With AI in focus, the next decade is about 'value realisation': McKinsey

Additionally, if the tariff threat made by US President Donald Trump becomes a reality, that too will have an impact on the industry

For India’s over $244 billion IT services industry, growth remains slow amid macroeconomic uncertainties. According to strategy and consulting firm McKinsey, the anticipated $100 billion to $150 billion in new revenue from GenAI-driven offerings has also been slow to materialise.

 

Additionally, if the tariff threat made by the US President Donald Trump becomes a reality, then that too will have an impact on the industry.

 

“Our research, wherein they interviewed over 100 CIOs, indicated that they do not see a sharp bounce to recovery. Rather towards the second half of the year we anticipate growth in the range of 5-7 per cent,” said Vikash Daga, senior partner, McKinsey & Company.

 

 

Daga further added that while GenAI has seen productivity gains for clients in the range of 10-15 per cent, there has been no large-scale deployment.

 

“Most service providers are seeing 10-15 per cent productivity gains due to AI. But these benefits are being passed on to clients, in the hope that when the large deployments happen they will get the benefit,” said Daga.

 

He also added that there has been “no scale deployment” either at service line level or otherwise.

 

With growth in the slow lane and with no scale of GenAI, Daga believes that the decade will be about “value realisation”. This value realisation will be focused around the erstwhile investments in cloud and digital and the new investment in AI.

 

Daga explains that between 2020 and 2025 the tech intensity, defined as tech spend as a percentage of revenue for all companies greater than $5bn, grew from about 3 to 4.5 percentage points.

 

“Our MGI Works (research arm of McKinsey) analysis shows that this will go from about 4.5 per cent 5 per cent, which is just about 50 basis points growth. In this era of low growth intensity there will be more focus on value realisation,” he added.

 

He also added that CIO’s that McKinsey surveyed said that when it comes to the partner ecosystem, they are looking for companies which have shown “credible RoI”.

 

For IT services players this is of significance, as 20-25 per cent of deal renewables are happening before time. For challengers, this is an opportunity to get that business if the incumbent has not managed to be a credible RoI generator.

 

Having said that, segments like AI, data and cloud are growing well.

 

“Data and cloud is growing at 8 to 10 per cent, whereas legacy work is contracting by 5 per cent.”

 

Another reason for the slower uptake of GenAI has been the lack of change management and adoption among enterprises. McKinsey points out that around 10 per cent of enterprises have deployed GenAI at scale and less than 5 per cent of scaled use cases are integrated across entire workflows.

 

“We have been saying the GenAI challenge is not a technical challenge, but a human challenge. How do we get the front line to start using the tools and extract value…that is a bigger challenge,” he said.