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AI Pretenders, platforms and scaling extraordinary talent: Phil Fersht with Malcom Frank
238 Plays16 days ago
In the latest episode of From the Horse’s Mouth, Phil Fersht sits down with Malcom Frank to unpack why the IT Services model is starting to crack, as well as what comes next once AI reshapes delivery, scale, and value.
They delve into topics from Wall Street’s growing skepticism of traditional services economies to the challenge of scaling extraordinary people. It’s a conversation that cuts through the noise to find where real advantage will be created in the AI era, and the gap between hype and execution is rapidly growing.
This isn’t about chasing a first-mover advantage. We’re not even sure that matters anymore. It’s about understanding which business models can actually scale, and which ones are set to fail.
What you’ll hear in 30 minutes
- Why Wall Street no longer trusts five-year cash flows in IT Services.
- Why extraordinary people don’t scale and what replaces that model.
- First mover versus fast followers, and where the real advantage is created.
- How hyperscalers are positioning themselves as the new advisors
- The parade of pretenders, and what it signals about market transitions
- Where the next generation of services winners will come from
Guest Snapshot
Malcom Frank is a longtime technology services leader, advisor, and board member with more than three decades of experience helping services firms scale through major market transitions. He has held senior leadership roles at firms like TalentGenius and Cognizant.
Explore More
Malcom Frank on LinkedIn: https://www.linkedin.com/in/malcolm-frank-92028/
Phil Fersht on LinkedIn: https://www.linkedin.com/in/pfersht/
More from HFS: https://www.hfsresearch.com
More from From the Horse's Mouth: https://horsesmouthpodcast.com/
Recommended
Transcript
Introduction and Guest Welcome
00:00:00
Speaker
Welcome to the latest episode of From the Horse's Mouth. and My name is Phil Thirst and joining me today is a very long time industry stalwart, known figurehead and someone I can call a good friend as well as advisor to HFS today is none other than Malcolm Frank. Welcome Malcolm. How are you doing?
00:00:20
Speaker
you Great to see you man. How are things? Yeah. Good. Yeah. Just getting my head around 2026. twenty or twenty checks I know I'm glad we don't have to sign checks anymore because I'd always get the date wrong. So at least there's that benefit.
00:00:32
Speaker
Yeah, there's that. And I was trying to figure out what the hell is going on in Venezuela and Iran this morning. But it was a lot going on in the world. So great to have you on. For the benefit of our audience, I know a lot of people will know who you are, but some may not. Can you just maybe give everyone a little bit about you and your background and what you're doing today?
Strategies for Growing Tech Services
00:00:52
Speaker
Sure. um Gosh, I do a lot of things and I've been at this game for 35 years in a lot of different companies, but Phil, if I was to distill the whole thing, i don't know many things in this world, but I know how to grow tech services companies really fast. So I've been fortunate to work with a lot of market leaders, but in each case, we would go into markets that were growing 4%, 5%, and those companies 20, 30, 80%.
00:01:19
Speaker
we werere able to grow those companies twenty thirty eighty percent so that's what i know well, just how to get into these firms, get service market fit and help them grow really, really quickly.
00:01:32
Speaker
Yeah. And I mean, you started out similar time to I did, I think in the nineties where was it nerve wire? Prior to that, I was one of the founders at this firm, Cambridge technology partners. So that was a darling of the nineties went through hyper growth. We started on MIT's campus and that was at the client server wave.
00:01:49
Speaker
and grew it from pure startup to six,
Cambridge Technology Partners' Growth Story
00:01:53
Speaker
7,000 people. And that was actually the best IPO in the nineties, not just of our industry, of any industry. That firm was important for lots of reasons, but one is it was the first tech services model like that, that went public.
00:02:07
Speaker
And I can remember speaking to bankers and going on roadshow and all the rest and, um, people would laugh at our faces. They would say, hold on, the assets walk out the door every night and your visibility is only 180 days. And why should you float this thing again? And so I think about that a lot when we're all looking at what's happening with an EPAM or an emphasis or Globant and some of the market leaders of today.
00:02:35
Speaker
Yeah, or Palantir as well for other interest interesting kettle of fish. um So jumping into how services has changed, why was it back in the late 90s, everyone loved services, especially anything around the internet?
