IT companies using AI, GenAI to reduce client costs as budgets squeeze

This marks a shift in how cost savings are achieved in traditional IT projects, popularly known as the run-side

For Indian information technology (IT) services companies, artificial intelligence (AI) and generative AI (GenAI) have yet to secure large deals. However, they are increasingly being leveraged to reduce costs and improve project efficiency. This, in turn, is allowing clients to reinvest some of the savings into more discretionary initiatives — even amid a volatile macroeconomic environment.

 

This marks a shift in how traditional IT projects, popularly known as the run-side, achieve cost savings. Over the past three years, this approach has gained traction as traditional cost-saving techniques such as labour arbitrage and the standardisation of IT processes have lost relevance.

 

Enterprises across verticals have realised that unless technologies such as AI and GenAI are built into projects, the desired cost savings will not materialise — a trend that IT services executives say has now become part of all client discussions.

 

Tata Consultancy Services Chief Executive K Krithivasan said that while traditional cost optimisation deals are back on the table, there are additional factors at play, such as vendor consolidation and AI-led cost optimisation.

 

“In certain deals, AI can help reduce costs. For example, we told one of our customers that they could achieve a 20 per cent cost saving by leveraging AI in part of their portfolio. In response, they asked us to take on the larger portfolio, implement the same AI solutions, and deliver similar savings across the board,” he told Business Standard.

 

Infosys said most of its clients are looking for large productivity gains in areas such as process solving, engineering, and customer service. “If you look at Finacle, we have seen that because the core base is uniform, there is a 20–25 per cent productivity benefit with tools we built on public models. We have 400 AI projects that we are working on, and wherever we see a lot of benefits, we share them with clients,” Infosys Chief Executive Officer (CEO) Salil Parekh said last week.

 

Analysts say enterprises will have to cut costs, but unlike in the past, they are no longer banking those savings; instead, they are reinvesting them into business transformation programmes.

 

For IT service providers, this poses a new challenge: offering definitive savings upfront to strengthen their chances of winning new-age deals from existing clients.

 

“That said, sometimes the deal does not go to the same provider. But that is the price of playing ball in this industry right now. If I have the chance to win discretionary work, which is under pressure, I need to be able to deliver the savings upfront, which is the tricky part,” Stanton Jones, distinguished analyst at Information Services Group, said in an interaction with Business Standard.

 

Jones explained that for banks, pharmaceutical and telecommunications firms, the savings are no longer the traditional ones of running a business for less, as many are now on their third or fourth generation of outsourcing agreements.

 

“That has been going on for the past 20 years. It is now about transforming the environment so that it is cheaper to run the business. There is so much expectation of savings and productivity gains from AI, but unless your technology is modernised, you will not achieve those savings. It’s a Catch-22 situation,” he added.

 

Wipro, India’s fourth-largest IT services provider by revenue, also said it was passing on GenAI benefits to clients wherever applicable.

 

“What we are doing is, wherever GenAI benefits apply to our customers, sometimes the freed-up budgets allow us to use GenAI and get additional work done for the same customer,” Wipro CEO Srini Pallia said in a post-earnings call with analysts. 

TECH THRIFT

 

> This is allowing clients to reinvest savings into more discretionary initiatives

> Marks a shift in how cost savings are achieved in the traditional IT projects

> Enterprises feel desired cost savings will not emerge unless tech such as AI and GenAI are baked into projects

> New challenge for IT service firms to provide definitive savings upfront