Gen AI impact on IT outsourcing firms

Leadership Guide

Initial GenAI perception:

Generative AI is here for quite some time now; we all are some degrees conversant in it now. All companies have some or other projects in development using generative AI. At least most of the company has adopted co-pilot etc. When GenAI craze started, with the launch of ChatGPT, there was period of lull in job market. slowly it has subsided, there was longer period of lull in freshers job market. The very reason which is understood is AI Agents can do whatever debut level skill person can do. Debut means experience ranges from 0-5 years.

Current State:

Now hiring for freshers is also resumed. Product company and core domain companies has chosen option for taking vendors and contractors for junior resources, they have avoided the risk of layoff just in case, AI can do the work. Layoff of employee vs contractor is way different.

Outsourcing firm Delima

This leaves outsourcing firm in the space of hiring and managing those resources. I am sure they are quite happy about it, it means more business. AI in one way have given them more business, instead of taking away. Only difference is this business has not come because of the skill; it’s because of transfer of risk. Risk of long-term necessity of the resources which are hired. Risk of layoff in the organization and hitting brand name. Risk of losses in case resource remain unutilized for longer.

Understanding and Managing Risk

There is no business without risk. The key thing is to understand the scale of risk and managing it well. Which are key areas which are going to get affected, what are countermeasures that can be taken. In this case, how long it will take for AI to mature enough, that clients will be able to manage to shift significant part of there work to agents instead of vendors. Currently also agents are getting used, but its vendors only who are running them. So, there is no real impact on outsourcing firm. Now, lets break down the key areas of business of outsourcing firm.

Key business areas of outsourcing firms

• Consulting - There is small part of the larger business, but instrumental in creating business

• Architecture - There is also smaller part but key capability required to be sold as part of package

• Development & Testing - There is third biggest part of the IT outsourcing business

• Maintenance - This is generally the biggest source of business. Projects running in Maintenance mode is bottom line of the company.

• Support - This is second biggest source of business, but mostly customer centric.

Before, we impact coming because of AI, we need to understand Fundamental change AI is brining.

Fundamental change AI is bringing

This is curx of this article. We need to understand, use of AI is just a next step of simplified software development. The process is on from decades. At high level this can be broken in four stages

1. BAL, Mainframe, Basic, Modular, OOPs - Ability to develop, high experts required

2. Frameworks, Spring, Bigdata, NoSQL, - Simplified so that normal engg can work

3. LCNC, CoPilot - Even someone not an engg but tech background can work

4. Agentic - Anyone can develop.

We are mostly in LCNC (Low Code No Code) age, CoPilot age and approximately 10 to 30 percent productivity improvements are there. This only compensates for complexity which has increased in software world. So many languages, frameworks. It cannot be kept in mind, copilot are very solving much needed problem.

Important here is see the gradual move toward anyone can develop. Note this is not anyone can maintain. Maintenance is totally different ball game. It requires Indepth understanding of system and user. Response time has to be lower etc. etc.

Problem with long maintenance is overtime application become too large to be replaced and too rigid to take major feature enhancements. Every feature request is slower than next feature request. Most of the original developers and architects would have left project and organization or even retired to take any help. It’s a trap

What Agentic, LCNC, Copilot do - As agents capable of using LCNC tool and copilot. It will be possible to develop application ground up again. Ultimately eliminating the need to maintain application more than developing it over and over. So, if you need a new feature which is not addressed in original architecture. It will be okay to redeveloped by agents from scratch instead of patch work.

Key Conceptual Take Away:

Agentic AI based development will lead to more frequent development of fresh code base itself.

Long term Impact on Outsourcing firms -

Now let’s come to the most important part, what is impact on outsourcing firms, The thin line between development team and maintenance team will thinner and thinner. This means

1. Development teams will become bigger

2. Maintenance team will become smaller

3. Support team will start participating in development.

4. Architecture teams will also be getting deeply involvement in full Sofware life cycle as development is fast and frequent.

5. Consulting team will have to keep customer ready for these changes and help them plan their investments accordingly.

Impact on Leadership

Customer are locked with you for the maintenance of the application. They will not be locked, so much because their entire software is getting developed again by agents. This means, customer retention bargains will be difficult.

How to Mitigate

1. AI do not take responsibility. Ability to take responsibility. Validating the application thoroughly each time its redeveloped is no small task. This still require vast exposure the customer risks and user expectation.

2. Very capability of redeveloping a large application is also not easy. Still understanding how a large application combines is key skill for it to be redeveloped.

Key Takeway

AI agents is to looked as means of making it more and more sophisticated and comprehensive. This will keep enough dependency of customer on the vendor. It will rather grow your customer and outsourcing together.