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Generative AI: Reshaping SI Engagements and the Client Advantage

The Systems Integration (SI) landscape is undergoing a disruption driven by Generative AI (Gen AI). AI is rapidly gaining traction and disrupting the sourcing and procurement market, with readily available tools impacting both SIs and their clients. But what are the specific implications for client engagements, particularly in terms of pricing power and project delivery, that are a direct result of the impact AI is having on SIs?

Here, I will discuss the short-term impact AI is having on SIs, the current market now that AI is a key player, and how clients can reap the benefits of Generative AI.

Short-Term Impact: A Potential Shift in Demand

Initial data suggests a possible short-term dip in demand for traditional SI services now that AI is a prominent aspect of customers’ portfolios. Some contributing factors include:

  • Market Adoption of AI Tools: Clients are increasingly adopting tools like Microsoft Copilot and Github Copilot, empowering their internal teams to handle tasks previously handled by SIs. For example, a recent Wall Street Journal article highlighted Nationwide Insurance’s reduced reliance on external resources following AI implementation.
  • Increased Efficiency Claims: Many SIs are reporting 20-30% faster delivery times due to Gen AI utilization, potentially leading to a need for fewer resources on projects.
  • Democratization of Expertise: Companies like SAP are introducing Gen AI products like Juele that are enabling niche players to compete more effectively with large SIs. Smaller firms can now deliver a broader array of services and capabilities to compete with the big SI’s at a lower pricing point.

The convergence of these factors suggests a temporary reduction in demand for traditional SI services. This became even more clear in Accenture’s most recent earnings report, where they reported negative revenue growth in North America and EMEA, reduced operating margins, and a decrease in new bookings.

Navigating the Current Market and Client Opportunity: The Next 18-24 Months.

The current SI landscape reflects a mixed reaction to Gen AI AI. Some firms boast significant productivity gains achieved through external Gen AI tools. Major players like Accenture and Deloitte acknowledge the potential while remaining cautious about the full impact on their delivery productivity. Meanwhile, other SIs aggressively tout the potential benefits with no real commitments. We have also seen an uptick in “predatory pricing” as they compete for business during this period of transition.

Understanding this market volatility is crucial for clients seeking to optimize their SI partnerships. UpperEdge forecasts a window of opportunity for clients within the next 18-24 months to plan for and evaluate your SI deals. This timeframe presents several key advantages:

  • Generative AI Table Stakes: Within this period, AI capabilities are expected to become essential for global competitiveness. Customers will require significant assistance from the SIs to enable Gen AI infrastructure and a robust portfolio of projects.
  • Unlocking Previously Costly Projects: Gen AI’s ability to automate tasks and increase efficiency will make projects that were once deemed financially infeasible now viable. This opens doors for clients to pursue more ambitious initiatives and for SIs to expand their service offerings.
  • Supply Chain Stabilization: The current market volatility will likely stabilize as the SIs right size the workforce and refine their consulting delivery strategies.

Action Plan for Leveraging the Indirect Benefits of Generative AI

This window presents a prime opportunity to redefine your SI relationships and benefit from Gen AI without substantial technology investments. Here’s how to maximize your advantage:

  • Enable Internal AI Adoption: Evaluate and potentially implement Gen AI tools for your internal IT teams. Consulting optimization is currently enabled by technology availability at client sites.
  • Competitive Approach vs Renewing Services Agreements: Traditionally, incumbency gives SIs a pricing premium due to switching costs. Gen AI can enable similar service levels from alternative providers at a lower costs. Use this leverage to renegotiate long-term agreements and capture potential savings.
  • Consider Market Disruptors: Include the SIs with an aggressive Gen AI forward approach in your RFP processes. These firms might offer innovative solutions and expertise that traditional players haven’t fully adopted.
  • Unlock Hidden Potential: For large, ongoing programs, consider engaging an independent consultant to assess opportunities for optimization through Gen AI. This can identify areas where your current SI might be exceeding contracted service levels, allowing you to renegotiate or explore alternative options.

To learn more about leveraging Gen AI in your SI engagements and the impact AI is having on SIs, register for our upcoming webinar on the topic or explore our podcast Insights for IT Negotiations.

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