TBR Talks: Decoding Strategies and Ecosystems of the Globe's Top Tech Firms

EY’s People Advisory Services: Diving Into a Critical Service Line

Play Episode Pause Episode

Mute/Unmute Episode Rewind 10 Seconds 1x Fast Forward 10 seconds

00:00 / 21m 59s

Apple Podcasts Spotify

RSS Feed

Share

Link

Embed

In this episode, titled “EY’s People Advisory Services: Diving Into a Critical Service Line,” Senior Analyst Kelly Lesiczka and Principal Analyst Boz Hristov share insights into EY’s People Advisory Services after their meeting with senior leadership and partners during a recent showcase of the service line.

Additionally, Kelly, Boz and “TBR Talks” host Patrick Heffernan discuss how EY manages the critical aspect of people advisory in digital transformation within its partner model, how enterprise needs have changed post-pandemic, and how people advisory engagements fit within EY’s larger framework of services offerings.

Listen and learn with TBR Talks!

Submit your Key Intelligence Questions for Patrick and his guests

Connect with Patrick on LinkedIn:

Connect with Kelly on LinkedIn

Connect with Boz on LinkedIn⁠⁠⁠⁠⁠⁠⁠

Learn more about TBR at ⁠⁠⁠⁠⁠https://tbri.com/⁠⁠⁠⁠

TBR Talks is produced by Technology Business Research, Inc.

Edited by Haley Demers

Music by Burty Sounds via Pixabay

Art by Amanda Hamilton Sy

EY’s People Advisory Services: Diving Into a Critical Service Line

TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms, where we talk business model disruption in the broad technology ecosystem, from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors, and chip manufacturers to value added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors. 

I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about Big Four firm EY’s People Advisory Services, with Boz Hristov, Principal Analyst for TBR’s Digital Transformation practice and Kelly Lesiczka, Senior Analyst for TBR’s Professional Services practice. 

EY’s People Advisory Services updates

So, this week on the podcast, we’re doing something a little bit different. I’m joined by Kelly Lesiczka and Boz Hristov who recently spent some time with EY’s People Advisory Services practice. The firm was doing a little bit of a roadshow in Boston and so they went down and sat down with them for a briefing. Normally we would take this and we would turn it into a special report. We’d put it out there for everybody to read. We thought this time because we have this podcast, we’d turn into an episode and we just chat about it. We often say that we know more than we put on paper, so maybe that more that we know is going to come out in this episode. So, Kelly, I’ll ask you first, maybe just describe what exactly it was and what you sat through and what you did with EY.

Kelly Lesiczka, TBR Senior Analyst: Yeah. So, we got to meet up with a few other leaders from Chicago, and they were from not too far from us, which is great, but they were able to talk to us about some updates within their People Advisory Services. So, a lot of talk about their CHRO study, which had just come out so it was interesting to see the impact of how technology is influencing the role of HR and how it’s changing more into experience driven, it’s also more up to a change to say, like they used the terminology “change is a muscle” which I think is a good way to phrase it. It has an ongoing change they need to keep updating. And so it was good to hear some of the changes that are happening from that perspective and how companies are looking at the value of people and how to best use their, really, their best asset through technology or even through different platforms and how to align them better with their business, how their business is moving and what new needs they have.

Patrick: And we’ve spoken in the past quite a bit with EY’s People Advisory Services practice. So, is there anything that struck you as surprisingly new this time or was it sort of the steady evolution of EY’s People Advisory Services practice? That’s a really loaded question early on, but I’ll go ahead and ask.

Kelly: Yeah. No, I like it, though. I think a big piece of it is definitely the experience driven, I think you probably agree, I think that was more of- it came through a bit more I think than we’ve seen in the past from People Advisory. I think overall in the market, it kind of fell off for a little while. But I think people are starting to see the value in people, especially equipping them with different pieces of technology. Look at how agentic AI is taking off, really teaching their people how to use those tools is really a strong- there was another thing I wanted to say-

Patrick: Yeah. No, well we’ll come back to agentic AI. Boz, your sort of initial reaction to this session with EY.

