We are hurtling towards a US presidential election in which only a small proportion of people are fully aware of the consequences, whether it be the economy, immigration, healthcare, education, the climate emergency, and so on. While Kamala Harris has been specific regarding her policies, we need to examine Project 2025 to understand where policies are likely to be set under the Republican administration.
What concerns me a great deal is the proposed removal of the Patient Protection and Affordable Care Act (ACA)—previously called Obamacare—by the Heritage Foundation that we fully anticipate this Republican administration to execute, especially after President Trump’s determined -(but failed) attempts to repeal the ACA during his previous term. Essentially, when we remove the ACA, we will reverse history back to before 2010, when citizens could be refused insurance coverage for a pre-existing/chronic condition, which today impacts six out of ten citizens, according to the CDC. This will have a huge impact on both citizens and their employers as so many people struggle to access the urgent care they need.
HFS’ lead healthcare analyst, Rohan Kulkarni, has endured the US healthcare system for 16 years as a CIO, strategist, consultant, market maker, and now an analyst who has delved deep into the consequences of Project 2025 on US healthcare to understand what to expect. Over to you, Rohan…
The US presidential elections could reshape healthcare across the quad-aim of care
Elections always have consequences; this one in 2024 will impact life and death, particularly for certain population demographics. The choice in the 2024 election is between improving the Patient Protection and Affordable Care Act (ACA), the law of the land, or significantly diluting it with Project 2025, the conservative agenda published by the Heritage Foundation. The exhibit below reflects Project 2025’s healthcare goals and its impacts on the quadruple aim of care (reducing the cost of care, enhancing the experience of care, improving health outcomes, and addressing health equities), which will reverse the progress made over the last decade relative to the cost of care ($0 premium Medicare Advantage, exchange plans), health equity, access to care (lowest uninsured levels ever), and even health outcomes in some limited contexts.
The healthcare-related goals of Project 2025 are intrinsically regressive
Project 2025 lists five goals for the US Department of Health and Human Services (HHS), as shown in Exhibit 2, that form the foundation of a new healthcare paradigm. These goals are a mix of non-healthcare aspirations, such as marriage, and non-scientific assertions like “abortion” and “euthanasia” are not healthcare. The goals are framed to transform US healthcare without the need for Congressional action, rather through the executive actions of the Secretary of HHS.
The first goal aims to ban abortion federally and ignores transgender realities, diminishing equity in healthcare. In meeting the first goal, project 2025 will drive poor health outcomes by ignoring underserved communities that often need the most help. In particular, a federal abortion ban that leaks into other women’s health affairs will curtail access to care as obstetrics and gynecologists quit the field, as we see in many states that have banned abortion.
The second goal is to empower patient choices and provider autonomy, which are already part of the healthcare system. The ACA marketplaces allow consumers to shop and buy health insurance based on their needs, from bronze plans with high deductibles to silver with moderate deductibles to gold and platinum with low deductibles, plans for everyone’s affordability and health needs. ACA provides government subsidies to buy the plans based on income levels. Project 2025 seeks a paradigm that existed prior to ACA, where health insurers could decline to cover consumers and use pre-existing to deny care. As part of the ACA plan selection, consumers, based on their location, can choose from a significant number of providers across specializations. A central tenet of good care delivery is the patient-provider interaction without outside interference, which is generally true in the current context.
The third goal warrants HHS to minimize and possibly ignore same-sex marriages and the needs of LGBTQ+ by emphasizing traditional marriages between a man and woman. While those go against existing laws that the Supreme Court has upheld, there is no empirical evidence to show same-sex marriages yield in families that are any less productive, happy, or have a negative bearing on our society. Project 2025 not only designs a path to return to times of expensive healthcare with poorer health outcomes but attempts to transform society by biasing its plans towards certain demographics.
Goal number four seeks to abandon public health strategies to mitigate pandemics, such as forced lockdowns, isolations, and vaccine mandates. Project 2025 asserts that these techniques with COVID-19 led to distrust in the health agencies and more unnecessary deaths. However, there is significant evidence that those techniques worked, here in the US and overseas, to prevent the spread of disease and reduce deaths. A state-by-state review of COVID-19 deaths shows an increase in per capita deaths in states that refused to follow locked-down and isolation protocols, delayed the delivery of vaccines, and mismanaged communications.
The last published goal intends to reduce the influence of pharmaceutical and healthcare enterprises over the functioning of agencies. It seeks to eliminate the revolving door between government and the private sector. While that is laudable, Project 2025 does not address where expertise will come from to help progress the government’s understanding of science to inform policy. It further goes on to indicate the need for a new set of metrics to determine the extent to which HHS policies and programs achieve desired health and welfare outcomes, something that is already in place with significant checks and balances.
The Bottom Line: Project 2025 seeks to kill the ACA and remake US healthcare through HHS and without legislative action.
Political noise leading up to any election can make the future fuzzier than it is. However, Project 2025 provides a blueprint of how healthcare will be remodeled. Project 2025 proposals suggest a regressive impact on the quadruple aim of care, setting America back to a healthcare paradigm before the enactment of the ACA in 2010 when selective coverage or denial of care for pre-existing conditions was the standard. It is essential that employers remain true to the health and care needs of their employees, adjusting their strategies under a drastically different regulatory framework.
I’m delighted to announce that the analyst who made sustainably great… is back to MAKE SUSTAINABILITY GREAT AGAIN! Yes, folks, Josh Matthews has returned to the HFS analyst family! And in time to meet many of you at the HFS AI Symposium at Cambridge University.
Josh, it’s great to have you rejoin the HFS family. It seems like you’ve had an eventful time in the outside world the past couple of years. What were the highlights? What did you learn about the world?
I’ve spent 2 years zigzagging through the different parts of the climate and sustainability emergency. I’ve come through with a clearer understanding of the global context and how the systems that need changing operate. I’ve seen the insides of large services firms, multiple climate and sustainability startups, experienced the processes and emotions of COP28, and gotten involved in climate finance and sustainable city initiatives. Having also stood for Parliament in the UK’s general election, I will continue to be involved in politics – especially tying in all things sustainability from environmental and social perspectives – linking the global context to people’s lives and local areas. I don’t think I’d be able to stand by and not have a political part of my life given the systemic change sustainability needs across policy, consumer behavior, and business. It’s exciting that HFS has always been able to influence at both a systems level and the detailed strategic, technology, and process levels that real progress needs.
I remember well the great work you did building up our sustainability coverage and the great impact we were making influencing enterprise leaders. With all the recent changes in the global economy and the sorry state of global politics, will you change your messaging/research to the world?
I’m going to tackle two ends of a sustainability spectrum which seems to be diverging more and more. On one end is the critical mass: The coming together of people and organizations to prove sustainability works in all its environmental, social, and economic ways – pulling along policymaking, consumer behavior, and business along into alignment with the trajectories of the Paris Agreement and UN Sustainable Development Goals. It’s why I set up Critical Mass for Sustainability and look forward to using it as a convening and advocacy platform alongside HFS’s research and consulting. On the other end of the spectrum, is the need to embed sustainability throughout an organization’s plans and processes. Embedding sustainability is all the more important when moving first is a tough sell to clients, employees, or the public.
The sustainability spheres of influence are still vast for companies, whatever part of their value chain they find themselves in. That is especially true for the biggest, most influential enterprises. It is also true for the biggest consulting, technology, IT, engineering, and business services firms. Their potential impact is as large as it was when we launched our Sustainability Services market analysis two years ago. Companies in every industry need to move so quickly to address sustainability. Services firms will need to be there alongside them, having understood their sectors, business models, and operations.
