In the eye of the AI storm
A five-point charter for the Indian IT-BPM services industry for sustained relevance and profitable growth in the AI era
The march of the machines is well and truly under way. And, it looks like they are in no mood to stop anytime soon. Having been confined to the realms of academic research and science fiction for decades, artificial intelligence (AI) has finally become mainstream, making its presence felt across many industries.
Auto makers are aggressively deploying machine learning, image recognition and other cognitive technologies for developing self-driving car prototypes. Health care providers are experimenting with AI to figure out new ways of delivering preventive care and diagnosis. Financial institutions have begun applying the technology to automate services such as credit underwriting, while retailers are using AI to further personalise services.
The accelerating enterprise adoption of AI, amid a convergence of the physical and cyber worlds, represents a major growth opportunity for the Indian IT and business process management (BPM) services industry. We, at BCG, believe the sector can accrue net productivity-driven gains worth $100 billion (bn) to $120 bn over the next seven to 10 years by harnessing AI-led automation and augmentation across service lines.
For instance, application development maintenance and testing could be optimised significantly through automated diagnosis, classification, scoping, remediation and revalidation of QA issues. Similarly, BPM vendors could enhance service delivery by eliminating or streamlining large, clunky processes such as contract, claim handling and order to cash via virtual agents, chat bots, image recognition and other cognitive technologies.
In order to realise these massive potential productivity gains, though, Indian ITBPM vendors will have to transition from their long-held workforce-indexed revenue models to output-driven models. The reason is simple: their customers, recognizing the power of AI-centric intelligent automation, will increasingly demand “more for less”.
Productivity gains, while undoubtedly an important determinant of the sector’s business viability, will alone not suffice. IT-BPM service providers will have to unlock new revenue opportunities by continuously realigning themselves with the rapidly evolving business dynamics of their clients. These service providers have hitherto largely focused on back-office operations and infrastructure outsourcing, building vertical-agnostic capabilities in horizontal functions such as IT, finance, HR and supply chain. However, going forward, they will have to configure transformative ways of automating processes at the “heart of the business” that require deep domain expertise and human judgment.
This shift in value proposition will be essential. Business process as a service (BPaaS) and associated domain-centric solutions will emerge as the most lucrative areas for AI adoption, opening up a net new addressable market worth over $400bn for IT-BPM players by 2025. For example, vendors specialising in the banking and financial services (BFS) domain could offer compelling BPaaS solutions for mortgage processing and wealth management, while healthcare-focused ones might look at areas like claims operation and revenue data management.
Here are five principles Indian IT-BPM vendors must embrace to proactively leverage AI for transforming service delivery, and reimagining value creation:
Pick battles carefully: Deep dive into value chains and processes for a given vertical, and use “first-principle thinking” to identify use cases where AI can deliver order-of-magnitude–at least 5-10x–impact through automation of specific tasks. Take selective bets on areas of strength, and invest in early prototypes.
Take customers along: Engage CxOs across customer organizations, educate them on the potential of AI, and jointly explore how cognitive technologies can help dramatically improve performance, reimagine offers, and strengthen competitive positioning. Execute pilots to demonstrate proof of concept (PoC), and then scale up AI implementation in a modular manner.
Co-invest and collaborate: Partner with innovative start-ups and allies across the rapidly maturing AI ecosystem to shape and strengthen offerings, and reduce time to market and cost of development considerably. Tap into core cognitive technologies available through platforms such as TensorFlow, an open-source software library for machine learning, to focus on developing AI applications.
Get the right talent: Import skilled resources from start-ups, academia and other external sources to build deep capabilities in areas such as machine learning, data sciences and image recognition. Invest in setting up infrastructure for largescale re-skilling of the existing resource pool. In tandem, nurture dedicated inhouse teams with a “product” DNA to successfully navigate the ongoing shift from delivery of pure-play services to hybrid offerings anchored on business outcomes.
Define and execute AI agenda: Outline a coherent AI agenda comprising a clear strategy and a stage-gated road map, with buy-in from the senior leadership. Revisit the goals, strategy and roadmap regularly to factor in new information or mid-course corrections. In the coming years, AI and other next-generation technologies will fundamentally disrupt enterprise operating and business models across verticals. Indian IT-BPM players will have to accordingly disrupt their own delivery models, and transition from being a run partner to a strategic partner of choice for enterprise transformation. They must aggressively leverage AI for delivering services faster, better and cheaper by order of magnitude, and realise lasting productivity gains. In parallel, they need to embed themselves more deeply into their customers’ value chain, and help the latter revamp products and services.
Only by fundamentally reengineering itself will the industry be able to reposition itself effectively for serving the “heart of the business” in the 21st century. That, eventually, will create sustainable competitive advantage and business value.