Bozhidar Hristov, TBR Principal Analyst: Yeah. We saw, at least we heard I should say, and we saw some of the examples that they shared with us, what EY aspires to be as a firm. There was some very strong examples of that. What I mean by that is we know Big Four, they always struggle with the fragmentation of the member firm structure, but the People Advisory Services since they started making that pivot towards being a lot more globally organized as a practice, and so, they had- they shared with us that they had 33 separate systems and approaches and frameworks you want to call it across the various member firms across the globe when it comes to people advisory. Now it’s down to one.

Patrick: Okay.

Boz: So, that’s a massive change because that first and foremost requires a massive internal buy in and consensus across the member firms. So, it’s, you know, it’s sometimes it’s harder, oftentimes it’s harder to sell internally within those firms than externally, right. So, making that recognition that they need to, you know, acknowledge the standardization and consistency across the member firms is a very, very first prerequisite I would say for the firm to think about going to market because as we know, change management is hard. So, applying change management to themselves, so, thinking about through that lens is an important factor. Also, it’s, you know, how they’re doing it as well along the way. I mean, they brought up, they are re-skilling over 2000 consultants, you know, as a part of that, and that re-skilling is mandatory. So, they’re not just putting on paper saying, we have one methodology now. They actually have people putting people to work and understanding and providing the training necessary to understand how, you know, that new framework is set up and what it all means and all the tools that are available to them along the way. Especially as change management, People Advisory Services is no longer a standalone kind of an offering source, meaning those consultants that usually and typically attach with a technology consultant or operations consultant, whoever it might be, in a larger transformation project, right? So, this is a key element that recognizes from the get go that regardless, there will be a change management, depending- the skill may vary obviously, but that’s a big first step and doing it consistently across, no matter if you are doing business with EY in the US versus, you know, the Netherlands or Australia, you are, you know, experiencing the same kind of methodology approach.

Patrick: So, people advisory services and change management, generally to your point, is typically part of a larger deal, part of a transformation, part of migration, whatever. 

Boz: Yeah.

How People Advisory Services is positioned

Patrick: Did you get a sense at all that for the folks leading people advisory services at EY, that they see it eventually becoming something that would be the beginning of an engagement, not- it’s something that they could go out and sell and get new clients? Or is it always going to be part of why you should come work with us, is because we have this very robust People Advisory Services practice.

Boz: I will give the consulting answer but it depends you know.

Patrick: I walked into that so.

Boz: You walked into it, yes, you did. And I’m just thinking about that. To enforce that we’re part of that and being, you know, not just being a standalone leading with, always depends on how the company also takes the next step will be incentivizing and measuring success. What does measuring success look like, of a large transformation program? And everyone that is involved in that large transformation program gets measured the same way. Instead of saying, oh, the people advisory consultants are getting measured on ABC and then SAP consultants get measured on DEF, you know. So, if those incentives are aligned, the behavior will change and the approach will change and the approach will likely work along the way because you have the messaging, you have the framework, you’re going to market as a whole, as a firm. And you know, you’re not just trying to meet your own quota for the year, but you’re actually trying to drive towards the same outcome to make the client happy. So, that’s- I think we know from EY and from the other Big Four, there’s always been kind of that push to, as a, kind of a common KPI, so to speak, where service lines per client is kind of the common denominator. But we know from there, things start to water down a little bit and change depending on where you sit at the table, at what scale is your practice, and how things may, you know, vary and especially when it comes down to working across borders with member firms that may not be originating where the deal is structured from and shared services and sharing pools of profit and per partner and we’re kind of going down the rabbit hole here, but these are the challenges that could make a program that on paper looks really strong, actually very successful.

Patrick: Right. It’s been a 10-year conversation with EY about service lines per engagement and especially when they’re looking at globally, not just in individual countries. So, it sounds like that conversation is going to keep going.

Boz: I think so. I think so, but I think it’s because change management could serve, people advisory could serve as the, pun intended here, but as a catalyst of change, you know of the organization internally as well-

Patrick: Yup.

Boz: And applying a lot of those frameworks to themselves, which I believe they have started doing that already, could help them to identify. We know that they went through the Everest exercise. 

Patrick: Right, yup.

Boz: And I’m sure, we know that they learned there’s some lessons learned, best practices, what works, what doesn’t along the way, but continue in that direction, in that spirit of like one EY, I think it’s gonna take some time, but it’s- they’re making the right steps.