If services firms push their clients and partners to be a part of a critical mass then they can be the architects of the positive tipping points sustainability needs. If they can embed sustainability into their services, then they can have impact regardless of whether clients demand sustainability or not.
And what do you intend to write about in the coming months? Where do you feel enterprise leaders need attention? How do you plan to draw their attention away from other issues?
I’ll be working across the whole HFS team to keep embedding sustainability in our own research, advisory, and convening work. Whether that’s industry, technology, or business functions. I’ll continue my work of breaking down the global sustainability context and helping align people, teams, and companies. When a vast geopolitical mess confronts us all, being clear on where your spheres of influence are as a person or business – clear on what is materially impactful, not only what sounds right – is all the most vital.
I did admire how sustainability was becoming big business for leading professional services and tech firms, but that seems to be slowing. Is that really the case?
We need to show that the supposed ESG backlash or “greenlash” is nothing more than a “greenhush” at most. That doesn’t mean sustainability isn’t facing challenges. Far from it. But the arc of progress is still bending towards the Paris Agreement, net zero, and the 17 UN Goals. We’re nowhere near on track. But we’re not slowing. In fact we’re still accelerating despite all the noise and lobbying for it to be otherwise. Just to take a few examples from the past week or so… I plan on adding to this argument with HFS’s research power behind me.
A study of over 2100 C-level execs by Deloitte found 85% of them increased their sustainability investment over the past year expecting direct benefits. Published at the same time, a Bain study looked at B2B and B2C customer sustainability attitudes. Demand is high. But separate analyses of multiple reports suggest CEOs are deprioritizing sustainability when considering the multifaceted geopolitical chaos of the last few years. But de-prioritization is a loaded word – and doesn’t (or shouldn’t) always translate into spending (often priorities in surveys like this reflect what’s top of mind). The long-term implications are amplified when limiting strategic, operational, and financial resources to sustainability goals. Like trust, lost sustainability momentum and progress can take a long time to build back.
The Deloitte study actively shows there is no material de-prioritization but an acceleration of spending and action. Also consider that the “public facing” de-prioritization in rhetoric from some CEOs and firms confronted with a volatile and unpredictable US election… might not be translating entirely into the work of other execs and operational leaders as they press on. (Also also, IRA money is unlikely to go anywhere given its allocation in Red states and their broader economic potential for sustainable energy and infrastructure).
Sadly many businesses and politicians worldwide have found it far too easy to accept the idea of an ESG backlash – because sustainability is hard. Sustainability can work on all environmental, social, and economic fronts. And those who prove that will be a part of the critical mass that creates positive tipping points and pulls along policy, consumers, and businesses. But that doesn’t mean sustainability is easy or the immediate business case is always obvious.
We need to think transition plans.
We know where we’re heading – the UN Sustainable Development Goals (SDGs) make for terrific roadmap endpoints. And even if all the data isn’t available, there are enough examples of success out there to work out what’s material to your business and to sustainability – to know your starting point and move forwards on the trajectories of the SDGs and Paris Agreement. The near future timeline for sustainability is uncertain, but the long-term timeline is not. It cannot be.
And finally, Josh, the biggest negative impact of AI is the sheer amount of energy required to fuel these scaling LLMs and power these Nvidia chips. Where do you see this all going? Is AI really worth it, or are there things we can do to minimize the negative impact?
Judging by the progress of Google, Amazon, Microsoft, et al. on procuring and building immense amounts of renewable electricity generation – the emissions footprint of technology use doesn’t worry me as much as other factors. Solar and wind are proven technologies and are cost effective at vast scale – we just need to build more. The material and industrial waste footprints are far from solved however. Industrial waste is roughly 95% of global waste – with 5% coming from consumers. Even in the UK where services dominate, consumer waste is maybe 10-15% at most. How we store all the solar and wind energy required for not only digital technologies but a more electrified future is also an outstanding challenge. Battery technology is improving but is far from where we need. Grids need upgrading – both physically AND digitally – which is where AI and other digital twin, IOT, and analytics technologies can find a powerful role.
Social impacts of AI and the whole sustainability transition will require careful planning.
Sustainability goes well beyond decarbonization and net zero to all environmental challenges including waste – industrial especially – water, biodiversity, and more. It also goes deeply into our societies. Social sustainability cannot just be corporate social responsibility (CSR) projects but must include a range of measures from a duty of care to your own employees’ wellbeing, to ensuring a just energy transition that works for the least advantaged most of all. Economically we must collectively work out where the upfront capital for sustainability comes from. In the long run everyone will benefit from a transition to the UN Goals – but the upfront costs must be derisked and be shared by those who can afford them. There’s a fantastic IEA report which delves into this from an energy transition angle.
HFS Research has been at the forefront of emerging technology for well over a decade.
From the rise of process automation to all things digital transformation to sustainability and now Generative AI. Cutting through hype and pointless press releases. Focusing on outcomes. Focusing on case studies. On what works. On what could work.
Sustainability needs that approach more than ever. Systemic change. And embedding sustainability to pull along those who haven’t yet found their own case for change.
I wanted to share publicly that I am backing Kamala Harris for President. While she has been relatively new to the “big debate”, I have been persuaded by the following:
Support for small businesses and entrepreneurs. The future of job creation and innovation isn’t going to come from most monolithic large enterprises, which are slaves to quarterly earnings and obsessed with profit – so many are focused on their shareholders a lot more than their people. It’s going to come from small businesses that want to grow, which can easily exploit new technologies to scale and can train people to be at the heart of their business models. Many small businesses also provide many more opportunities for ethnic minorities, where so many large enterprises have failed. She will expand the startup expense tax deduction for new businesses from $5,000 to $50,000 and ensure more federal contracts are distributed to smaller firms and not the usual greedy enterprises on the gravy train.
While not perfect, the country is still in a great place economically. Let’s not risk that. We can argue all we like, but the fundamentals of inflation (now at 2%) are FAR lower than all the G7 countries, GDP growth is the highest in the G7 at 2.8%, median household income is growing at 4% (including inflation), while unemployment has been consistently at record lows while the stock markets have been hitting record highs.
Tax cuts and benefits must grow the economy and the middle-class, not just make the rich even richer. She is proposing restoring two tax cuts designed to help middle-class and working Americans: the Child Tax Credit and the Earned Income Tax Credit. They will also expand the Child Tax Credit to provide a $6,000 tax cut to families with newborn children. She has promised first-time homebuyers up to $25,000 to help with their down payments, which is a huge issue for GenZs desperate to get on the housing ladder. Noone earning less than $400K will be negatively impacted. As a business owner myself, I am fine paying a few extra dollars a year to support this country. I don’t know why these obscenely rich people need even more money to increase our national debt and lay on yet more burdens for our kids to pay off when we are retired happily on our boats and golf courses.
The USA desperately needs a woman president. America would sorely benefit from a smart, likeable woman to lead this country. There are too many gender diversity issues to even attempt to broach here, but having a woman leader would do so much to balance them in this country. It is pretty unthinkable that in 2024, the world’s superpower and most powerful economy has never had a female at the helm. This has to change.
The Bottom Line: Kamala Harris may not be the perfect answer, but she’s offering us opportunity and hope to fix a divided country
There are choppy waters ahead for the US, with a recession surely coming eventually, some awful military conflicts we need to help resolve, and some real divisive (and often unnecessary) issues threatening to tear this country apart. There also needs to be a deeper focus on healthcare and education in this country, and I am not yet convinced anyone has addressed this effectively.
