Generative AI (genAI) and agentic workflows are roiling technology services markets, overturning the 15-year stability of the prevailing business model. The era defined by time-and-materials pricing, agnostic technology positions, and people-driven business growth is no longer viable. Since the peak growth seen in 2021, which followed years of consistency post-Great Recession, it has become an entirely different story. Starting in 2022, four powerful forces began converging to disrupt the services status quo, forcing providers toward radically different choices and reshaping the sector to deliver what enterprises need now. These forces are:

  • Consolidation and scaling of the core. For 15 years, technology has expanded into every nook and cranny of business, often funded as standalone projects. Now CFOs are pausing discretionary projects and asking their organizations to get more value from existing tech investments. IT responds by transforming the core, scaling platforms, consolidating redundant unused systems, and retiring tech debt. This will lay the foundation for investments in technology-driven growth. For service providers, this shows up as strong “large deal” bookings and weak discretionary bookings. This force could drag on for years.
  • Ecosystems, alliances, and solutions. Enterprises depend on technology partners. Rapid innovation, complex ecosystems, and talent gaps make in-house execution impractical. For service providers, this means that alliance partners are now critical contributors to success. They must develop deep specializations and integrate platforms into solutions. Accenture, Deloitte, and others have long had partner-centric businesses. Others are newly energized: IBM Consulting, which in the past rarely mentioned partners, said that partners were involved in 40% of its deals in 2024. This force will gain even more potency as firms invest in AI computing.
  • The AI effect. As pure knowledge businesses, service providers are on the front lines of genAI-powered disruption. GenAI-powered digital assistants supplement service providers’ teams’ work, augmenting their knowledge, skills, and experience as well as automating their tasks. The impact is more work completed in less time with fewer people — a huge deflationary force in a business that charges by the hour. This force is pushing providers to invest billions in genAI tooling, renegotiate contract deliverables, and build solutions and managed services.
  • Tech’s labor/capital imbalance. Machinery is more predictable and reliable than manual labor. But IT remains a people-constrained activity, where people and skills are gating factors to successful outcomes. In this context, service providers have high motivation to use machinery to make their employees more productive. They invest in reusable software, data, and model assets; preassemble solutions and platforms; and automate as much work as possible, thus shifting the balance away from people and toward capital. The rise of agentic systems and new services-as-software businesses will accelerate this trend.

Only Bold Providers Will Survive: Embrace Context And Co-Innovation

To compete and establish a new long-term value proposition, providers must cannibalize their existing time-and-materials commercial models, riding the cost curve down and reskilling their workforce while reinventing their offerings and business models for the era of AI computing. Providers with scale and strong balance sheets will thrive and reinvent themselves as post-AI service providers, reconstructed to thrive in the AI computing era; smaller or less nimble providers will struggle.

Technology Executives Should Run A New Services Playbook

As the ground shifts when it comes to the role and contributions of service providers, technology executives should begin playing by some new rules:

  • Ask for lower costs and faster delivery for complex projects.
  • Factor a provider’s delivery and operating platforms into your selection process.
  • Ask procurement to investigate value-based pricing for service contracts.
  • Retire tech debt and rationalize apps to fund your core transformations.

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