Patrick: Yeah. And then, so Kelly, you brought up AI. What were some of the conversation- what was the conversation about how they’re applying either agentic AI or GenAI or just AI generally into this People Advisory Services now.

Kelly: I can’t say for how they’re doing it specifically for their people, but one of the things they called out was their avatar that they’re using called Meg internally to try to equip people with more knowledge and it talks to them and helps them teach. So, I think it helps recreate kind of an in-person learning even when you can’t necessarily have that. But I think that’s just one of the many ways that they’re trying to encourage the use of AI because you really do need to know how to use it to move forward 

Patrick: Right.

Kelly: And go on in different ways. So, I think that was one of the things. Just- I want to just add one quick thing to what Boz was saying. I think one of the discussions we had with them was also around the shift from time and materials over to more value outcomes and how clients are really looking more for that. They want to actually see the value of the services that they’re getting and that could even be seen through AI if they’re able to use these tools and services, it’s something that they’ll be able to- I think it’s difficult to try to measure. There’s so much data out there. You could throw a dartboard at anything and you can use that. 

Shifting pricing models

Kelly: And go on in different ways. So, I think that was one of the things. Just- I want to just add one quick thing to what Boz was saying. I think one of the discussions we had with them was also around the shift from time and materials over to more value outcomes and how clients are really looking more for that. They want to actually see the value of the services that they’re getting and that could even be seen through AI if they’re able to use these tools and services, it’s something that they’ll be able to- I think it’s difficult to try to measure. There’s so much data out there. You could throw a dartboard at anything and you can use that. 

Patrick: Hmm.

Kelly: But I think the way that they’re shifting more into the value of what’s actually being produced and if they’re actually getting what they’re looking for, I think the risk on both sides of EY and the client is also growing through that too.

Patrick: That’s fascinating because the- for so long, change management has been the first thing cut, you know, when you sort are like we need to trim down this engagement, we need to, you know, the clients not going to pay this much. We need to cut something, let’s cut change management and what you’re saying is that if EY can get good at selling change management as a- on an outcome base rather than a time materials base that that might help propel their People Advisory Services practice.

Kelly: Yeah, I think, I think it definitely could. I think it showcases a lot of the value and I think the willingness on the client side to reap the benefit, it also shows that they actually want to execute on the change, because I think one of the main things they always say with transformation is how unsuccessful it is if you don’t have people on board.

Patrick: Right.

Kelly: And so to having skin in the game on both sides and actually the desire to transform just showcases the value of People Advisory Services for your organization in general.

The partner ecosystem and growth opportunities

Patrick: Right. So, all right, so Boz mentioned the internal- selling it internally, you’re talking about the relationship with the client, but then there’s that third relationship of the partner. So, did they speak to what it looks like for their partner ecosystem with respect to what they’re doing in People Advisory Services?

Boz: Yeah, I think that’s an opportunity for EY to grow even more when it comes to People Advisory and to take advantage of the framework that they have set up especially that as we talked a moment ago, People Advisory change management is becoming more and more part of the large transformation process. That’s where really the value is. And I recognize it from the beginning that there will be a change management point being at the forefront of the discussions. I think it’s critical. I mean they have a whole framework around being modular and scalable that the solutions that have developed, the technology solutions that have developed around the network experience, it’s really, you know, it’s a way to think about it that it’s not one-size-fits-all, right, way and that’s where it’s important to bring in the partners to not one-size-fits-all right. There’s a big transformation but depending on the persona, you can make better alignment, better adjustments. So, I think that’s an opportunity for them to have more partner discussions along the way, to understand the partner view and understand maybe there’s some, you know, new areas that you know the technology may or may not have recognized for development. Thinking about large SAP transformation programs or anything that’s, you know, with Salesforce or any of the other of their big partners, you know, Nvidia, or Dell or Microsoft, there’s so much potential there that they’re all part of big transformation problem, so, there’s, I think there’s room for growth when it comes to the partner dimension of EY.

Patrick: Yeah, and it’s a thing that they’ve gotten very good at sort of determining who their strategic partners are, who they’re going to play with. 

Boz: Yeah.

Patrick: But that step of ensuring that those partners understand every single component of EY and like and how they can play in any one engagement. 

