90% of mature AI adopters cut BPO spends, says Z47-OpenAI report

A recent report titled "The India AI Edge: How India Uses AI," produced by venture capital firm Z47 in collaboration with OpenAI and Zinnov, reveals significant shifts in business practices among Indian companies that have adopted artificial intelligence (AI) at a mature level. The findings indicate that approximately 90% of these mature AI adopters are reducing their expenditures on business process outsourcing (BPO), with over a third of them cutting outsourced work by more than 25%. This trend reflects a broader reallocation of spending within organizations, as additional investments in AI are primarily sourced from existing budgets for outsourcing and software-as-a-service, rather than from new technology allocations.

The report is based on OpenAI’s usage data in India and a survey conducted with over 100 Chief Experience Officers (CXOs), showcasing how AI adoption is evolving from experimental projects towards a more integrated approach that directly influences cost structures. Vikram Vaidyanathan, managing director at Z47, emphasized that while IT spending is expected to increase alongside AI adoption, the focus is shifting towards how spending is being restructured. This indicates a transformation in organizational workflows rather than merely a reduction in labor.

The Classification of AI Adoption

The report categorizes Indian enterprises into four distinct groups based on their AI maturity levels: Tinkerers, Democratisers, Enforcers, and Transformers. Tinkerers are organizations where AI usage is primarily driven from the bottom up, focusing on productivity improvements. Democratisers have expanded AI usage across various teams, while Enforcers implement a top-down approach but face challenges in execution depth. Transformers, representing the most advanced adopters, have integrated AI into their core business operations.

According to the findings, nearly two-thirds of mature adopters allocate more than 10% of their software budgets to AI initiatives, a stark contrast to early adopters who typically spend less than this threshold. Furthermore, about 85% of mature adopters plan to increase their AI spending by over 10% in the next year, compared to only 53% of early adopters. This disparity in spending is beginning to manifest in tangible outcomes, with Transformers leveraging AI for comprehensive benefits such as cost reduction, enhanced customer experience, revenue growth, and the development of new business models. Conversely, Tinkerers primarily experience efficiency gains, while Enforcers struggle to quantify their returns despite strong leadership support.

Implications for the Future

The report's findings present both challenges and opportunities for India's IT and business services landscape. While the displacement of BPO roles due to AI adoption is evident among mature adopters, Z47 executives assert that this does not necessarily translate to a decrease in overall enterprise technology spending. Vaidyanathan noted the potential emergence of a new category of companies that deliver AI services while simultaneously utilizing AI to enhance their service delivery.

Moreover, the report highlights a shift in the expectations of engineering teams. Although AI has not significantly reduced hiring in engineering roles among mature adopters, it has altered the skill set required. There is a noticeable trend towards hiring more experienced engineers, as AI tools increasingly take over junior coding tasks. Ashwin Kannan, vice-president at Z47, pointed out that AI's capabilities in code-writing have advanced significantly, allowing for faster and more efficient completion of basic coding tasks. As a result, organizations are now seeking engineers who can effectively leverage AI tools in their work.

The report also suggests that AI is blurring the lines between product management, design, and engineering roles. Nearly half of the mature adopters reported that product managers are now utilizing AI coding tools, with some expected to create wireframes and frontend prototypes before backend teams finalize the development. This evolution in roles indicates that while the demand for engineering talent persists, the criteria for that talent are evolving.

Looking ahead, the report posits that India's AI potential may not lie solely in the race to develop cutting-edge AI models but rather in facilitating the practical application of AI within enterprises. Kannan expressed confidence in India's ability to provide forward deployment engineers—professionals who combine technical expertise with customer-facing skills—at scale, which aligns with the country's strengths in the tech sector. The report estimates that AI could contribute an impressive $1.7 trillion to India's GDP by 2035, underscoring the significance of AI in shaping the future of the economy.

In conclusion, the immediate challenge for companies is to determine whether AI will merely serve as a productivity enhancement tool or will fundamentally reshape their budgets, teams, and operational frameworks. As AI continues to mature, its integration into business processes will likely redefine the landscape of work in India, making it imperative for organizations to adapt accordingly.