00:02:49
Speaker
And now Wall Street seems to put services right down the... the stack of valuations and it's much more about software and scalability.
Wall Street's Trust Issues with AI Services
00:02:58
Speaker
I'm very, very bullish on the services of space in the medium and long term, but there's a logic to what Wall Street is going through that they recognize the current model is broken.
00:03:08
Speaker
And so when you look at these valuations that have crashed, it's just very, very simple as AI washes over this market and washes over the business model that currently exists in IT services.
00:03:19
Speaker
They don't trust the five year cash flows. It's that simple. If there's something that could be delivered for 10 units today and it's going to be delivered for three units three years from now. What is the associated value with that?
00:03:31
Speaker
Is there going to be enough price elasticity that when that unit cost collapses, that the market opportunity is going to commensurately grow? So the street can't figure that out yet.
00:03:44
Speaker
This is why I'm so excited about this market transition, because this is where fortunes are made. This is where new leaders emerge. But that... new model in the services space has yet to break out. but These are exciting times, but to answer your question, the street is looking at these very large pyramid based organizations and are saying, I don't know what the future is going to hold, but I don't think that model is going to win.
00:04:14
Speaker
and is it simply because the value isn't in just buying more people, the value is and how to get more from what you're counting after a while. That's exactly right. That's exactly right.
AI's Impact on Service Models
00:04:24
Speaker
And so, you know it's, you you go with first principles thinking on the pyramid business model, you know, getting a pyramid of humans, you know, assigning a rate card to each of them, it's going to be this much time, so forth and so on.
00:04:37
Speaker
That pyramid is very, very quickly turning into a novelist, number one. But then when you look across each service line and across the entire SDLC, It is getting eaten by AI.
00:04:49
Speaker
If there's anything I've learned, Phil, that one of the hardest things in the world to change, aside from yourself, is a publicly traded tech services company.
00:05:01
Speaker
They're extraordinarily hard to change. And so who is going to be able to navigate these seas and go through that fundamental change where at a unit level, how you deliver, what is the split between the human and the bot,
00:05:15
Speaker
What are the types of people? How do you build the structure? How do you price that? These are yeah a lot of questions that nobody has properly answered at scale. I think there's a few green shoots, but that is the $64,000 question in the market. I think that's why HFS is so vitally important during these times, but nobody has quite figured it out yet.
00:05:38
Speaker
Yeah, and that's that's, I think, the fascinating thing. i feel like we're in a market that's dominated by FOMO more than reality. And when do you get past that? I mean, I put out a piece recently, which is quite simply, you don't have to be the first mover in this space. Let somebody else go in, screw it up, make a big mess of this, let them fund your own research, figure it out, and then then make your move. we're almost in this sort of wait and see zone, everyone's looking at each other.
00:06:05
Speaker
you So you're going to try this, you're going to try that. I'm starting to see a couple of big giant services firms almost launch out their own software platform businesses because they're realizing I've i got to start playing as a platform, credible platform provider.
00:06:21
Speaker
I've got to somehow build that credibility up because right now people don't come to me for technology. They're coming to me for people. How do we change that perception? Well, he that's right. You said a couple of really important things there. The first is what do they say about pioneers? They're the ones with arrows in their backs. So, um,
00:06:42
Speaker
The R&D model, instead of it being internal, I really advise folks during these times, it's the old rip off and then deploy. You should be a student of the industry, watching every firm, watching every move, every new capability, and then say, which ones are working and how do I become a very fast follower? And these markets evolve.
00:07:05
Speaker
It's interesting. In a way, they evolve slow slower than you think. They're sort of slow, slow, and then all of a sudden. And we've seen this before in technology markets. When you
Tech Market Evolution and Strategic Planning
00:07:17
Speaker
think of the internet browser from Netscape through AOL through i e and then it was Chrome, yeah that was a multi-year journey.
00:07:26
Speaker
was about half a decade, you know, to get through that. you know, the same as with search. I can remember when Google came out and I was like, oh, holy hell, the last thing we need is another search engine. You know, there's Alta Vista and Ask Jeeves and Yahoo and the rest.
00:07:38
Speaker
I didn't understand Boolean at the time, but the point is, is that that was a late entrant, if you will. The same is true. You think of all of the mobile devices that you had from, i started as a Scion guy. So you went from c Scion to Palm Pilot to Blackberry and of course, iPhones. so These things take more time than you think, but you have to lay the foundations today so that you can really scale. So that's that's thought number one. Thought number two, i was thinking over the holidays, what did 2025 really represent?
