop, and as a result, we will re-invent our workforce, and the types of jobs we need in the services industry will change. As Ravi puts it, “We will need more problem finders versus problem solvers; it will require more heuristic and creative skills, which will make this industry much more diverse.” That diversity of thought and people is something that services firms must embrace to refresh and reinvigorate the industry.
Moreover, in terms of the overall volume of jobs, Ravi is bullish on the GenAI shift as a catalyst for job growth in the services industry rather than the commoditization that has been threatened for decades every time a shiny new tech is introduced. “Looking back, technology actually created more jobs of the future than it’s taken away jobs of the past – so I’m very optimistic that it is going to create significantly more jobs for the future.”
AI first, machine + people is the future of work; services firms are the arbiters of change
Tech services firms are going through a transition fueled by these technology advancements and labor shifts. While the enterprise landscape is being completely reshaped by GenAI, and resistance to change is high, leading services firms will help connect their clients’ organizations to the broader GenAI ecosystem, and their partners must be in lockstep with them to navigate the changes.
Looking ahead, Kumar predicts that the world will become an AI-first, machine-plus-people endeavor. AI will lead to more tech intensity, more budget allocation due to higher productivity, and a greater need for creative and heuristic skills. This is an opportunity for the services industry to develop top talent for new and exciting tasks that shun the mundane and repetitive roles of the future and create fun, human things for people to do.
As technology becomes more central to enterprise landscapes, the traditional labor arbitrage value proposition will fade into the distance as technology arbitrage becomes the central role of the service provider.
“Technology arbitrage is the future of the services industry” – Ravi Kumar
The Bottom Line: Capability equalization of the jagged edge frontier will lead to the human amplification that the services industry desperately needs to deliver value.
There is still much work to do to bring the promise of GenAI to its potential in the services industry, and constant tech advancements and risks mean we cannot afford to take our eye off the ball for one minute. What is certain is that as enterprise operations and services leaders, we must be prepared for challenges, not least of which is a dearth of technology and business professionals prepared to ride the wave that an AI-powered enterprise requires, which is adopting a probabilistic mindset and an emboldened attitude to learn new methods and ways of doing things.
Bridging this divide we currently see ahead of us means better service partnerships, greater productivity as well as prosperity for workers, and greater job satisfaction leading to better outcomes across this new generative ecosystem.
“Gen AI is a catalyst for a new level of reinvention over the next decade” – Julie Sweet
As part of our GenAI Leaders Series, we got time with Accenture CEO Julie Sweet to talk about how the $64 Billion dollar corporation is approaching GenAI. With the services industry experiencing feverish excitement over AI and anxiety surrounding the demise of legacy labor arbitrage models and reduced technology expenditure, who better to listen to than the provider leading growth from the front and reinventing itself ahead of the market, with its formation of Accenture Digital in 2013, then Cloud First in 2020… and now its aggressive pivot to drive GenAI at scale.
Accenture’s Total Reinvention… can enterprises embrace change?
Just when you thought you couldn’t bear to hear the phrase “digital transformation” one more time, a fresh view of changing business dynamics is being ushered in by Accenture CEO Julie Sweet under the moniker “Total Enterprise Reinvention.”
Accenture claims this reinvention is fueled by technology, data, and AI and is already impacting how people work. While highlighting the responsibilities leaders must take to be successful during the next decade. As Sweet says, “Accenture clients are embracing change more than ever, and GenAI is the catalyst for embracing that change at a more rapid pace than we’ve ever seen.”
While enterprises are under pressure to innovate and cut costs at the same time, many service firms have been caught flat-footed when it comes to understanding the potentially revolutionary capabilities of LLMs and generative AI tools. And while others are defining their vision, Accenture is putting its money where its mouth is by declaring a $3bn investment in AI. Their goal is to embrace the workforce changes enabled by GenAI and proactively train thousands of staff, develop assets, and build solutions to help their enterprise clients adopt GenAI faster. Their big bet promises a big payoff for the $64bn services juggernaut, which announced in June it had secured $100m in GenAI projects, a number that’s surely climbing further since, claiming 40 of its enterprise clients are now experiencing GenAI at scale.
In our latest interview with Accenture’s top brass (see last month’s summary of Paul Daugherty’s insights here), Sweet describes the transformative potential of GenAI on the enterprise and the future of work. Here’s what we learned, and HFS’s take:
Spending constraints must not slow down innovation in the digital dichotomy of 2023. The economic climate this year is forcing companies to hunker down and cut costs, focusing on efficiencies, and making them do more with less. But at the same time, they are being tasked with increasing their innovation efforts critical to differentiation and growth. Accenture’s “total enterprise re-invention” is aimed at helping clients figure out where and when to invest. As Sweet says, “There’s going to be a significant amount of enterprise spend that’s unavoidable, and Accenture aims to help clients do that in the smartest way possible.” As enterprises add in the opportunities and risks inherent with GenAI, Accenture is bullish on helping clients embrace GenAI to drive the next decade of change.
