Are Indian IT Cos Doing Enough With Generative AI?
Late in February, HFS Research CEO and Chief Analyst Phil Fersht came down heavily on Indian IT majors for their “lethargic” approach to generative AI, calling out firms which “just can’t seem to break out of their paralyzed mindset.”
“India’s IT services economy has a great opportunity with GenAI (generative AI) but will blow it if they cannot change their stuffy ways of operating,” wrote Fersht in his blog.
He explained that while he sees the startup scene flourishing and doing great things in India, IT companies seem to be assuming that the traditional model of outsourcing IT services to Indian service partners will continue indefinitely. Fersht highlighted the persisting expectation of the sector that global enterprise clients will consistently provide opportunities for Indian IT service firms, despite significant changes in the economic landscape. He suggested that this mindset is flawed and that the Indian services industry may face challenges as it adapts to evolving economic dynamics in IT service delivery.
“It’s frightening to think how much the Indian services industry is likely to be impacted as the country comes to terms with the fact that the economic fundamentals of how IT services are delivered are changing forever.” – HFS Research CEO and Chief Analyst Phil Fersht
As per nasscom, the global technology spending growth experienced a 50 per cent decline in FY2024 due to various factors. Similarly, the global tech Annual Contract Value (ACV) saw a decrease of 6 per cent and overall global tech funding dropped by 38 per cent in 2023. Consequently, the growth rate of Indian IT services was affected, with revenue reaching USD 128.4 billion, which showed a slower growth rate compared to the previous year.
“There appears to be a noticeable difference in the pace of AI and GenAI adoption between Indian startups and traditional IT services firms. Startups showcase agility and risk-taking, capitalising on quicker decision-making and specialised focus representing a small percentage of companies driving innovation in this space as it is also driven by financial commitments. In contrast, established IT firms may grapple with legacy systems and diverse offerings,” Krishna Vij, Business Head, TeamLease Digital told BW Businessworld.
A slew of GenAI startups such as Ema, Bhavish Aggarwal’s Krutrim, Rephrase.ai and Fractal Analytics are leading the space. Meanwhile, IT giants including Infosys, Tata Consultancy Services (TCS), HCLTech and Wipro have also been focusing on GenAI projects and commentaries to drive innovation.
Source: nasscom
The country’s largest IT player TCS’ CEO K Krithivasan during Q2 FY24 post-earnings conference mentioned that the company was engaged in over 250 GenAI-powered projects with their clients, which was up from 100 projects in the pipeline in Q1 FY24. TCS is also partnering with hyperscalers to build a talent pool of over one lakh associates trained in generative AI. Similar efforts are being undertaken across other large and mid-tier IT companies as well.
While it may take time for the net-new revenues generated by GenAI projects to reach significant levels, the immediate effects are expected to manifest in higher expenditures on cloud services and data infrastructure by customers.
Currently, the collective GenAI efforts of the top 10 Indian IT service companies translate to about 450 GenAI projects and proof of concepts (PoCs) in progress. These initiatives constitute an estimated deal pipeline ranging from USD 150-250 million, as per market intelligence firm UnearthInsight.
“IT firms are responding to the shift in client demands by adopting a more client-centric approach. Beyond cost savings, they focus on providing value-added services through innovation, productivity, and efficiency improvements using Generative AI. Companies are transitioning from hourly billing to outcome-based pricing models, positioning themselves as strategic partners,” said Vij.
But the efforts, according to Fersht, aren’t good enough. “EY’s latest white paper, ‘The AIdea of India’, declared that Generative AI can add a cumulative USD 1.2 – USD 1.5 trillion to India’s GDP by 2030. So surely this means India’s leading service providers and GCCs are paving the way in rethinking how they train their people, how they recruit from Indian universities, and how they price their capabilities and services with their enterprise clients to infuse GenAI into the core of everything they do? The answer, sadly, is NO, as several leaders pointed out in public and private settings,” noted Fersht on his blog.
GenAI's Projected Impact on India's Sectors | Source: EY's The AIdea of India report | Business Services Includes IT* The current GenAI adoption in Indian enterprises is primarily focused on productivity enhancement and specific use cases such as conversational applications, marketing apps, co-generation, content management and small productivity tasks like summarising reports and generating code. This journey of AI adoption is progressing from productivity enhancements to integrating AI into business functions like marketing, sales and procurement. However, there are many challenges such as intellectual property leakage and data governance in these areas, which make most companies nervous that, in turn, make them very cautious with innovation.
“Indian enterprises, including vendors, are actively exploring potential use cases, including in generative AI. Currently, adoption is focused on conversational apps and productivity tools like code generation and content management. Small productivity tasks such as report summarisation and chatbot enhancement receive significant investment. Moving forward, there’s a clear trajectory towards integrating generative AI into core business functions. IDC sees this journey progressing from enhancing productivity to becoming integral in various business operations,” said Neha Gupta, Senior Research Manager (Software and IT Services market), IDC India.
But Fersht highlighted the current juncture in the business landscape where enterprise leaders recognise the significance of partnering with entities that comprehend their distinctive challenges and are dedicated to crafting a GenAI roadmap to augment their competitive edge.
“Indian support services could lose a million positions over the next couple of years as LLMs rapidly change how routine IT testing and coding work are delivered.” - HFS Research CEO and Chief Analyst Phil Fersht
He further observed that enterprise leaders are increasingly seeking partners who grasp the nuanced business context shaping their data requirements. Those unable to align with this expectation risk being marginalised or relegated to low-value service contracts, thereby diminishing their relevance in the market.
“…challenges such as potential job displacement, substantial investment requirements, and skill gaps necessitate strategic measures for successful adaptation and continued industry growth for IT in the GenAI era. Industry-academia partnerships play a vital role in mitigating skill gaps, ensuring a future-ready workforce for sustained growth in the GenAI era.” - Krishna Vij, Business Head, TeamLease Digital
The HFS Research CEO ended his blog by highlighting the presence of trust between IT and business services and questioning why the likes of TCS are not leveraging this trust to advance further up the value chain. He stressed on the need for these services to provide more support to enterprise customers and suggested that smart talent, which understands the challenges faced by these customers, is crucial in fulfilling this need.