00:08:13
Speaker
And how are we going to view that in our space? And Phil, i I thought of it as it's sort of the parade of pretenders. that's That's what we had. And Carlotta Perez, I don't know if you follow her work, but she's you're talking about Venezuela? she She's this Venezuelan economist. That sounds like an oxymoron, but she she now lives in the UK, but absolutely brilliant. And she's spent her entire career on mapping these large-scale economic transitions that were created by a new machine.
00:08:47
Speaker
And she said the first few years... You get all of these speculators come in, all of the pretenders, all the charlatans, and and you know who they are. Think in your personal life of latest thing guy.
00:08:59
Speaker
You know, when we had the credit crisis, all of a sudden this person was an expert on CDOs in the mortgage market. And then COVID comes along and they know mRNA and intubation. And then... you know Ukraine breaks out and suddenly they understand geopolitics and they're correcting you on how to pronounce the capital of Ukraine. it's it's So that same person has become you know self-appointed expert on rag models and the rest.
00:09:24
Speaker
It creates a lot of confusion, but at the same time time, I think that's a positive indicator of just how large this is. So if you're running one of these firms, how do you make sense of this very confusing environment?
00:09:37
Speaker
And I think you're right. It's this sense and respond, sense and respond, recognize what's working, pull it in quickly, and then start to scale against that. Yeah.
00:09:48
Speaker
So we look at early movers. I think about, you know, here through all these different industries and technology was always often at the core of all of these things. You mentioned search engines and remember Yahoo and Alphavista and Google entered late because they had a faster search engine with music. um You know, Pandora and SoundCloud proved this truly worked, but they couldn't figure out the subscription
Enterprise AI: Leaders and Strategies
00:10:12
Speaker
model until Spotify came along. It's often for these smaller firms are the ones that ultimately blow up the model. i mean, I look at Anthropic, and they seem to me a lot smaller than OpenAI. But that seems to be much more focused on the B2B model. They're figuring out how the clients want to leverage this technology better. Who do you think is going to really start to dominate this space as we look out maybe 12, 18, 24 months?
00:10:41
Speaker
If you keep that aperture that you've seen just in the last six months, Anthropic and Google have really started to break out in the enterprise. And um because they understand the needs of those buyers and that there's a heavier lift and there's considerations that they all have to deal with.
00:11:00
Speaker
that consumer markets just obviously don't have to. And I often think of one of my greatest mentors, it was Bruce Rogo. So know Bruce was, you know he built the magic quadrant. So if people hate that thing, then you can blame Bruce. But yeah he was a Gartner for ages. And then he became basically in his later years, ah a CIO consigliere. And one of the smartest people I know in the industry, but Bruce would always talk about this, Phil, that it doesn't matter what gets created on the supply side.
00:11:29
Speaker
What matters is how that can be ingested on the demand side and how you can work with a large organization that has their infrastructure, their systems, their data, their process, their people, their culture, their security needs. And how do you navigate through all of that?
00:11:46
Speaker
to make it easy for them to consume what you offer. And so when you look at firms that win in B2B, often it's not, quote unquote, the best technology, but it's those organizations that can work with large enterprises at their pace and deal with all of those issues. And so I think that you're starting to see both Anthropic, which is interesting as a young firm, and Google have started to do that very, very well from a model basis within the enterprise.
00:12:16
Speaker
Yeah, because they're affecting more the individual within the enterprise than these great big corporate systems. Like if you remember how mac infiltrated the enterprise 15 years ago, none of the big corporates wanted to buy Apple computers because they're more expensive and they had relationships with Dell and other companies. But the users said, I want to use a Mac. And I think it's happening a bit with, you know, we call this a the loss to gap, but people are figuring out themselves, I've got to be really good at AI for my own career, my own knowledge, my own job. So everyone's saying to hell with what my company is doing. I'm just going to figure out whether I like using Gemini, or OpenAI, or Claude, that sort of thing. So we as individuals are sort of driving this in a way of, I've got way better at doing my job. Now my company needs to support me so it can do its job well too.