Human resources opportunities

So, nobody listening to this can see it, but you’re both sitting here with notebooks that you’ve actually written on pen and paper, which is sort of the opposite of technology, but that’s okay. And I’m wondering if we could and I’ll give you a minute to sort of dig in, but is there a nugget or two out of your notebook that you sort of wrote down and you got, you know, like I know when I’m taking notes at an event, I’m always like underlining and putting little stars next to something. So, I’m curious if there’s anything out of those notebooks that sort of has got your attention now, Kelly, you want to go first?

Kelly: Yeah, I can go first, I think the main thing for me is that HR, the transformation is needed and the recognition within it is needed. I feel like it’s often a thing that people just think you can outsource, so it kind of gets tossed to the side. But I think the way that EY has approached it and they discussed in their study, it- there really is so much more to it and actually making sure that your talent base is aligned with what you actually need as a company and how you can move forward. And I think acknowledging that change without the organization updating your service lines or what type of client you’re pursuing, I think you also have to take a look at your talent and make sure that they’re aligned more closely with the tools that they need, so using AI internally, you’re using all these different optimization tools, but then also just if they’re aligned with the same priorities that the client is or as your company is, as it progresses with these new areas.

Patrick: Right.

Kelly: I think that was the main thing for me that underpinned by just ongoing change is just it’s perpetual really, you have to keep going.

Patrick: Right, and I think about we’ve talked about this before too, like the role of the Chief Human Resources officer in the last 5-6 years has been crazy because they had to deal with the pandemic and suddenly they had to organize everybody remotely and then coming out of the pandemic, we had the whole like, quite quitting stuff that was going on. 

Boz: Yeah.

Patrick: We had lots of spin outs, lots of, you know, people going off on their own. Then we had all those firings that were happening across the technology space, sort of a blanket let’s just cut 10%. So, I imagine Chief Human Resource Officers have had a rough 5 or 6 years. So, getting all the help they can get from an EY, is- that’s a great.

Kelly: Yeah

Patrick: There’s a huge use case there. 

EY’s approach and mindset

Boz, is there something in your notebook that is like screaming at you right now?

Boz: I’m looking at it and I’m just thinking to kind of build up, there’s a couple of things actually that I’m- I think they’re interconnected. There was a comment, one of the executives we spoke to brought up how change was a commodity, now it’s a value, right? And thinking through that, lens about going back to the discussion about applying it as a value driver as about understanding who’s your change agent within the organization and now how do you actually help your clients? That’s the mindset EY is coming from and that’s the mindset they’re bringing to their clients as well because, you know, not- just because you play golf with somebody, doesn’t mean that that’s the best person, you know, you wanna task with doing that change management work. 

Patrick: Right.

Boz: And so, using the right tools, using the right approach, looking at it through that lens, it’s important. And to do that EY is taking two steps. Approach one is the mindset that what I have here is EY wants project architects. They don’t want salespeople. So, architecting it from that point of view, supporting that value creation is important, but also collaborating and tapping into EY’s wavespaces. Which we know it’s a huge asset for them, we know it’s a big part of their- how they go to market from an innovation standpoint and having that recognition that change management is a value, I think it’s how all of that discussion can occur and does occur at the wavespaces, and they’re not just there to showcase, but actually to demonstrate actually how it impacts organizations, because often those large transformation programs, you know, start at wavespaces, right, with discussions at wavespaces and then continue into the phases. So, kind of making that 90-degree shift in the mindset of EY’s approach both from the framework and the methodologies and the processes in place, but also how they approach the opportunities that change management can drive and tapping into the power of their most disciplinary model. I think it’s an important aspect.

Patrick: And we know from experience that the wavespaces can be used not only for the client to better understand everything that EY brings, but for EY itself to understand. So, if you’re a supply chain guy or an SAP guy, and you go to a wavespace and People Advisory Services shows up for the engagement, now you can more clearly articulate EY’s value 

Boz: Absolutely.

Patrick: In the entirety of the engagement, not just in your little sort of piece of it. 

Last takeaways: AI implications and global methodology 

Any last takeaways from the event? Anything you’re going to look for like 5-6 months from now or a year from now when it comes to People Advisory Services or EY as a whole? Let’s throw it out there, or the Big Four as a whole. Let’s make it as broad as possible. What’s your big take away for the Big Four or EY or People Advisory Services?

