Author: Peter Bendor-Samuel

2024 is an Inflection Point For IT Services | Blog

We are now in the digital world with operational platforms. In the platform world, looking for stability in processes no longer works because platforms collapse business processes to align with improving the user experience and objectives and key results (OKRs), thus creating new value. Consequently, in IT, we are at an inflection point, a point in time where the attention for IT or IT services is moving away from building out infrastructure and moving to achieving demonstrable business value.

Read more in my blog on Forbes

Five Tactics for Technology Service Providers to Guard Profit Margins Against Generative AI Impact | Blog

Technology service providers are committing to gen AI-related benefits to clients without a clear path to realization, which will negatively impact their deal margins. Uncover five strategies providers can use to optimize the productivity benefits of gen AI without denting profit margins in this blog.

The notion that generative AI (gen AI) can negatively impact technology service providers’ profit margins is counterintuitive. Service providers have assumed leveraging gen AI would improve margins by amplifying productivity and efficiency. Unfortunately, this has not been the case.

Most technology service providers commit to delivering gen AI-driven productive gains to clients. However, they will struggle to achieve these benefits in the short term due to the highly contextual and probabilistic nature of gen AI tools and their niche impact on specific tasks. This is hard to guarantee in solutioning.

Consequently, service providers must adopt other methods to realize these productivity benefits. This often involves a combination of people and intellectual property (IP) assets that cannot be charged to clients, hurting near to mid-term profitability.

Let’s look at the following five options that CEOs and CFOs of technology service providers have to address this issue:

  1. Monetize generative AI assets: Service providers have struggled to monetize their IP and assets because they are mostly used as service enablers and differentiators. Clients do not perceive additional value and are not incentivized to pay for these assets. However, gen AI assets could change this trend. Investing in gen AI assets can significantly vary from weeks to months of effort. Monetizing these assets should go beyond implementation and support fees and focus on IP value. If service providers can demonstrate genuine value, clients will be willing to pay the cost through better service pricing, an innovation fund, or direct monetization
  2. Educate sales teams and clients about the realistic impact of generative AI: Sales teams often fear their competitors are moving faster than them. In this rush, they commit gen AI benefits to clients without involving the practice, solution, or delivery teams. Leaders should coach the sales team and engage with strategic clients to have realistic gen AI discussions. Providers should create gen AI literacy services that peel away the hype of eye-catching Big Tech productivity announcements about gen AI offerings. Educational initiatives can help moderate client expectations and limit margin erosion
  3. Transform deal-related enabling functions: Generative AI has significant potential for summarizing and querying knowledge repositories. Service providers already use it to enhance the sales function through requests for proposal (RFP) bots, translating documents, and understanding service level agreement (SLA) requirements and the nuances of client needs. Accelerating such initiatives across sales, pre-sales, delivery management, deal finance, and business reviews can lower deal-related costs and alleviate margin pressure from productivity commitments
  4. Identify the right clients: Service providers need to identify the right set of clients for committing and delivering gen AI productivity benefits. This crucial aspect of the puzzle is frequently overlooked. The selection process should be driven by data, the client’s AI maturity, and the nature of the relationship and services used. Choosing the right clients can increase providers’ margins in their gen AI service delivery adoption journey. These clients will be more supportive of letting specific units experiment with gen AI productivity benefits, provide realistic feedback, and set internal expectations
  5. Transform effort and pricing models: Service providers are struggling to transform their effort and pricing model in the wake of gen AI committed benefits. Providers continue to rely on traditional approaches mainly because they are uncertain about linking gen AI committed client benefits to effort and pricing to manage deal margins. However, this problem must be solved to prevent it from significantly denting profitability. Apparent solutions, such as delinking price from effort, value-based pricing, and outcome-based commercials, have not worked. Since clients are more accommodating to collaborate with providers in this journey, providers should reignite these conversations, educate procurement and vendor management offices, and refresh their solutioning playbooks

While account and delivery leaders are held financially accountable for managing margins, linking this specifically to gen AI-related commitments can backfire. Instead, the focus should be shifted upstream during deal bids, solutioning, and client engagement.

To share your experience and discuss the impact of generative AI on profit margins for technology service providers, contact [email protected] and [email protected].

Watch this webinar, The Generative AI Odyssey: A Year in Review and What’s Ahead in 2024, to hear our analysts discuss the hype vs. reality of generative AI, production-level use cases, and the future of this transformative technology.

Are Expectations For Gen AI Lower Than Planned? | Blog

I am coming to the conclusion that the hoped-for gen AI spending wave for both tech and tech services could be longer in developing than both the investors and companies are planning on. In a recent blog, I talked about the realization that most (perhaps as high as or above 90%) of the Proof of Concept (POC) initiatives that launched during 2023 will not make it to production in 2024. Yet, the tech firms are plowing hundreds of millions of dollars into building AI tools and building the capabilities for running them. What has changed? And where are there still opportunities for this important technology?

Read more in my blog on Forbes

Changes in Funding Gen AI and Other Technology in 2024 | Blog

I believe 2024 will be the year of focusing on business value. That applies to gen AI, but it goes further than that. Most companies are now more than ten years into their digital transformation journey. Having already picked the low-hanging fruit, they now want to get more value and return on those investments. However, there are fundamental sentiment shifts in the appetite to invest more to get more value.

Read more in my blog on Forbes

Call Center Technology Needs a Platform Approach | Blog

It feels like the more technology a company deploys in its call center, the more it results in the worst customer experience possible. What used to be a personal conversation with a specific person is now a proliferation of technology channels that create more complexity for the customer and the company. Whether companies recognize it or not, in making these investments, they have assembled a digital platform operations model where the technology and the people in call center operations have become more intertwined. The problem is they did not adopt platform thinking.

Read more in my blog on Forbes

It’s Too Early to Expect Gen AI-led Revenues | In the News

The much-anticipated boom from gen AI looks like it will not appear at least in any significant way in 2024 in revenue terms. A significant troubling trend is that the tech services spending, which is normally 4-8 times the spending of the other tech, is not appearing in gen AI. This may change over time, but it is highly disappointing for the tech services firms at this time, Peter Bendor Samuel, CEO, Everest Group, tells Bizz Buzz

Read more in BizzBuzz

Three Digital Laws Drive Investments and Change Management | Blog

Fundamentally, investing in digital technologies is the start of an unending journey with continuous change on not just the tech stack but also on business operations. Companies navigate the tech stack part of this journey through an ongoing series of sprints or projects. However, the business operations portion is often less well orchestrated; this slows progress, creates unnecessary friction, and reduces the progress toward the objectives and key results (OKRs) that the transformation aims to achieve.

IT Gives Bears a Bull Hug: What Is Driving the Rally in Tech Stocks? | In the News

Despite muted earnings in the previous quarter and little expectations of major recovery in the next quarter, what is driving the rally in tech stocks?

“The large mega deals look to be the one bright spot in an otherwise difficult market. We are also seeing some green shoots around some of the large foundational software areas with encouraging performance of the software firms, which often leads tech services spending,” said Peter Bendor-Samuel, CEO at Everest Group.

Read more in Economic Times

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