However, I believe the US is still the land of opportunity. It was the country where I founded my first business in 2010, which has grown and prospered over the years. I have benefitted from great American talent and from great people from other countries over the last few years, and I still love doing business in a great country like this, which continues to have a strong entrepreneurial spirit and confidence in the future. I am backing Kamala because, in my view, she is our best bet to take us forward.
These are my personal views and do not represent those of HFS Research.
Why do enterprises buy services? Because they need “work” performed that can be managed more effectively by people outside of their company. However, by 2030, we will be engaging with “services” primarily through technology, minimizing human intervention and maximizing efficiency. In fact, services will barely even be services anymore…
The future of services is NO services
As the world absorbs the incredible impact of technology and the internet on their businesses, the need for competent third parties to integrate, maintain, and innovate technology has consistently resulted in more and more spend each year. Talk to any CIO or CFO today, and they will bemoan the perpetual annual cycle of more and more money being spent on the cloud, on expensive software licenses, and all the people needed to keep this never-ending thirst for technology slaked.
We must break this death spiral of piling up our legacy debts if we want to stay in business
The problem today is enterprises cannot keep funding this incessant linear growth into perpetuity. They’ve been piling on considerable debt, which is becoming unsustainable as their people become administrators of legacy systems, broken processes, and useless data. Their cultures have become ones of sustaining old business practices and creaking business models, fuelled by a desperate fear of change and having to learn new and different ways of doing things. At HFS, we estimate the technology debt being sustained across the global 2000 to be close to $2 trillion.
And our beloved services industry has profited from this enterprise lethargy and perpetual spending for decades. The practice of piling on kids schooled from Indian universities to document these legacy practices so they can keep delivering them on multiyear contracts, where they can consistently find ways to keep layering on even more people and load yet more cost back onto their jaded enterprise clients, has become an art form. However, this gravy train of constant growth has run its course, with most services firms content with revenue growth that is barely even keeping pace with inflation. The reality is most of the services industry is not ready to retire, and we urgently need to innovate service provision to stay relevant in this game.
It’s all about scaling businesses with technology that enhances our existing people
The need to scale services without scaling people is upon us, and with it comes a massive opportunity if both ambitious enterprises and service providers are prepared to change how they buy and sell routine services and professional expertise. With the application of software platforms, agentic solutions, and, ultimately, autonomous services mimicked by software, we believe we are on a fast track to reach an autonomous, human-lite nirvana of scalable, profitable, secure and affordable services by 2030:
These five phases of services tell the complete story of the industry’s evolution from adding people to perform work to scaling these same people with the smart use of platforms, AI-driven agentic tools, and ultimately fully autonomous technology-led services where work is effectively replicated at scale with embedded intelligence.
The 2030 destination is Service-as-a-Software, where the focus is on service provision, which doesn’t really involve services anymore
In short, we are getting more of the same work without having to spend more on that same work. Instead, we can invest that money in value-added areas that cannot be mimicked by AI. Enterprises must adapt quickly to this shift as agentic AI can autonomously handle complex decision-making tasks. This will impact both workforce roles and the enterprise software landscape, reducing the need for repetitive, decision-heavy positions and consolidating software functions under AI-driven platforms.
As this landscape continues to evolve with more major players launching agentic solutions, ambitious startups such as Mindcorp.ai, rhino.ai, Daybreak and Lyzr will differentiate by offering unique capabilities, ensuring cross-platform compatibility, and demonstrating cost-saving benefits to appeal to enterprise clients. These emerging solutions are forcing the breakaway from legacy technologies and the reinvention of business models to take full advantage.
Net-net, the impact on services, as demonstrated above, is an increasing reliance on machines to fulfill the complex tasks previously delivered by people. We are eventually heading towards Service-as-a-Software, where the focus will be on outcome provision, which doesn’t really involve traditional services anymore. Instead, we will be delivering “services” primarily through technology, minimizing human intervention and maximizing efficiency.
Writing off legacy means partnering for change
Ambitious enterprises and their service partners are both striving to be effective in the emerging world of these AI-driven business models and operations. This means this transition only works when there are two parties ready to tango and change together. To this end, service providers must become partners of change for their clients to help them understand the sheer noise of technology change going on around them. Clients need internal alignment to ensure that it’s time to make the move.
The shift from labor to technology doesn’t take away the need for people; it actually necessitates experts who can shepherd their clients along to help them change. They must provide continuous education on how to manage organizations’ fast-moving technology ecosystems and work with them to create business roadmaps based on emerging tech to make them slicker, smarter, more efficient, and less bloated.
Enterprises are buying service solutions that improve performance, accelerate time to market, reduce costs, and create new content and data. We must address our debt across our entire data infrastructure, our processes, our skills and our tech, which our firm has likely collected over the last 30+ years:
1. Fix your data debts: You must align your data needs to deliver on your AI-centric business strategy. This is where you clarify your vision and purpose. Do you know what your customers’ needs are? Is your supply chain effective in sensing and responding to these needs? Can your cash flow support immediate critical investments? Do you have a handle on your staff attrition?
2. Fix your process-debts: Recreate new processes process to determine what should be added, eliminated, or simplified across your workflows to support your slicker AI-led operating model.
3. Fix your skills debts: Develop new skill sets that can support the transition to embracing emerging technology and AI-driven business models.
4. Fix your technology debts: IT spending just keeps increasing and only keeps swelling with each new platform and coding change. Stop buying tech for the sake of tech—this has been the failure of so many previous investments, such as the two-thirds of enterprises left struggling with their cloud migration journeys signed during the pandemic.
The Bottom-line: Enterprises can only repay their debts by adopting a technology-first approach
Enterprise leadership has always been – and still is – obsessed with cost reduction. This is what they understand more than anything, and they view innovations such as GenAI as another lever to justify investments based on yet more cost take-out. The best approach is to reduce overall delivery costs by investing in change and technology that can scale services. This is offset by the increased value and reduced labor costs driven through effective investments in change, processes, data, and technology. Clients MUST sign up for process reinvention and data transformation as part of it. Clients need to TRUST their partners to get them there. Providers need the TALENT to work with their customers, or the whole thing simply erodes to the bottom.
What enterprises desperately need are partners to work with them who share similar desires to learn new methods, unlearn old habits, and to teach them to exploit new technologies and new data methodologies and work with them to attack new markets with these capabilities.
The big question now is whether enterprises and their services partners have the appetite to fix their skills, processes, data, and technical debt? Can they really learn new ways of operating, change their cultures, and embrace emerging technologies? Everyone needs to dig deep and decide whether they want to be a footnote or the future.
Being a Brit transplanted in the US, it is bizarre to me that the state of healthcare is not an election issue. In the UK, it’s the constant political hot potato – never enough funding, never enough nurses, doctors on strike, massive waiting lists for patients, etc. However, from my own personal experience, the waitlists are just as frustrating in the States, the IT systems are woefully integrated (and some actually worse than the UK’s NHS), the patient experience is very “transactional,” reactive, and rarely joined up, despite $5 trillion annually propping up this mammoth house of cards.
Fortunately, at HFS, we have a deep focus on healthcare and life sciences, which has taught me personally a lot about the core issues, so I asked our fearless healthcare lead analyst, Rohan Kulkarni, to name six big things we can address to fix these problems while American voters obsess about anything but their healthcare…
All attributes of the quadruple aim of care continue to head in the wrong direction
Given the strong financial incentives to perpetuate a system that operates without responsibility or accountability, nothing can be done to fix this sick care paradigm. At HFS Research, we measure the performance of US healthcare across the quadruple aim of care (see Exhibit below) – to reduce the cost of care, enhance the experience of care, improve health outcomes, and address health equities. Despite strong evidence of all elements of the quadruple aim of care failing its health consumers, there are no meaningful catalysts to trigger a change in direction:
However, there are 6 things that are still possible that may give us some relief…
1. Eat healthy and get off the couch
There is significant clinical evidence to suggest that those who are mindful of what they eat and maintain an active lifestyle tend to remain healthy compared to those who don’t. DNA certainly plays a part, but it is likely that a diet of saturated fats and high cholesterol combined with a sedentary lifestyle is not consistent with disease-free, high quality of life, and long life spans. It is, therefore, incumbent upon each of us to practice a healthy lifestyle (nutrition, activity, hygiene) if we want to remain relatively disease-free and postpone those healthcare visits.