Boz: Well, I think to me it’s, I would say the broader kind of professional services space including EY and the rest of the Big Four and diving back to the People Advisory and the change management is what’s happening with AI and agentic AI, and how those companies make the pivot and the shift to recognize, but also adjust, to the implications of their own operations and the business model with the big- couple of big factors. One is on the people side, right, on the human element inside of the pyramid being impacted potentially, but also on the commercial model, right? So, those are connected obviously. So, I think it will be curious to see how much of the learnings and the experience that People Advisory Services can do to the client, actually they apply to themselves because we often forget that those organizations that, like EY and others are professional services and most of their clients are in the B2B sector, right.

Patrick: Right.

Boz: Manufacturing, aerospace, retail, etc. So, there’s a little bit of a different nuance to bringing your, you know, kind of like, you know, advising your clients to yourself, because there’s a different goods and services that your clients offer than yourself. So that’s where it might be a little bit more of a challenge, but it’s an opportunity because if they can apply it to the professional services I think it might be much easier to then apply to more of a tangible kind of a B2B industry client sector.

Patrick: And in a minimum you’ve got experience at scale and that’s-

Boz: Yes, absolutely. 

Patrick: What the clients are probably looking for.

Boz: Yeah, absolutely.

Patrick: So yeah, Kelly, how about you?

Kelly: I think for me, the biggest take away is around the theme of global and how they’re doing something so massive across organization, consolidating down to one main methodology. And I think the necessity to be more global is definitely coming through. I think other firms have tried to do it, but it can be very difficult to bridge together all of the different member firms and even across some of the professional services companies that are more heavily rooted in certain countries, it’s definitely difficult to create that global theme management tactic. I definitely think it’s a necessary thing, and I think it’s ever more present now, especially as companies overall, and this is something that EY had said, was that how they’re trying to be more proactive over reactive. And I think having that global mindset definitely enables you to be more proactive and you’re not just reacting because you’re so segmented. You have that one better view that shows more into what’s going on.

Final thoughts

Patrick: That’s perfect. And that’s exactly what we’re going to talk about in season 4 of this podcast is the Big Four firms and how global are they really, and what is it that- what are the advantages that- do they get from not being globally run and what are the advantages they’re trying to get to or the opportunities they’re trying to get to by becoming more consolidated globally, I think that’ll be our fall 2025 discussion. Does that sound good? 

Boz: Excellent. Yeah, looking forward to it.

Kelly: Sounds good.

Patrick: All right. Thank you so much both of you for being here. And will we get a written report from this? Doesn’t matter we did this, we did this podcast, it was perfect. Thank you.

Boz: Thank you.

Kelly: Thank you.

Patrick: Next week in our Season 3 finale, I’ll be speaking with Darlene Wilson, a thought leader in the technology space about all things technology, including a look back and a look forward. Don’t forget to send us your key intelligence questions on business strategy, ecosystems and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies large and small answer these questions with the research, data and analysis my guests bring to this conversation every week. 

Once again, I’m your host, Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us and see you next week.

TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms

Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.

“TBR Talks” is available on all major podcast platforms. Subscribe today!

TBR Talks: Decoding Strategies and Ecosystems of the Globe's Top Tech Firms

Global Trade Concerns: What’s Driving Labor Force Rationalization?

Play Episode Pause Episode

Mute/Unmute Episode Rewind 10 Seconds 1x Fast Forward 10 seconds

00:00 / 24 min 35 sec

Apple Podcasts Spotify

RSS Feed

Share

Link

Embed

In this episode of “TBR Talks,” Principal Analyst Boz Hristov and Senior Analyst Kelly Lesiczka join Patrick for a discussion on the challenges occurring amid reductions in force and labor rationalization across the global tech marketplace.

The pair, who specialize in digital transformation, ecosystems and management consulting research, also look at the trends and predictions TBR’s teams noted in 2023 and continue to observe in 2025 regarding anticipated reduction in and optimization of the labor pyramid within professional services and IT services vendors.

Listen and learn with TBR Talks!

Submit your Key Intelligence Questions for Patrick and his guests

Connect with Patrick on LinkedIn:

Connect with Kelly on LinkedIn

Connect with Boz on LinkedIn⁠⁠⁠⁠⁠⁠⁠

Learn more about TBR at ⁠⁠⁠⁠⁠https://tbri.com/⁠⁠⁠⁠

TBR Talks is produced by Technology Business Research, Inc.