00:13:07
Speaker
I just came off a call with one of the leading fast food restaurant chains, and they basically said, we really can't do anything with AI because the whole company is literally beset to Oracle, Ariba, SAP.
00:13:21
Speaker
And unless they do something, we're just, we're stuck. We can't move until they move. And that sort of blew my mind a little bit in terms of, well, do you have to move? And they said, well, to be honest with you, we don't actually have to move that fast.
00:13:35
Speaker
because of the nature of our business.
Industry-Specific AI Adoption Challenges
00:13:38
Speaker
But then surely if you're in the insurance space or the retail space, these industries, I don't think you can afford to sit around and wait. So I think a lot of this is going to be industry by industry.
00:13:49
Speaker
but the other issue seems to be breaking out of these legacy technologies that are just holding everyone back from operating in a much more AI driven mindset.
00:14:00
Speaker
Yeah, I'm laughing and breaking out in hives at the same time when you walk through that, because just to go back to the nineties, we heard that in spades that because at the time we were putting in client server systems. So the RDBMS and the UNIX server and PCs.
00:14:16
Speaker
That was very new to folks at the time. And they would give the same arguments that I'm on my VAX machines. I've invested so much in my 370 platform. i I just, I'm going to go at the pace that deck or IBM or whomever is going to guide me through this. And firms that do that, there's a word for them. It's called bankrupt. And, but the,
00:14:37
Speaker
But their their arguments to them were sound, meaning that this stuff is too new. They don't have all the tools and the security that I really demand. And the market is very, very unsettled. So back when it was Oracle versus Ingress and Formix, Sybase, or it was all these flavors of ununix I'm just going to sit on the sidelines and let that sort itself out. And when it does, I'm going to become a late entrant. So that was the logic.
00:15:04
Speaker
But what you lost was you weren't building the use cases. Your IT team wasn't building the sophistication around these new capabilities and understanding you know how to build them at scale inside your organization.
00:15:16
Speaker
And so... For firms that you know today, because the clock speed is so much faster in the market and internally, if if you don't understand how these models work, how the new stack works, and how to implement these capabilities for your users, you're going to be irrelevant very, very quickly.
00:15:35
Speaker
Right. So where does that change occur? Is it... leadership, like having maybe leadership that suddenly gets the changes on us and we have to really make some braver bets.
00:15:49
Speaker
Because I see an awful lot of companies out there whose leadership still don't get this. They're paying lip service to it. The reality is they're either slaves to their quarterly results or quite simply just can't get the head around the change and they don't want to change.
00:16:06
Speaker
Well, I'll give people more credit. I think they want to, they don't know how. And what it is, Phil, they get trapped in a structure. It's, know, what's the old adage that first we define our structures and then our structures define us.
00:16:20
Speaker
So these people will have a theory of the business, of just how it operates. um And then they create an organizational structure that supported that. So just look at the atomic level.
00:16:31
Speaker
If you want to get these new systems in place, you know, services, software, and these AI capabilities and agents to the right people, who owns that?
00:16:44
Speaker
Who is the individual that owns that? Because you would say, oh, that's the CIO. But when it gets down to, first of all, many IT
AI Integration Struggles in Companies
00:16:52
Speaker
organizations in the last 20 years have been hollowed out.
00:16:55
Speaker
So they don't have that capability to build bespoke software and to really solution. Because that's a combination in the AI world of people plus the agents.
00:17:05
Speaker
And so when you're that CIO, you obviously know the technology and can vet which vendors to bring in. But when you get into, well, how do we re-architect this entire process? How do we re-architect the roles and the jobs within that and go through all of the skills and understand who should be doing this and where should the human end and the bot begin?
00:17:26
Speaker
you know that is They're out of their depth. Now, would think that HR can do that. But the problem is you know HR is typically the recruiting and benefits people and they don't understand the technology. So this is where you're sort of stuck with that structure where you don't have those teams that can see how does that combination work at an atomic level with the human.
00:17:50
Speaker
And then it goes up into a process, a workflow, a solution, and they start to build against that, which is why it just opens the door for new entrants who are organized that way and who get it and can scale very quickly.
00:18:01
Speaker
Yeah. And so for the big companies struggling with this exact change that we spoke about, do you think they need to appoint a chief AI officer? And maybe that's a role that is designed to extinct itself in the three year period? Do you think that well that's what they need to do?