GenAI is playing a role in the re-invention of the workforce and society at large. GenAI is leading to fundamental changes in how organizations operate and impacting how every part of the organization will have to work differently to compete and succeed. Mainstream discussions have mainly circled around whose jobs are in jeopardy and whether or not education is being stunted by the use of GenAI to “cheat.” (Sweet points out her teens have taught her that’s not happening – too many tools out there to detect when GenAI’s been used to cut corners!) For now, it seems the workforce is being augmented, and students are becoming savvy with GenAI to learn faster and, to improve the learning process rather than avoid it.
Knowledge workers will be affected most by GenAI-fueled re-invention. All knowledge workers will be using some form of GenAI to do their jobs better within the next five years. Just look at HFS Research’s own use of LLMs to transform our web search tool and allow greater access to research for our clients. In fact, we used GenAI tools on this blog itself to transcribe and summarize this interview and organize some of the key points. As knowledge workers, we must embrace the opportunity to use these tools to help us work more effectively. What remains to be seen is what parts of knowledge work jobs will be displaced versus those that will be augmented – there will be both in our future. It’s clear that (for now) the creative and provocative idea-focused tasks are still firmly in the human realm (though the return on the request below wasn’t terrible).
For Accenture, the evolution of GenAI in their workforce is underway as they are educating their workforce on prompt engineering, AI-centric risk assessment, and ongoing training for their global workforce. Under Sweet, Accenture is taking a stand that GenAI isn’t the enemy of knowledge workers; rather, it’s an infusion of capabilities as GenAI assists in how people get their job done more efficiently.
Responsible AI isn’t just a priority; it must be part of the foundation of your firm’s GenAI journey. You will put your company at risk by not thinking through the pitfalls of AI; companies must promptly establish a systemic foundation for responsible AI practices.Accenture is establishing a first-of-its-kind formal compliance program for responsible AI, including a framework providing guidelines for its teams and their customers on implementing AI projects. As it has been building AI solutions for over a decade, Accenture provides diagnostic tools to aid in the evaluation of risk levels related to implementing AI-based projects. This tool helps categorize AI applications into different levels of risk, allowing organizations to understand where they might be using high-risk AI. HFS agrees with Accenture that it is critical that while investment is going into GenAI, matters of bias, fairness, privacy, and security be addressed and protected from the start.
Adopting GenAI to augment how we work, its impact on people, processes, and tech will mean every part of the enterprise will work differently. As companies and employees apply data and AI into their everyday lives every part of how they work is going to change. If you only combine this seismic shift with what we know now, you’ll miss great opportunities during this change. For instance, people aren’t talking about how GenAI, combined with advancements in quantum computing will bring significant changes in fields like material sciences, security, and biotech. With this in mind, it is critical for organizations to adapt and work differently and do this with further change just on the horizon.
The Bottom-Line: GenAI’s potential is positive, but proceed with caution, education, and responsibility
We are at the tipping point of one of the most significant enterprise technology shifts ever. GenAI is maturing quickly, and whether it’s within two years or five years, our workforce and business environment will be completely different, and the services industry will be re-invented.
It is still early days, but it is clear that it is critical to invest in GenAI now to create future value; services firms must go all in on understanding and finding examples of effective use cases for GenAI. By doing so their enterprise clients will seek them out for guidance and collaboration as these investments in GenAI shape their generative enterprise aspirations. “When you embrace the shift, you win,” says Sweet, about each of the technology shifts she’s seen Accenture embrace in its past. GenAI promises to be a seismic shift, but moving forward carefully is necessary to avoid risk while maximizing value creation.
The biggest problem plaguing the world of business technology – ever since businesses started using technology – is the simple fact that most enterprises blow vast fortunes on expensive tech solutions and expect them to perform wonders for their businesses without redesigning and structuring their processes and data to achieve maximum value from the technology. It was the case back in the 1960s with MRP, then decades later with ERP, and these issues are even more exacerbated with the Cloud.
Most customers of Cloud just want “easy”… that is the problem.
At least ERP gave companies a standard set of processes to force themselves to follow, but moving your existing mess into the Cloud is an expensive disaster if you avoid changing how you operate, modernizing your hodgepodge of systems and applications, and redesigning your workflows so data can flow freely around your global organization, up and down your supply chain, and across your business ecosystem of customers and partners.
The Cloud is a whole new environment within which to operate your business, and you can’t shoehorn your legacy way of operating into this environment without addressing these (often painful) changes. “Clients just want easy; that is the real problem,” stated the leader of a major transformation practice. This is why our recent research of over 500 Cloud decision-makers from major enterprises (Global 2000) reveals that Two-thirds of organizations don’t fully achieve their strategic objectives for transformation enabled by the cloud (see Exhibit 1 below). Sadly many of those transformations clearly fail miserably if your Cloud transformation will fail if it is not grounded in business objectives. Yet, to keep the cloud bandwagon and spending going, hyperscalers and service providers are now peddling “Industry Cloud.” So let’s probe deeper into what “Industry Cloud” really means…Read More