Edited by Haley Demers

Music by Burty Sounds via Pixabay

Art by Amanda Hamilton Sy

Global Trade Concerns: What’s Driving Labor Force Rationalization?

TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms, where we talk business model disruption in the broad technology ecosystem, from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors and chip manufacturers to value added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors.

I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about the potential labor pyramid collapse with Boz Hristov, Principal Analyst for TBR’s Digital Transformation practice, and Kelly Lesiczka, Senior Analyst for TBR’s Professional Services practice.

Kelly and Boz, welcome back to the TBR Talks podcast. Great to see you both.

Bozhidar Hristov, TBR Principal Analyst: You as well. 

Shifted thinking around the potential labor pyramid collapse

Patrick: What we want to talk about today is something we’ve been talking about for two years now, which once generative AI became the biggest story of 2023 early on, and once we started to understand how the companies that we cover. So, the IT services companies and the consultancies, once we thought about how they were going to adopt generative AI and some of the use cases that they would use internally, we started imagining a collapse of the traditional labor pyramid. That is, rather than having to hire lots of people at an entry level and use an apprentice model in the consulting world and just use a sort of up and out model in the IT services world. And have those people eventually get whittled down to that top of the pyramid. Instead, the sort of two sides of the pyramid would evaporate, because you could use generative AI to do so much of that entry level kind of work. That was our thinking in 2023, and I would say we still are thinking in 2024 now, early mid 2025, what are we thinking? Are we seeing that coming to bear or is it something different. Boz, I’ll let you go first. 

Boz: Sure. I think you use a very interesting word, imagine, right. When it came to what we were anticipating that may be happening in the world of professional services, professional IT services. So, the ebbs and flows of the headcount distribution for all the IT service and professional services vendors, is not a new phenomenon. We saw a lot of those, and all that anticipation and back in, 5 or 7 years ago when RPA first came around and obviously the AI and the GenAI has put a little bit more of a pressure and it’s pressure testing the employee pyramids of many of the IT services and consultancies. But I think before any of that can happen, I think what many of those vendors have been experiencing in the last 24 to 30 months, has been they came off the high hiring and recruiting after the pandemic. Right. So, everyone pretty much up there, recruiting and increasing their headcount, 25%/30%. The demand, though, started to cool off much sooner, much faster than, you know, than anyone was anticipating. So, what we saw in late 2023 and through 2024 was a decline in headcount. And that was actually- we track the headcount distribution as part of our Global Delivery Benchmark. And this benchmark has been going on for over the last 15+ years. And that was the first time we saw the companies that were within the benchmark, the average headcount contracting, which kind of gave an indication. Okay, is this the moment, an inflection point in time when vendors will actually look into their business models and try to look into their headcount a little bit through a different lens? And so, trying to answer the question was are those companies reducing the headcount as a result of AI because they’re starting to feel the pressure of AI, or because the demand was slowing down. Our initial indication and estimates are suggesting that the decline in headcount was largely because of slower demand, less of AI. If we had to put a number behind, probably no more than 10% to 15% of the headcount decline was a result of AI pressure. The other 80%/85%+ was as a result of slower demand and vendors just being, you know, over hiring. Now fast forward into 2025, we start to see in the late in the 3Q and the 4Q in 2024, actually, which is the numbers have been reported in the first quarter into 2025, vendors are starting to hire back again which suggests again, that that anticipation and imagination in terms of like where those companies labor pyramids are maybe going to look like, was just a temporary blip. For most vendors, some vendors are still kind of in that adjustment mode, and they’re trying to think about what it all means to them moving forward. I think the net new additions in the late 2024, early 2025 are largely because there was an uptick in signings in early 2024, in large and mega deals for a lot of the IT outsourcing companies and as we know, those types of contracts, typically the revenue recognition cycle takes a little bit longer than the traditional consulting model. So, there’s been that kind of a delay in hiring. But certainly, when there’s a start to hiring back again. Now, will they hire at the same pace as they were doing in 2021, 2022, 2023? Probably not. They are very careful. They are very strategic in terms of who they hire, and how they’re hiring, in terms of the scale of it. Acquisitions still remain a piece of the puzzle, allowing vendors to get the more on-demand skills as well as capture new business that way along the way. So, bottom line, the decline has rebounded. And I think, certainly will pressure test again. You know, those company’s business models moving forward because now we’re starting to see actually, AI and GenAI kind of picking up. So, we’ll start to see how much that will impact actually their hiring plans and into late 2025 and 2026. 