2. Employers fire your health insurers
Despite all the fuss about AI, employees will likely remain an employer’s ultimate asset for the foreseeable future. It is, therefore, an economic imperative for employers to keep their employees healthy (sick employee = cost, healthy employee = revenues). To support a healthy employee population, employers must really explore underwriting the medical risk of their employees, especially those that are profitable, in a services business, and have limited liabilities. Those who are already self-insured must consider creating direct-to-provider constructs with a reasonable capitated fee that eliminates all those foolish administrative burdens like prior authorization and claims processing while getting a better quality of care at a lower price.
3. Consumers embrace subscription-based primary care
President Obama said in the throes of the Affordable Care Act fights of 2013 that healthcare would be cheaper than your monthly cell phone bill. He was not kidding. Subscription for digital health-enabled primary care is as low as $9.00 per month if you are an Amazon Prime member of OneMedical. Other providers charge between $50 and $200. Some even include a formulary with up to 200 most commonly prescribed medications. This is a catalyst for us to re-embrace primary care without the hassles of prior authorization and coverage constraints to manage our health proactively.
4. Forget CVS and Walgreens for Rx
Alternatives like Mark Cuban Cost Plus and Amazon pharmacy are making prescriptions significantly less expensive and easier to access, especially if they are generics. Each of these has a different approach, yet they are significantly less expensive than chain pharmacies, deliver to our homes, provide transparent pricing, and are becoming the go-to for generics. Employers and consumers must begin to include such alternatives in their prescription filling process to reduce their healthcare costs and stress.
5. Medical IoT and wearables will save us from us
The sick care paradigm that envelopes us is one driven by a demand-based intervention construct. It is where we, the individuals, decide how we feel and when to seek help. Given the proliferation of medical IoT, wearables, and the inclusion of AI to support diagnostics, we are at an inflection point to reset the care delivery paradigm. Consider leveraging all these technologies to enable a need-based intervention. Let the devices and data inform the clinicians when and for what to intervene. Employers and consumers can drive this shift as part of their direct-to-provider contracts to allow for continuous monitoring and need-based interventions that arguably save significant costs while improving health outcomes by intervening as needed and accurately.
6. Make healthcare equitable to all US citizens
Healthcare protocols are biased towards the majority demographics (white, urban, educated, and wealthy), leaving minorities and the underprivileged underserved and uncared for. Private-public partnerships must address these communities, given they are critical workforce levers if cared for. Consequently, community-based care constructs that incorporate social determinants attract community-specific resources to be the first line of triage that addresses trust gaps and addresses diseases that communities are pre-disposed to, e.g., Pacific Islanders are pre-disposed to obesity, as are African Americans to diabetes. Community and underserved focus is key to democratizing care to help improve local economies, address health equities, and improve health outcomes.
The Bottom Line: We are SOL in this sick care paradigm, but consumers and employers are best positioned to make incremental changes on their own that can be material.
The reality is that we can not keep doing the same things and expect different results. We must change what we do, leverage technologies, and be bold enough to experiment outside the legacy sick care paradigm. Short of that, our choice is to sit on the curb and whine about how our healthcare system sucks!
Global Capability Centers (GCCs) have emerged as the trailblazers of the Indian IT landscape, displaying extraordinary double-digit growth and transformation and carving out a distinct and powerful niche. While tech and BPO service providers have grappled with flagging enterprise demand and other market pressures, GCCs have thrived, with HFS estimating 2000 expected to be in full operation in 2025. So, are these GCCs genuinely the new face of Indian IT?
Let’s discuss:
GCCs thrive while third-party providers struggle
The rise of GCCs has been nothing short of meteoric. As third-party tech and BPO service providers navigate turbulent waters, GCCs are scaling new heights. The numbers speak volumes: HFS estimates show 1,650 GCCs established in India (growing at 11% this year), employing around 1.6 million people, with 120 new GCCs launched just in the first half of 2024 alone. HFS estimates over 2.7 million people will occupy India’s GCCs by the end of 2026, which could top 4 million staff by 2029. In addition, annual spending in GCCs will move past $50 billion this year and could almost double over the next five years.
Net-net, this explosive growth has redefined India’s tech industry and is being driven by rampant expansion across India’s leading tier 1 and tier 2 cities for talent:
The secret? Effective GCCs are much more closely integrated with their parent organizations, aligning with corporate goals, which ensures optimal resource allocation, effective project management, and a profound understanding of their parent company’s culture and objectives. In short, many global decision-makers within the Global 2000 feel much more in control over their operations in a market of rampant technological development and economic uncertainty:
GCCs are shifting the “Why India” question from Cost Arbitrage to Skills Arbitrage
The GCC model is not new (remember “captives” and Global In-house Centers/GICs), but its value proposition has been evolving significantly in recent times. Initially seen as cost-saving centers, GCCs have transitioned to a focus on skills arbitrage. India’s deep reservoir of skilled IT professionals now promises something far more valuable: cost-effective innovation at scale. This pivot has rebranded the “Why India” narrative from a mere cost-saving exercise to a strategy of substantial value creation—a vital advantage for enterprises caught in the “digital dichotomy,” struggling to balance macroeconomic challenges with the need for relentless innovation:
GCCs are making IT services sexy again for Top-Tier Indian Talent
The Indian IT services industry has long faced challenges in attracting top-tier talent, with the best and brightest often gravitating toward startups or global technology providers. Our study of 1,800 IT services employees last year revealed widespread dissatisfaction, with many feeling under-challenged and ready to jump ship (See exhibit below). The problem with the services industry is that when companies provide outsourced services for enterprise customers, it’s most often the monotonous tasks the customer can offload at scale, such as application testing, infrastructure monitoring, accounts payables or receivables.
Even sexier-sounding work, such as content moderation for social media sites or product support services, is usually very tedious after a while, especially when the services worker is just instructed to follow a standard operating procedure without any incentives to use judgment, creativity, analytical skill, or common sense. It’s no wonder staff have been quitting in droves in search of something more challenging when there is so much demand for workers to perform higher-impact work elsewhere. Now that their next job may turn out no more challenging than their current gig if there’s 30% more money for doing it, why not?
In short, employees do not like their current employers because of their lack of career growth opportunities, bureaucratic company cultures, difficulties finding the right work-life balance, and disillusionment with the company’s purpose and vision:
As you can see, close to 9 out of 10 staff want to feel more challenged (and are bored), 61% will jump to a competitor for a pay hike, and 75% believe they can easily find a job as good as the one they currently have. The only saving grace for the IT and Business services industry is that 90% of employees are passionate about the impact they can have on enterprise clients. The simple fact that GCCs offer the chance for Indian talent to get closer to global enterprises and have a more direct impact on their clients (true OneOffice) is making the GCC career option far more attractive than many of these “back office” service provider roles.
GCCs are reversing this trend. Offering up to 30% higher salaries, often more challenging roles, and opportunities to work with cutting-edge technologies and prestigious institutions, GCCs are making IT services desirable once again. This resurgence in interest is not only enhancing GCC capabilities but also elevating the entire Indian IT industry, especially during these challenging times for its traditional outsourcing market.