00:18:21
Speaker
Yes and no. So the short answer is yes, but we've been to this bad movie when you had, for example, the chief digital officer. And in some cases, that person had real teeth. And in other cases, it was just somebody who had a nice window seat and would fly to conferences. So, um but I view this in a context, Phil, of how the market is evolving.
00:18:40
Speaker
And What we're going into is, I think, the third great chapter of enterprise IT t and then what that means for services firms and for the internal organization. yeah The first was automation, and that was from 1995 to 2015, roughly, of putting in all the enterprise apps. So this was your ERP, CRM, HRM, financials, supply chain.
00:19:05
Speaker
And we take that for granted now. It's sort of like when you drive on the interstate highway and you're like, oh, this has always been here. you're Like, no, it hasn't. It just was built before your lifetime. So I think of that as sort of that interstate highway of these organizations.
00:19:19
Speaker
And that was a very heavy lift for those two decades. So that was number one of automation and standardization of process. The second is that we went through this decentralization, for lack of a better term, meaning everything was tightly coupled on prem.
00:19:35
Speaker
And the decentralization movement allowed two markets to absolutely explode. And the first was global delivery. So instead of everybody being in a room in Topeka, I can now deliver this, you know, from many places around the globe. And in an Indian context, just look at the miracle of the millions of people that were employed against that model. But then the second thing that happened in parallel with decentralization is you decentralize the machine, the movement to cloud. And that created these trillion-dollar enterprises of Azure and GCP and AWS, where instead of everything being tightly coupled in a room, it was just in a server farm somewhere. So that decentralization is the second big one.
00:20:18
Speaker
But we're about to enter this third one that I think is larger than the prior two, and the prior two enabled it. And AI is driving this in... i can't think of the right term, but I'll just say it's it's dematerialization.
00:20:32
Speaker
And so it's, even though you went to decentralization, you still had those human beings working in a pyramid model on those systems, delivering something. But now that's getting dematerialized with a combination of ai plus people.
00:20:47
Speaker
So where I have optimism is that management teams figured out how to navigate those first two transitions. So
The Third Enterprise IT Transition
00:20:56
Speaker
obviously they have to do the third, but there is no playbook yet on how to get from a to B. And so it's that's where firms get stuck. I'll never forget when um you talked about retail.
00:21:10
Speaker
When the Amazon model was really starting to take off and Netflix was starting to take off, we had a large retail practice at Cognizant and we'd go and meet with a lot of our retail clients.
00:21:21
Speaker
And there was this wall of denial. And I had one CEO actually... got pretty annoyed with me in a meeting because I was pushing, you've got to make this transition. And he said, stop with the fear porn. Stop telling me my business is going to get Amazoned. Now, turned out that business got horribly Amazoned within five years. But I'm seeing that reaction where there is this denial of,
00:21:45
Speaker
Maybe AI is going to impact other parts of society or other industries, but it's not going to hit mine. I like this. we We talked about the Amazonification of services a few years ago. And it's interesting because Amazon is getting Amazoned in many respects. Like there's a school of thought that TikTok is going to become the next retail platform.
00:22:04
Speaker
is people are buying off very personalized platforms now. It doesn't matter the hell delivering it to your front door, long as it shows up, right? And that's, I mean, I've been buying tons of stuff off Instagram, and that's beside the point. But people like getting sold to and like getting personalized to. And I think things are in a constant evolution. And it's interesting, we look at different industries are moving at different speeds, and how do companies figure this out? So I go back to the why, the what, and the how.
00:22:35
Speaker
to how this is really going to figure this out. So um why is there an issue? Is there a real problem that's going to change our business? Are we going to become extinct if we don't react?
00:22:47
Speaker
Then it's the what. So what do we actually do? yes And then it's finally, how do we do it? And I think most companies are still in that why and what situation.
00:22:58
Speaker
I've mapped this to what I've called the three year lifespan of a chief a i chief AI officer, where you start off with a stabilization phase where you really, you know,
00:23:11
Speaker
You start to figure out the why and you assess your readiness, confront your debts, your tech debt, your people debt. Then you get to focus. So it's prioritizing high impact use cases, kill the peripheral pilots.
00:23:25
Speaker
Then and you sort of get to sort of year two in this, you get to the embed phase where it's integrating ai into the foot. When you know what you're doing, you then integrate the AI into workflows and redesign roles, et cetera. Then finally we get to what I'm calling, this is a three year, our plan is the dissolve phase, which is you transition AI ownership into the functional leaders.