Patrick: So, Kelly, I’ll come to you on the management consultancies. But first, a couple clarifications, Boz. 

Boz: Yeah.

Patrick: So, when you talked about the headcount decline, what was striking about it was the growth was still happening for those- revenue growth was still happening. So, there was a real disconnect there between the two, right?

Boz: Initially there was, that was the anticipation when they were hiring at such a pace. But the demand started to slow down, the demand for consulting work,

Patrick: Right.

Boz: I should say that to be more specific. The demand for consulting work really cooled off, and the demand for consulting work, which needs like an immediate excuse to be deployed for ad hoc projects, kind of cooled off. And those companies had really over-hired essentially because there was such a high demand for consulting in the 2021, 2022 period. So, it’s starting in 2022, 2024. You know, the demand for consulting cooled off, largely because AI started to come around. 

Patrick: Right.

Boz: So, there was that, you know, pivotal discussion between the demand for consulting versus demand for IT outsourcing services. 

Could the collapse still happen?

Patrick: So, you made a point though, that the AI adoption is accelerating now. So, is it possible that our read, our analysis of what was happening in 2023 and the collapsing of the pyramid that we were predicting was simply two years too soon? 

Boz: It is possible. It is possible, you know, what is the first phrase a dead cat bounce, you know, from a headcount perspective. 

Patrick: Yeah.

Boz: Yeah. So, we could be experiencing some of that. And I think some of the vendors, they’re a little bit more- the less tech heavy, the less offshore heavy, I should say. They might be a little better positioned. Just thinking about, you know, how they’re thinking and positioning their portfolio. But then again, I don’t think most of the vendors will say no to IT outsourcing work, regardless of how much demand AI is in, and yes demand for AI is picking up. But the actual revenue, the actual dollars, the hard dollars, are much smaller in terms of the award size than traditional IT outsourcing.

Patrick: Right. And so, then the margins are not as good because you-

Boz: I would say margins are on par right now with the traditional IT services and they’re no- they’re not bigger. So, you have a smaller scale awards with the same margin. So, you need to kind of start thinking about different ways and whether you, you know, deploy and mobilize your resources. What actually you make good profit.

Could the management consultancy’s labor pyramids collapse?

Patrick: Right. So, Kelly, from your perspective, looking at a lot of the management consultancies, do you think there’s going to be that collapse of the pyramid and that maybe we’re just two years ahead of ourselves on this? And I’m thinking in particular about the Big Four firms and the McKinsey, Bain and BCG that really do have that apprenticeship model where they need to hire lots of people at an early part in their career, so they can either build them up to be a partner level or find somewhere else for them to go. But with AI, can you sort of eliminate all those, not all, some of those entry level positions? 

Kelly Lesiczka, TBR Senior Analyst: Yeah, I think it really depends on how the companies are approaching. I think we saw a lot of, at least among the strategy firms, a lot more attention to who- what type of competition they had of talent. So what people were actually working on, the type of projects that they were doing, I think we saw a lot more, I guess attention from a lot of the higher ups on what projects were being worked on. I know McKinsey definitely had a stronger eye on what projects they were engaging with. Not just a lot of the same project, but it was more of a selective process. And I think that’s also been reflected within the talent. So, what type of talent do you need? And I think they’ve had to shift more towards technology, which has been more difficult from the traditional, more old school models coming from like a BCG, for example. I think it was more difficult for them to shift into technology to begin with and integrating those skills with their existing consulting. So, I think that was kind of a big shift for them. And I think that’s something we’ll continue to see is how they’re doing it. You know, where it was so, like within disparate pieces before, I think it’ll be more challenging for them to have a more comprehensive, and I don’t want to use the word holistic, but to bring it all together. 

Patrick: Right.