HFS Recommendations for Long-Term Success with the GCC Model
GCCs have rightly earned the spotlight, but to sustain their momentum, they must continue to innovate. The future is promising, but complacency is the enemy. Here’s what they need to do:
1. Embrace India’s blossoming AI talent to drive Technology Arbitrage
GCCs are accelerating India’s value proposition from cost to skills arbitrage. Now, they must embrace AI to unlock the potential of technology arbitrage, positioning themselves not just as cost-effective hubs but as epicenters of technological innovation (See below). No region in the world comes close to India to develop talent at scale, which can learn the latest GenAI and machine learning tool. The booming startup ecosystem and ambitious numbers of college graduates place India in an ideal position to dominate the future of AI development, with GCCs at the core.
If this shift is managed effectively, it will transform many GCCs from support centers to strategic drivers of global business value, supporting companies to optimize processes, predict market trends, and respond to changing consumer needs to create new revenue streams. This shift would not only enhance the competitive edge of their parent organizations but also establish many GCCs as leaders in the global technology landscape. The challenge is centered on transitioning from a people-centric model to a technology-driven one, but the rewards are immense if you can adopt the right mindset for change and innovation.
2. Benefit from a Hybrid Model of in-house capabilities AND third-party services
The future is hybrid. While 40% of Global 2000 enterprises use a hybrid model, this figure jumps to nearly 65% for those with over 15 years in the game (See below). On a long-term basis, companies are more likely to adopt a hybrid model, due to their need for greater flexibility and the ability to balance cost-efficiency with specialized expertise. A hybrid model that combines in-house capability centers with third-party services can offer the best of both worlds. This approach allows for flexibility, scalability, and access to a broader range of expertise and resources, enhancing overall service delivery and innovation capacity. The conversation should not be “In-house OR 3rd parties” but “In-house AND 3rd parties.” The hybrid model offers the flexibility and scalability that today’s dynamic business environment demands. It’s not a choice between in-house and third-party services—it’s about integrating both to create a more robust, versatile operation.
3. Make GCCs a vital part of the Corporate Innovation Agenda
GCCs are often perceived as execution engines rather than innovation leaders, including instances where GCCs are primarily tasked with implementing strategies and projects designed by the parent company rather than driving the ideation and development of those strategies. For example, a GCC might be responsible for scaling a software development project globally, but the core innovation and design decisions are made at the headquarters.
GCCs should aim higher than executing the corporate innovation agenda set by their parent companies. They should aspire to create this agenda, leading the way in identifying new opportunities, technologies, and market trends. By taking a proactive role in innovation, GCCs can become indispensable partners to their parent organizations, driving strategic initiatives and long-term growth.
The key challenge here is to establish stronger lines of collaboration between GCC leaders and the enterprise leaders in corporate. This is usually a result of legacy-minded corporations who traditionally treat Indian resources as “back office” as opposed to being part of the broader corporate mission. Smart enterprise operation leaders need to establish clear skills development programs and career paths to encourage more Indian staff to establish themselves as strategic workers forming part of global teams. This is where enterprises, in general, need to invest in a global talent model and ensure the GCC is fully integrated with the rest of the enterprise and not sectioned off as a support center.
Bottom line: It’s time to elevate GCCs from execution engines to innovation leaders
Global Capability Centers (GCCs) have become a pivotal force in the Indian IT industry, driving operational excellence and innovation at scale. However, to sustain their success and continue leading the charge in global technology services, GCCs must evolve significantly beyond their current roles.
Embracing AI and shifting towards a technology-driven model will position GCCs as epicenters of innovation rather than mere execution engines. Moreover, adopting a hybrid model that integrates in-house capabilities with third-party services will provide the flexibility and scalability needed in a dynamic business environment. Finally, GCCs should not simply implement the corporate innovation agenda but also aspire to help create it, thereby becoming indispensable partners in shaping the future of their parent organizations. The time is ripe for GCCs to transition from cost and skills arbitrage to full-fledged technology arbitrage, ensuring long-term growth and global leadership.
At HFS, we are diving deeper into this exciting GCC space. Watch out for our upcoming videocast series with GCC leaders, our GCC executive roundtable in Bengaluru, and our HFS Summit in India next February.
In the endless march toward cost savings and efficiency, enterprises have increasingly turned to generative AI (GenAI) to optimize every facet of their operations. In theory, this should lead to unprecedented productivity levels, freeing up time and resources for innovation and growth.
However, the reality of GenAI integration into the workplace reveals a paradox: while the initial productivity gains are evident, they often come with hidden costs that can offset the benefits by creating new challenges. The highest cost that must be addressed is when people become over-reliant on GenAI to develop solutions and suffer a decline in their learning capabilities.
GenAI could erode human creativity as people become dependent on the technology for basic cognitive tasks
Multiple research studies over the past couple of years clearly indicate that GenAI can automate many tasks, significantly boosting productivity in the short term; for example, 35% of leading executives across driving GenAI initiatives have already witnessed productivity and efficiency increases. However, reliance on these AI tools might inadvertently devalue or erode human creativity and heuristic skills as people become too comfortable relying on them, rather than developing their own solutions.
When individuals rely on AI to perform cognitive tasks such as data analysis, writing, or decision-making, they may sacrifice the opportunity to develop and hone these critical skills. For instance, a study from the University of Pennsylvania in a high school context found that GPT-4 improved short-term student performance in math (48% for GPT Base and 127% for GPT Tutor). However, reliance on it led to worse outcomes when access was removed, with a 17% performance drop compared to those who never had access. This dependency can erode the workforce’s intrinsic problem-solving abilities and creative thinking, which are vital for driving long-term innovation and competitive advantage.
GenAI will improve you if you use it to focus on smarter ways of achieving positive outcomes
On the flip side, one can argue that GenAI tools simply help us do things smarter, so we just become worse at the old way of doing things. The results from this University of Pennsylvania study could indicate that GenAI only diminishes our cognitive skills somewhat if we don’t refocus our brains on using our freed-up time and creativity effectively. For example, there is evidence that shows people become fitter using e-bikes than regular bikes, as they enjoy the experience more and end up cycling for longer, ultimately burning more calories and becoming physically fitter. Or in some cases people who never used to cycle now engage in the activity as it’s so much more enjoyable and efficient.
AI’s potential impact on creativity is profound
AI’s ability to generate content and ideas could also discourage individuals from producing original work, leading to a loss of creative skills. In creative fields such as art, writing, and design, the overuse of AI-generated outputs can result in a decline in the unique human touch that characterizes these disciplines. As people become more dependent on AI for creative tasks, the skill sets required for these activities may diminish, stunting the richness and diversity of human creativity.
In a worst-case scenario, over-reliance could make enterprises vulnerable to disruptions or threats; if employees are accustomed to handling complex tasks, a failure or limitation in the AI system could leave them ill-equipped to manage these challenges independently. The initial productivity gains from AI could thus be offset by a decline in human capability, leading to a net negative impact on the organization’s long-term innovation and adaptability.
Employee experience also takes a hit when organizations hyper-focus on productivity outcomes
An HFS study found that more than half of the 550 executives sampled (52%) recognize an obsession with productivity as problematic. When asked about the potential risks of this hyper-focus on productivity, 44% indicated that the overemphasis leads to employee dissatisfaction, burnout, and declining morale:
This obsession with productivity can create a high-pressure environment where employees feel constantly monitored and evaluated, leading to increased stress and a sense of being undervalued. In the long term, such an environment can result in higher turnover rates, as employees seek workplaces that prioritize their well-being and provide a more balanced approach to productivity and innovation.
