Companies need AI services revenues, not cost savings
ft.com
ft.com
In a study we just did on outsourcing, buyers as good as say that they expect the value from AI to be in the reduction of staff at their outsourcing providers, and there's plenty of evidence that the cost lever is what people want.
Net, in a rising cost environment organizations see more value in cost reductions than output gains, at least for most back office and IT functions.
Source: https://isg-one.com/research/isg-index-insider/articles/inde... - my research
The work that was outsourced is (a) formulaic, (b) simple enough to be clearly documented, & (c) high-volume.
That's literally the wish list for good automation opportunities: why have a human automaton do something when a CPU can? Especially when you've already documented it ad nauseum.
And to large degree, this is a problem of large outsourcing shops' own making. They were content to get fat and dumb off labor arbitrage vs upskilling their talent and trying to provide higher value-add.
They all have their tiger teams, but the bulk revenue is putting lower-cost employees on higher-billable-rate contracts.
It's why, when businesses say they want efficiency, I start with the Efficiency = Output / Cost equation and ask if they want to increase output, or decrease cost. Most companies buying outsourcing want to reduce cost, most outsourcing providers want to increase output.
But it's going to take many more years of exploring the space to assess what happens to the departments where those CIO's and tech VP's pull on those levers. There are many examples of anticipated cost reduction strategies sending companies/departments/teams/industries over a cliff like Wile E Coyote when all the inherent limitations and side effects finally start to materialize.
Revenue is a little more obvious and sure. You're either expanding a business line and generating revenue... or you're not. Finding good revenue-generating solutions would better protect the industry from facing a very bleak winter because it would more quickly confirm that there's tangible money to be made in there somewhere.
Where I am maybe a little more cynical than you is that I'm not sure anyone in corporate IT has a long-termist view anymore. budgets in IT seem to have risen less than inflation in the last few years, while software, hardware and services prices have...not. "Digital" everything has added cost, most large enterprises are already partly outsourced and have taken the easy gains from labor arbitrage, and have now been signed up by the CEO to somehow deliver AI for the business.
Its sad to me because most of every business would cease to function entirely without functioning IT, but it tends to have been run as a cost center to be minimized/extracted from, rather than a function like sales or marketing which are seen as being directly attached to revenue.
One of the reasons why I strongly feel that we're headed at lightspeed into an AI winter is: there's so much hype happening in the space right now that we're already seeing companies say things like "we're able to downsize 70% of department X thanks to productivity increases from AI". These efforts will almost universally and inevitably fail; not necessarily because AI will never be capable of doing what some business leaders believe it can, but because it can't do this yet, with agency. In a few very limited cases we'll see companies use this as an excuse to just lay off excess fat in the org, but it'll be far more common to see a pattern of layoffs + we're AI now -> profit up -> that's weird this company isn't developing nearly as many new things... -> re-hiring equal to or exceeding the layoffs -> company is never the same.
AI hype right now is burning bridges with underdelivery; we're making too many big bets too early. In 20 years it'll be the case that someone will be trying to sell a substantially more capable AI system, and some business leader says "that looks awesome, lets give it a try in this random inconsequential corner of the business no one cares about" because 20 years ago her predecessor bet the farm on GPT-4, lost the company billions over the next decade, and shareholders are now far more hesitant; despite the fact that, in 20 years, it might be The Time.
There’s a reason people joke that CIO stands for “career is over”.
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