00:23:46
Speaker
And then, as I said, it's you have to bid chow to the CAIO at that point. It's a three-year transition. We've all got to go through it. And I think if we get to sort of a more of a, this is how we need to think about this.
00:24:00
Speaker
And it may be, hey, I'm in the cement business. We don't need to move that fast. Things change every decade. But yeah I think going by health care, look at life sciences, look at retail, look at insurance.
00:24:14
Speaker
these are These are industries where i think you could be out of business in five minutes if you if you don't make the flip. And I worry that our industry of services is in that spot. I'm seeing little mid-tiers coming along who are just way more aggressive.
00:24:29
Speaker
They can flip very quickly. They can embed AI models, which based on Amazon or Google or Microsoft. And yeah the speed of change, I think, is already happening.
00:24:40
Speaker
And we're just waking up to realize that. Yeah, agreed. And I mean, you said a lot of big things there, but a few reactions. One is I love the chow to chow. So that's's that's quite good. um But um the first thought, Phil, where you started is what's happening from an individual consumer experience? What's happening in the market? And AI, it's interesting, it's working bottom up and then top down.
00:25:06
Speaker
So the bottom up is from you know the Nvidia through the models. That's where the action and the investment is. But now it's moving up into data and agents. So it's starting to creep up the stack.
00:25:17
Speaker
But from the consumer side, you have these cases, the Instagrams, the TikToks, where you already get hyper personalization. And so it's already created that consumer expectation of what I should gain.
00:25:30
Speaker
when this organization deeply understands who I am and can curate the world and bring it to me in the way that I want to see it. So you're right. you know Those firms have that have captured that, can they enter new spaces more easily than other firms? you know This is going to be the classic Amazon versus Sears. Is that going to start happening in some of these other categories? So yeah i I think that that's absolutely what's starting to occur. The second is what industries?
00:25:59
Speaker
And Remember back in the internet bubble, you know the time of the great happiness when you know Wired Magazine was it was the size of Vogue back when they would publish it. It was two inches thick. It was all ads.
00:26:13
Speaker
But we thought that the internet was going to transform everything. And just take a look at retail. There was pets.com, but today there's pet retailers everywhere.
00:26:23
Speaker
We thought that the auto dealership was going to go away. Obviously, you buy your car and service it at a dealership today. You Webvan, if you remember that, that we were not going to have grocery stores. And of course, know, we still go to the grocery store, but there were a few pockets of retail that got eviscerated. So there, if you look back, there were very important reasons for that.
00:26:45
Speaker
And the same is going to but be true with AI. So some sectors, it's going to radically transform very quickly and others, you're going to look and say, yeah, we do a few things, but it really wasn't that transformative. And the qualities,
00:26:59
Speaker
If you look at insurance, I think insurance is gonna move very, very quickly with AI. And for several, one is it's all data, and that is a data business.
00:27:09
Speaker
And the two things you need to do, which is where the use cases are starting to take off, is it's a lot of automation, number one. so you could just start ripping raw cost out of the system, like in the call center.
00:27:22
Speaker
Or secondly, and more interestingly, probabilistic solutions. That industry is all purely probabilistic. And so the actuarial science with AI can be completely transformed.
00:27:35
Speaker
So that may move very, very fast within insurance, but then other spaces, it it may not move as quickly. I think we're in for interesting times on that front. Yeah. Maybe realizing some of these gambling industries should move into insurance, right?
00:27:51
Speaker
Exactly. It's incredible like you're in the middle of a football game and the odds are shifting constantly for who's going to score on next, who's going to be this, who's going to be back. Wow, and you know that sort of human being doing this stuff. But they're absolutely right. and And the permission to play is really shifting. Like as as I was saying, it's like, hey, I'm being sold a car back on Instagram for $29.99. It looks great. in it And I can press this button. It becomes a snowball.
00:28:20
Speaker
I'm just going to buy that. Why? Because I trust Instagram pretty much as much as I trust Amazon now because I'm using my Apple Pay and I trust Apple Pay because it's linked to this and it's the the permission to play I think is really really changing and where it's really starting to shift is services like I'm starting to see emerging services phones led by you know, emerging talent who've come from, some of them have come from the big firms who get it.