Organizations must strive toward a balanced human-AI symbiosis to mitigate the productivity paradox
In the late ’60s, Douglas Engelbart, in his work “Augmenting Human Intellect: A Conceptual Framework,” introduced the idea of human-AI symbiosis, where AI systems enhance human capabilities rather than replace them. This concept is critical to understanding the productivity paradox in GenAI adoption. While GenAI technologies promise significant productivity gains by automating complex tasks, the true potential of these technologies is realized when they are used to augment human intellect and creativity. In practice, enterprises should focus on integrating GenAI to complement and enhance human skills rather than create a dependency that could undermine long-term innovation and adaptability.
Ultimately, the productivity paradox arises when organizations fail to achieve this symbiosis. Instead of merely automating tasks for efficiency, enterprises should leverage GenAI to empower employees, providing them with tools that extend their capabilities and foster a more innovative and agile workforce. This approach helps mitigate the risks of skill degradation and dependency, ensuring the workforce remains resilient.
Recommendations to drive human-AI symbiosis and mitigate the productivity paradox:
Training and development: More than one-off training will be required to ensure that AI tools complement rather than replace human skills. Invest in continuous training programs to help employees develop and maintain critical cognitive and creative skills alongside AI.
Conduct “show and tell” GenAI training workshops: Nothing is more effective than having your staff demonstrate their active use and enjoyment of GenAI in collaborative group settings. This encourages more uptake, smarter use of the tools, and real-time sharing of best practices.
Human-AI collaboration: Encourage a collaborative approach where AI handles repetitive tasks, and humans focus on complex problem-solving and creative work.
Encourage experimentation: Create an environment that values experimentation and risk-taking, allowing employees to explore new ideas without fear of being judged solely on productivity metrics.
Reward creativity: Implement recognition and reward systems that celebrate creative solutions and innovative thinking.
Work-life balance: Promote policies that support work-life balance to reduce stress and burnout. Flexible working hours and remote work options can help achieve this.
Employee feedback: Regularly solicit feedback on employees’ experience with AI tools and use their input to make adjustments that improve their work environment and job satisfaction.
Invest in continuous upskilling: Prioritize ongoing training and development to mitigate the skills gap created by the rapid adoption of GenAI. This ensures employees are adept at using AI tools and capable of critical thinking and problem-solving with these tools.
The Bottom Line: By fostering a symbiotic relationship between humans and AI, enterprises can achieve sustainable productivity gains that drive long-term growth and innovation
In essence, the productivity paradox is the realization that if the drive for efficiency sidelines the human workforce and what is required to nurture them to use AI effectively, the pursuit of productivity and efficiency gains will be compromised.
Organizations can mitigate these risks by promoting balanced AI integration, fostering a culture of innovation, and focusing on employee well-being. Ensuring AI tools complement human skills, encouraging experimentation and creativity, and supporting work-life balance can help maintain GenAI’s long-term benefits without compromising human capabilities and employee satisfaction.
Remember all the excitement about the Rabbit R1, and how this was supposed to signal the demise of the appstore and the onset of Large Action Models? Where we were no longer going to be held hostage by app providers refusing to open up their APIs or be forced to work through the dysfunction and poor integration of many painful subscriptions?
Remember the promises that all we had to do was talk to this little orange thing and it would execute pretty much anything we wanted? And all we had to do was drop $199 on the device to experience an AI-driven change to our lives where these effortless experiences would change everything for the better…
Rabbit.tech caused such a stir at the 2024 CES event, with Founder Jesse Lyu claiming his firm Rabbit could totally disrupt the app store in a similar fashion to how ChatGPT is disrupting web search. Even Microsoft CEO Satya Nadella has described the Rabbit’s launch of its R1 hardware as the most impressive since Jobs’ historic iPhone launch in 2007.
Source: YouTube, 2024
Well, after making us wait almost six months, the little red devices have finally arrived for a $199 price tag.
The reality is the device only supports only supports Spotify, Apple Music, Midjourney, Suno, Uber, and DoorDash. Do I really need to listen to music on this orange thing and order a pizza with it? What about sending emails, texts, whatsapps, calendar invites, or anything remotely useful? This is the response I received from Rabbit customer support:
The Bottom-line: Beware of AI snake oil, as some of it is very slippery indeed. Rabbit promised us freedom from app lock-in and all we got was more lock-out
I am sure there are may reasons why I now have a useless orange device taking up space on my desk and $200 missing from my bank account, but the delta between the device Jesse was selling and what I ended up with is scandalous. I can warn you about salesmen selling you AI dreams that appear too good to be true, but I know you are already probably very very wary!
Last Friday’s cluster &^%$ of IT outages plaguing companies globally will likely result in several billion dollars of economic impact. However, for CIOs, the problem wasn’t a security issue. Instead, this was an IT services management (ITSM) issue that caused massive disruption with companies relying on Microsoft’s Windows platform.
Software-as-a-service (SaaS) has become mainstream, with our research showing 68% of enterprise software is being delivered using this model today. As SaaS allows the software vendor to maintain, upgrade, and improve their solutions via their cloud delivery, updates are regularly issued as par for the course. However, as the CrowdStrike outages illustrate, many IT departments are getting too complacent, allowing their SaaS vendors to have full control of application management, updates, and automated delivery, especially when it comes to security updates. In addition, tech giants like Microsoft must be more diligent with their SaaS ecosystem partners.
This event happened as corporate IT has blindly trusted SaaS providers to patch their own solutions and assumed adequate testing and risk assessment
Friday, July 19th, wasn’t the first time there have been significant IT outages. For example, Rogers, the second largest telecom services provider in Canada, significantly impacted its customers in July 2022 with a router update from Cisco. And in 2020, SolarWind, another cybersecurity firm, dealt its customer a similar as their systems failed after an update. In the case of SolarWinds, this event has been traced back to a bad actor implanting malicious code in an update.
While companies depend on security patches to safeguard their systems, applications, and data, blindly trusting a loose federation of software companies to be mutually compliant is increasingly risky. Any IT leader worth their salt must have a process that not only governs software but also ensures that new software and patches have a modicum of testing to ensure compliance and stability. One only needs to crack open that dusty volume on the ITIL (Information Technology Infrastructure Library) framework to recant the importance of having a standardized process for quality assurance, testing, and deployment.
What caused the CrowdStrike mayhem was the release of a virus definition. Because the update is automated and is accepted automatically by its antivirus software, Flacon, when it was enabled, it caused the ‘blue screen of death’.
These automatic updates from SaaS vendors are common. However, EDR and antivirus firms push out a significant number of virus definition updates per week, sometimes even per day, depending on the severity of a virus they’ve discovered. This is all done to meet device-level security requirements required by standards like Soc2. However, when CrowdStrike released its version early Friday, July 19, it resulted in a global Windows meltdown for nearly every firm running CrowdStrike’s Falcon product.
CrowdStrike is a fault due to negligence processes
The ONLY explanation for this is CrowdStrike’s fundamental failure to follow basic ITSM or ITIL practices. ITIL is an industry recognized five step framework outlining a set of best practices and guidelines for managing and delivering IT software and services. ITIL offers software development teams with a systematic approach to IT service management (ITSM) with a focus on aligning their services with the needs of the business and ensuring the quality of the products they deliver.
In the case of CrowdStrike, its development team likely glossed over Step 3, Service Transition. While it likely focused on its standard operating procedure for writing the update the virus definition code, it appears they dropped the ball here for some unknown reason or hubris. As a reminder, in service transition, standard ITIL practices dictate the developer ensure the software (package, feature, or update) undergo a validation and test step. Surely, CrowdStrike has a stage gate for this, don’t they?
