CXOs believe that GenAI’s impact will be highest in the area of customer experience (89% of respondents), followed by innovation (66%), cost reduction (48%) and revenue growth (48%)
64% of CXOs believe that their organization’s readiness for leveraging GenAI is “very low” to “moderate”
Top factors impeding GenAI adoption include skills gap (50%), unclear use cases (36%) and inadequate focus on GenAI initiatives (20%)
Revenue uplift from GenAI projects has been lower than anticipated over the last 12 months
If GenAI risks are mitigated, value delivered from early projects exceeds adoption costs, and leaders effectively upskill the workforce and manage organizational change, customer spends are likely to surge over the next three years
“Foundational” areas such as data governance, cloud, security, and privacy likely to drive disproportionate revenue growth
New Delhi, 13 February 2024: Even as the technology services sector remains stressed given global macroeconomic headwinds and a weak demand environment, Generative AI (GenAI) has fast become a strategic imperative for Indian tech-services companies. They are making significant investments to leverage the technology’s transformative potential for their customers and their own organizations. According to the EY study, 68% of Indian tech-services CXOs believe that Gen AI will have a high to existential impact on their businesses.

Value-uplift

GenAI can be leveraged to transform business models, enhance productivity, and reduce direct and indirect costs. According to the EY study, the value-uplift in delivery-related areas can be significant: 20-50% for application development and support; 20-30% for infrastructure and operations; 30-40% for cloud migration and workload-modernization, and 30-50% for business process management. The value-uplift for tech-services companies’ internal support functions can be meaningful as well: 30-40% for sales and marketing, 20-30% for human resources, and 30-40% for functions such as finance, legal and procurement.

Even as GenAI promises to unlock new opportunities for innovation, revenue growth, productivity improvement, and enhancing customer and employee experience, the “on-the-ground” diffusion of the technology has been slower than anticipated. Almost two-thirds of tech-services CXOs state that their organization’s readiness to leverage GenAI is low (16%) to moderate (48%).

Adoption barriers and implementation risks

Tech-services executives point to a skills-gap as a major barrier (50%) to the adoption of GenAI, followed by a lack of clear use cases, which 36% of executives see as a significant hurdle. Additional adoption challenges include converting pilot projects into production-grade engagements, and the unwillingness of several customers to sign-up given concerns around inaccuracy, misinformation, bias, ethics, and intellectual property protection. A significant number of respondents (48%) expressed concerns about data privacy, hallucination or fabricated answers (23%), and biased responses (20%) as being a key risk as customers evaluate infusing GenAI into operational processes. Further, as organizations consider building products based on large-language models, there are concerns around infrastructure requirements and the cost burden related to heavy compute and storage capacities.

Regulatory framework

With the GenAI regulatory environment still uncertain and evolving, tech-services companies face the challenge of building trust with their customers – which is critical for meaningful engagement and adoption. While there is consensus amongst tech-services CXOs on the need for Gen AI regulation, opinions differ on who should design and govern the regulatory framework. 48% of tech services companies believe that it should be the government, 25% want industry associations to play this role, while 20% prefer self-regulation.

Nitin Bhatt, Technology Sector Leader, EY India, said, “GenAI is a top investment priority for the CEOs and boards of Indian tech-services companies. However, since customer-spends on GenAI have been lower than anticipated over the last 12 months, some experts have declared that the technology’s potential may have been over-hyped.”

“Our study indicates that this pessimism is unwarranted. Customers are engaging tech-services companies to unlock value across a range of tactical and strategic projects – from content management and customer experience to supply chain redesign and business model disruption. They are also partnering to strengthen their digital core in areas such as data governance, cloud, and cybersecurity. As the technology matures, and compliance, safety and ethical guardrails infuse trust-by-design, companies will make bigger and bolder transformational bets for market differentiation. We expect a significant surge in GenAI-related spending over the next three years,” Bhatt added.

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