00:28:47
Speaker
And I'm seeing deals that will blow your mind. I'm sure you're seeing some as well, but I'm seeing some which is like 90% headcount takeout, especially in areas like Call Center.
00:28:58
Speaker
I'm also seeing deals which are going from 6,000 to 1,000 FTEs over a period of three years. And the clients just willing to take the bet. They're at the point of saying, I've got to take the bet. And this starts to get me thinking about where services is going, is Many, many enterprises have now put tons of their resources out into India. you know GCCs have been burgeoning at 20% growth a year, that sort of thing. And I'm like, isn't this like temporary fixing of a longer term problem?
00:29:30
Speaker
Like right now, people are leveraging AI because it means we can get more out of what we got. Surely phase two is. Why do I need all these people just sitting around developing stuff that I just don't need anymore?
AI-Driven Upheaval in Services Industry
00:29:45
Speaker
I mean, surely the services industry is gonna go through a change that you know we haven't envisaged in 20, 30 years.
00:29:53
Speaker
Yep, agreed. And there's going to be blood. And it's, I'll give you one quick anecdote. um you You and I both know Frank D'Souza very well. And um it's, he's one of the heroes of the industry. But when Frank and I were, this is probably 2010 in that timeframe, 2011. And EDS wanted to partner with us at Cognizant.
00:30:17
Speaker
And we were so flattered at the time. We're like, oh, you know, we're this little firm and yeah this is a market leader and they want to partner in these markets. And five years later, we had just zipped right past them. And had you told us that in the moment, we we would not have believed it. If a little genie came down and said, let me give you five scenarios of how things will unfold. And then that was the last one. We would just exploded with laughter and said, yeah, that's not going to happen.
00:30:43
Speaker
So it's it's that's how fast these things shift. And it's this client recognition of, I want to have that level of raw cost takeout in my operations, but I'm also going to insist upon it with my services provider.
00:30:58
Speaker
And they're very quickly starting to figure out who is serious about that journey and who isn't. And you're starting to see that within the league tables. You've got companies like Salesforce who are trying to eat their way into the services space with their agent force offerings and ServiceNow is doing it, other companies are doing it.
00:31:19
Speaker
At the same time, you've got some of the smarter services firms looking at this thinking, Why are we ceding so much power to these software application firms? Because the ultimate goal is having AI driven capability. I don't think that the clear winds have emerged in the services space. I think this is very early and a big bloodbath that 2026 is going to give us a big window into.
00:31:42
Speaker
Well, I've had this conversation with several CIOs and they all feel there are three in the last quarter who said the same thing and they don't know each other. It was wild. i don't know if they got the same source, but it was the same thought that they said as recent as five years ago, they had five to 10 really lean on vendors.
00:32:00
Speaker
And so this would be an Accenture plus a TCS, a Microsoft, an Oracle, yeah the the firms, they would just lean on to future-proof their businesses.
00:32:10
Speaker
And the light bulb has gone off with them that they're like, the hyperscalers are now becoming those firms that, so when you look at the level of investment that Google or AWS or Microsoft are able to make around ai and vis-a-vis the R&D that is in a services model. And they're like, it's not a hundred to one or a thousand to one, it's like 10,000 to one.
00:32:37
Speaker
And also the waterline of services and software, the software is just creeping up really, really rapidly. So where are you going to future-proof your business? Where are you going to place your bets? With whom are you going to spend your time? And so that ear of the client is really shifting from the trusted advisor being somebody at Deloitte, somebody at Wipro to now it's really becoming that person who can help curate everything that's coming out of the AI ecosystem and can operationalize it in my context.
00:33:14
Speaker
And that tends to be the big three in terms of the cloud or hyperscalers. Interesting. Very interesting. So as we're coming to the end of this conversation, let's fast forward to January, 2027.
00:33:30
Speaker
What do you honestly think we're going to be talking? I think we're going to recognize that this shift has started to where you talked about these models that are starting to take off. I think they're going to start to emerge.
00:33:44
Speaker
Right now, if you look in January 26, the talk of the town is the Palantir distilled model when you're in the tech services space. I think that's a head fake. I'll tell you why. Everybody's an emirate of the FDE model, the forward deployed engineer, and and that is important.