This step would have put the update through a quick battery of code testing, integration testing with Window’s OS, and finally system testing between the antivirus, Windows, and any additional services that might be called. Given the failure happened after the update hit the CrowdStrike Falcon software causing Windows clients globally to fail, it is pretty clear there was a lack of quality or system testing prior to release.
Therefore, one can only assume that CrowdStrike’s developers make the poor decision to skip testing and trust that their update would just work. This is a black mark on CS’s quality control, assuming it has one, and should lead to many CIO asking their CrowdStrike rep, “WTF, don’t you test these?!”
As an aside, this isn’t first time this has happened under the watch of the CEO of CrowdStrike, so this is likely to be an endemic issue with Crowdstrike’s internal processes.
This fiasco not Microsoft’s direct fault, but it does highlight weaknesses in its SaaS ecosystem
This outage has nothing to do with Microsoft, per se, even though Microsoft has had similar issues with the malformed Microsoft Defender antivirus updates that have disabled users’ computers in the past.
Yet, while not a Microsoft-caused issue, Microsoft must revisit how SaaS developers are allowed to release software in their ecosystem. Given the brand damage and potential legal and regulatory suits that will emerge from this, it is likely, but should never be assumed, that Microsoft will need to review its partner program.
In this review, Microsoft’s partner program must revise how its ecosystem will be regulated and held accountable for any damage-causing economic events of varying magnitude. The highest, and arguably the one that CrowdStrike reached this past week, may result in its partnership being revoked. While adding additional stage gates may slow down delivery, innovation, and services, the vendor may have to implement stringent guidelines as not doing so makes it culpable for not ensuring its partners are accountable for their products having a detrimental impact on its customers.
So what is next for the world of SaaS and cyber?
The global outages caused by a CrowdStrike update could have been mitigated had it followed ITIL. Basic ITIL procedures dating back over several decades implore responsible testing prior to a release.
While CrowdStrike took down global operations for millions of firms with a malformed virus definition as part of an automated update to its ESR clients, it is still culpable for not testing. This negligence should be the focus of many companies and lawyers.
And while this (hopefully) will be a one-time event for the vendor, the damage done was nearly catastrophic. The result is a significant erosion of trust between CrowdStrike and its customers. But we can’t just blame CrowdStrike, we signed agreements that have allowed this to happen.
Nonetheless, we are fools if we don’t learn from this event. As such, every CIO must revisit the policies and procedures for accepting updates from their SaaS and applications vendors. This will be an extensive list that will stretch from Microsoft’s Windows updates to SAP. Through this exercise, the CIO must come to an understanding of which vendors may have a material impact on their firm’s ability to function.
While HFS isn’t advocating that the CIO adopt a manual review of any patches or updates, for that would be a fool’s errand. Rather, we recommend that a firm’s IT leadership, and if they have one of their managed services providers, take stock of the enterprise user license agreements (EULA), who owns the risk, and what terms of service may require updating given the risk or impact any similar outage may cause in the future.
As many are likely to discover, it is unlikely the CIO, CEO, or chief legal officer will have much ground to stand on with CrowdStrike after this event. But to remain complacent towards future events is negligent. After all, what responsible firm will trust its supply chain (tech or non-tech) to make changes to solutions that may render your systems inoperable? There must be a ‘trust but verify’ program that ensures that activities originating outside their IT organization must have followed some process for approval/staging/release gate prior to widespread deployment inside of the organization.
Expect another week of upcoming chaos and fallout.
The extent of this outage puts a lot of pressure on corporate IT and their services partners to reset computers and implement the fixes. With computers supporting systems, it’s likely that many, but unfortunate not all, end-point devices can be fixed remotely. This will require teams of experts to manually apply updates, reboot, and test systems.
The Bottom Line: The CrowdStrike event is the latest call to arms for your CIO to assign a team responsible for re-architecting your software and SaaS policies.
These new policies must prioritize operational resiliency and follow basic ITSM/ITIL best practices. We will be assessing the productivity, economic, and supplier impacts resulting from this CloudStrike event and how tech giants like Microsoft hold their SaaS ecosystems more accountable in future for this level of abject failure.
We’ve finally reached the point in our careers when we need to learn new and more ingenious ways of doing things. No more papering over the cracks, no more passing the problems onto someone else to fix. WE are the problem that now needs fixing.
For decades, we’ve been throwing trillions at our enterprise operations, namely ERP systems, data warehouses, RPA, software engineers, process architects, etc. But to what end? To eke out some more efficiency here, rinse out some cost there? Move some data around a bit faster? Are these solutions still relevant by the time you’re done? Or is there always a new, shinier option capturing everyone’s attention?
It’s time to reinvent our whole mindset toward enterprise operations to save ourselves from drowning in our legacy pools of technology, process, data, skills, and culture.
Yes, we’ve been predicting the extinction of the corporate dinosaur for a while now, but we’re truly arriving at the time when tired old businesses will be displaced if they persist on limping along under the sheer weight of valueless technology and transactional people, determined to cling on to the “way we’ve always done things.” Your firm will sink under its ability to change anything, it’ll become increasingly uncompetitive, and you will go down with it groping for air, wondering why you suddenly lost your corporate relevance.
GenAI is the closest we’ve come to bridging the business/IT chasm
Eighteen months into the most significant technology rush since the ERP heydays, GenAI has the potential to change the game entirely because this is the first time business leaders can think like application developers to create new content, to access critical data, to command better ways to get things done, and so on.
Its ability to analyze unstructured data, create content, and qualitatively analyze and make recommendations is striking. The pace of model evolution and compute power is quickly advancing the technology to the point we are beginning to believe that GenAI-enabled middleware and frontend solutions may replace existing business process applications.
The big question now is whether business owners who clearly own innovation can reinvent how their companies operate or whether they are too burdened by three decades of technology, process, data, and culture debts.
Generative AI is your secret weapon. It tears down barriers, fuels innovation, and keeps you ahead of the curve. Adapt or perish – the choice is yours.
Using Michael Porter’s Five Forces (+1) framework, let’s break down how generative AI (GenAI) is shaking up the enterprise world:
Threat of New Entrants: Smashing Entry Barriers. GenAI lowers technical and operational barriers for new entrants. OpenAI’s APIs, for example, enable startups to integrate powerful AI without heavy R&D costs, allowing them to compete with established giants. Brace yourself for an influx of AI-driven competitors, like how Grammarly leverages advanced AI to disrupt traditional proofreading and writing tools.
Bargaining Power of Suppliers: Breaking Supply Chains. AI’s predictive and analytical powers disrupts traditional supply chains by eliminating middlemen. Farmers Business Network (FBN) uses AI to provide farmers with data-driven insights, price transparency, and predictive analytics, enabling direct and cost-effective purchasing from suppliers. This leads to significant cost savings, increased efficiency, and greater empowerment for farmers.
Bargaining Power of Buyers. Mass Personalization of Customer Experience. Mars drives mass personalization in its pet food business using generative AI by analyzing data on pet health, preferences, and behaviors to create tailored nutrition plans. Through platforms like Kinship, Mars offers customized pet food recommendations, enhancing customer satisfaction and loyalty.
Threat of Substitute Products or Services. This is where disruptive innovation comes into play. Adobe’s AI-powered tools, like Adobe Sensei, allow users to create stunning visuals and designs effortlessly, outpacing traditional design methods.