00:34:01
Speaker
But then I look back and go, we've done this multiple times with different technologies. And it's just having that expert who can be parachuted into the client environment and show them the new way. But the issue, Phil, is in a services environment that doesn't scale.
00:34:17
Speaker
It's I believe deeply that the best businesses are when you can do extraordinary things with ordinary people. Those are the businesses They can go from 200 million to a billion to 5 billion to 20 billion. And when you look at the Distill or Palantir model from a services standpoint right now, they're doing extraordinary things with extraordinary people.
00:34:41
Speaker
And so you know, we've actually gone through and looked at every single FDE in those companies and they're very impressive human beings, but they're extraordinarily hard to get and equally hard to build. But I think that Firms are going to figure out those models. Now, what is the pathway? I think the pathway in 26 with the enterprise, what are the no regret moves that na they need to take?
00:35:05
Speaker
And I think that their number one is cleaning up your data estate. So the services firms that understand how to get that data estate from a to B to get it AI ready are going to have a terrific, terrific couple of years. So that's one. The second you talk about it is How do you deliver what I think of as cost of goods sold?
00:35:28
Speaker
Meaning, if you look at our industry for the past 20, 25 years, we all thought we were the cool kids. We were actually sort of boring because the vast majority of IT t services spend has been on SG&A.
00:35:41
Speaker
Hey,
AI's Role in Customer Experience and Competitive Advantage
00:35:42
Speaker
just just look at the top SaaS vendors today, you Salesforce, Workday, ServiceNow. They're great companies, not to disparage them in any way, but it's all SG&A stuff. um And so when you go back to your TikTok example, that is cost of goods sold. How do you infuse AI into the product or the service and completely transform the customer experience? And so...
00:36:07
Speaker
That's a different muscle than most of these firms have. So those that can speak that vertical language, deliver that in an agentic model and change the game for that client, those are the firms that are going to win. But instead of being these horizontal platforms, you we would spend all this time saying, who's got the biggest ERP practice? Who's got a great CRM practice? It's going to be, okay, in retail,
00:36:34
Speaker
who can completely transform the customer experience through AI, from the models, through the data, and the agents, the people, and then the products that do that. So I think those are gonna start to emerge this year, and we'll have this new category of five to 10 companies in January 27.
00:36:56
Speaker
And the way we spoke about, remember when mobile broke out and nobody could figure it out. And then the Eastern Europeans did. It was EPAM, it was Endava, Globans, they're not Eastern European, but it was, those are the firms that understood how to deliver against that model. And they they were these bolts out of the blue.
00:37:15
Speaker
I think we're going to see the same of firms that figure out how to deliver against the AI model. Yeah. Any particular predictions on one or two phones you think are going to make that breakout?
00:37:29
Speaker
I'm on the board of two that I'm very enthusiastic about. One is Kalent that's in the AWS space and other is PH data that's in the data space. And it's so much fun to be part of those companies. um They're going through this hyper growth phase and it's this virtuous cycle where their clients are delighted, their ecosystem partners love them, their employees are growing like crazy. And so those start to then build upon themselves. so Those are a couple that I'm very close to that we're starting starting to recognize.
00:38:00
Speaker
i'm I'm fascinated. I brought up Distill earlier. um There's a lot of attention being paid there. They are extraordinarily extraordinary with their tech chops and their AI chops.
00:38:14
Speaker
But I wonder about how they start to build that model out and how they can verticalize it and start to solution it. That's a different culture. That's a different rhythm. So I'm watching that with intent, but to me, that's a 50-50 play on how that's going to turn out.
00:38:31
Speaker
now Well, this has been a phenomenal conversation. Extraordinary things from ordinary people. It's going to stick with me a lot from this conversation. And as always, great to catch up with you, hear your evolving diets. Very much so at the moment. like Most exciting time I've ever had as mentalist.
00:38:54
Speaker
Thanks for tuning in to From the Horse's Mouth, intrepid conversations with Phil First. Remember to follow Phil on LinkedIn and subscribe and like on YouTube, Apple Podcasts, Spotify, or your favorite platform for no-nonsense takes on the intricate dance between technology, business, and ideological systems.
00:39:13
Speaker
Got something to add to the discussion? Let's have it. Drop us a line at fromthehorsesmouth at hfsresearch.com or connect with Phil on LinkedIn.