Industry Rivalry: Productivity on steroids. With AI-driven automation, efficiency skyrockets. Amazon’s use of robots and AI in warehouses has revolutionized logistics, intensifying industry rivalry. GenAI provides killer insights; retailers like Zara use AI to analyze market trends and consumer behavior, enabling them to react swiftly to fashion changes and outmaneuver competitors.
Bargaining Power of Workforce (our Bonus Force). New Workforce will not accept Old. The next generation of employees won’t settle for outdated systems and processes. GenAI is to work what calculators are to math – indispensable. Companies like Google and new startups attract top talent not only with higher pay but also by avoiding cumbersome processes and systems that make work dull and boring.
It’s time to effect real change and write off our painful legacies if we want real innovation
Do you believe your current IT department, whose massive budget is 80% allocated to keeping the lights on, is your firm’s best investment toward achieving your goals?
Do you believe that outsourcing your F&A team has solved your business problems? Do you think your 7-year global ERP suite implementation has kept pace with the changing needs of your business over this time? Considering breakthrough GenAI capabilities, it’s time you reflect on this – it’s not too late to make radical changes to keep yourself relevant and reshape your business function as we stumble face-first into the Generative Era.
Over the last three decades, enterprises have implemented organizational models and technologies that perpetuate existing processes based on operating models dating back to the 1990s – and some even as far back as the Second World War.
We have to quit funneling most of our tech funds into maintaining legacy business processes
Despite trillions of dollars spent over the decades, process automation and data remain a stark problem. Our latest data on this topic, in which 366 operations leaders (not technology leaders) identified their companies’ top changes, clearly indicates this while also citing that they don’t have the budget to fund the innovations they require.
Business applications become saviors of the business
If all we’re going to do is outsource work, strap RPA robots into the pilot seats, and replace old technology with new technology that processes widgets in similar ways, consider for a moment if these incremental approaches funded by loose pocket change will ever be enough. Even among the large-scale technology programs that take years to complete (do they ever really end?), are the solutions still relevant by the time you’re done? Or is there already a new, shinier option capturing everyone’s attention?
Decidedly, business leaders are voting with their wallets as they flock to specialty applications full of features ERP vendors can’t produce and relatively minor implementation costs. Business leaders are leaving behind big SAP and Oracle ERP worlds that increasingly are little more than glorified “systems of record.” ERPs are no longer strategic assets, despite their eye-watering 9-digit implementation and proportionately large maintenance costs weighing down companies’ financials like boat anchors. Undoubtedly, every CFO has felt the “replace it with Workday” push, but they are hesitant because the future has shifted elsewhere.
ERP systems have largely become the dull data layer beneath a raft of specialty functional applications orchestrated by Salesforce, Pega, ServiceNow, Zip, or Outsystems. It doesn’t matter what SAP and Oracle implement from a functionality or GenAI perspective – their clients are looking at true business applications for innovation. However, these once-affordable platforms’ sales teams are pushing hefty price hikes onto clients who now hold increasingly less love for them as a result. This has led to a new group of technology providers, like Unqork, who are marketing, “Why pay the big ticket, ever-escalating prices of specialty application pricing when you can build it yourself to your exact specifications in our low code systems?”
Yet, the dark secret of many business applications is that they simply replicate the old processes in a SaaS environment. Consider for a moment if your company changed its approach to sales because it implemented Salesforce, changed its performance management program when it implemented Workday, or changed its T&E process when it implemented Concur. All the old work methods were replicated into easier-to-use, flexible, lower-cost systems now owned by the business, not IT.
However, this is no longer IT’s fault. It’s clear who is in the driver’s seat. Whereas CIOs used to rule the roost with large ERP applications and complex data warehouse projects, business leaders now control the purse strings. Our latest data from a study of 605 organizations shows clearly that a company’s IT department controls less than half of the corporate IT spending in 46% of organizations. So, the ownership of innovation is not an IT issue; it’s the business’s.
GenAI Comes to the Forefront: Embrace it with your eyes wide open
Lest you think that GenAI is just another RPA-like hype, think for a moment about how it has already changed entire industries:
Until recently, the creative industry relied on legacy photographers and videographers to create and then enhance images and videos using digital tools, often pixel by pixel. Now, led by Adobe’s fast adoption of GenAI, an entire wave of GenAI illustration and editing tools can change whole images and videos in seconds. Still, as powerful as this is, GenAI’s ability to create hyper-realistic images and videos catered to narrowly specified requirements threatens the entire workforce, forcing workers to scramble to recreate themselves and spawning new developments in intellectual property law and deep fake detection.
In the world of education, long reliant on the legacy of dusty libraries, lengthy essays, and math drills, professors and teachers realize that GenAI is a threat to homework and how people learn. Professors and teachers now rely on GenAI to build courses, lesson plans, and assignments once sold online and part of the textbook industry. But what good is any of that if anyone who wants to learn anything can, with a handful of prompts and access to the world’s entire knowledgebase, do the same, and then learn anything and even obtain feedback on their work? What is the point of the university and training industry if learners can generate more effective, tailored learning models than teachers can?
The social media influencer industry is being turned on its head by GenAI. While the industry is impacted similarly to the creative industry, more and more social media accounts are being created and run by ChatGPT hustlers that use GenAI capabilities to analyze audiences and competitors, and then generate social media designed to drive engagement. An untrained influencer can create blogs, email campaigns, images, and advertising copy in seconds, empowering teams to create faceless virtual influencer accounts. While these clout chasers may only have fringe impacts, realize the same revolution is occurring in the legacy advertising industry amid upheavals affecting the same topics, which we know as copywriting, audience data analysis, market research, and search engine optimization. The people-centric professional services industry is undergoing radical change.
It is important to note that these real-world impacts are on white-collar workers long entrenched in antiquated work practices. Innovative business leaders are leveraging GenAI’s power to completely change how their industries operate
These same impacts are being felt directly in the software industry. Look at every technology provider’s rush to demonstrate GenAI capabilities in every solution they have. Behind the scenes, they are struggling with their own technology and business process debts that are built into the foundations of the data models, application rule engines, and workflow capabilities built to allow clients to do the same old work with a bit more efficiency and reporting capability. How many demos have you seen showing the latest AI-powered widget in your software? Behind the scenes, they fear the dawn of a new generation of applications will have no legacy debt and be fully capable of changing the way we operate – if clients will let them.
And this is the big question. Will business owners who clearly own innovation reinvent how their companies operate? Or are they too burdened by two decades of technology, process, data, and culture debts and repeated examples of technology implementation that essentially digitally replicated exactly what once existed on paper and in file cabinets? For every dozen legacy leaders taking a “wait and see” approach to GenAI, one is changing the game, blazing new approaches to delivering customer service, financial operations, security management, strategic sourcing, and legal services.
The Bottom-line: This is Your Moment… Embrace GenAI or Die
Maybe we’re overreaching a bit. You clearly won’t die if you don’t implement GenAI to re-engineer your operations completely (though in the healthcare world, you could save lives!). But your company will fall behind your competitors. New debtless digital-first competitors will arrive. Your company’s results will start to lag and, we assure you, some other smart and creative person with some prompt training will certainly take your job.
The time for complacency has ended. GenAI represents a seismic technological shift, offering unparalleled capabilities to transform business operations. Decades-old methods of using systems to digitize old workflows provide only incremental improvements, which are no longer sufficient. Companies must embrace GenAI or risk being outpaced by more agile, innovative competitors. The era of maintaining outdated processes and technologies is over. Now, it is about revolutionizing how we work, leveraging GenAI to unlock new efficiencies, insights, and opportunities. This is OUR moment. Seize it with GenAI or face the inevitable decline. The choice is clear: innovate or…