Looking at the India-centric vendors

Kelly: I think the India-centric vendors, I know you asked about consulting, but I think they’re worth noting, too, it’s just how they’ve looked at hiring and how that’s shifted. I mean, think about how many more people they have based within the US as opposed to contracted. If you were to look at those numbers from five years ago, it’s much different. So, I think just seeing how all of these vendors are hiring, who they’re hiring and where they’re hiring is definitely different from where it was five years ago, even a year ago. It’s not quite the same type of people. Not even for the same positions. I think those have kind of changed a bit more. Some of it is probably bolstered by AI, but I wouldn’t say AI is taking over. I think it’s more adjusting the roles a little bit and giving them more resources in a sense, as to how they can do their job and what more they can do using those tools. 

Patrick: Right. And it’s fascinating, too, because if I understood you right, around the management consultancies like there’s greater emphasis now on ensuring that they’re hiring the right people and making sure they’re taking on the right projects. And we always thought of, I have always thought of consulting, the basic business model is you hire smart people and throw them on a problem. You could also say it used to be in terms of data, you just gather all the data you possibly can. And I think AI, and generative AI in particular, forces you to actually care about what data you’re getting. And maybe it’s forcing the consultancies to care even more about which kinds of people they’re recruiting and which kind of people they’re promoting, because it’s no longer just, get smart people and throw them at a problem and the smartest ones stick around.

Specific approaches that will succeed

So, speaking of specific companies now, Boz I’ll come back to you. Are there- are certain companies that in your coverage or that your focused on as an adjacency, like a Microsoft or an SAP, that you think given the generative AI age we’re in and where we think things are heading now that you would sort of say these are the companies that are sort of in the best position to take advantage of what’s changing in the market in 2025?

Boz: I can’t just single out a company or a few of those. I think it’s about how companies approach overall and from a culture perspective, from a training perspective, from a portfolio perspective, and pricing, commercial, and partnerships, alliance partners perspective, because those are all these pieces that are evolving at different speeds, right? And we’re starting to see some companies being a little bit more stuck in the, you know, the old ways of like, let’s just make sure we capture as much business as possible, you know, on the traditional way. Others are a little bit more aggressive in terms of like adopting AI for internal use and deploying and trying to deploy to customers and experimenting with new commercial and partner models, others, third groups that are really trying to upend, you know, traditional like, outsourcing services and, you know, we’re actually starting to hear kind of on the edges of companies that are trying to disrupt the larger vendors as well, more mid-size companies that really have a little bit less risk, associated with this disruption, internal disruption perspective then external. So, it all boils down to culture, vision of the leadership, really the risk profile and the risk management that those companies are willing to take on. Public versus private companies. That is also a factor when it comes down to the changes in the preparation. There’s certainly a lot of fear among all companies of like what could happen and, you know, and we can- we see it in the market across many of the IT vendors, not just in the services side, but on the tech side, on the software side, on the infrastructure side. One day they make a big, bold, investment announcement, the next day they scale down or scale, they- employ levels. So, there’s like this ongoing adjustment. 

My cynical view, if I could share it for a moment, is that if the demand starts to rebound, the- more of the discretionary spent and whatnot, I would say probably 8% of the companies that may be thinking about that will be disrupted, they’ll probably start deploying resources to hire again to capture that demand. And, while they may not forget entirely for AI and GenAI, that immediate impact, they may kind of put it a little bit on the side burner, not on the back burner but the side burner, and trying to continue to experiment because you have to remember the enterprises too, the buyers, are also not just pouring money into AI and GenAI. So those companies, actually they have a chance to control the narrative of the scale and the adoption which can also impact their, you know, how they think about their employee pyramid. So, data services business, so, it’s all about people. But, you know, that’s something that, you know, they will need to think a little bit more strategically as they think about the evolution of their commercial models and develop different career paths, different pyramids or other forms, shapes of, you know.

Patrick: Right

Boz: That they may have to think about, you know, the scale of their workforce but again, culture and risk tolerance are the big factors right now.

Patrick: Right. And we’re such a long way from where we were two years ago, where you just said, you know, the enterprises are now pouring money into AI. And yet a couple of years ago, every announcement was a billion, 2 billion, 3 billion, into AI initiatives. 

Specific companies that will succeed 

Kelly, are there any companies that stand up for you when you think about who or which companies have the right pieces in place for what’s happening in the market? 

Kelly: I think EY is probably a good example in this case. I think how they were over the past few years with their investments that encompassed their own employees and their partnerships and their portfolios. I think the approach they had positioned them a little bit better to have a stronger platform around AI. I know they have the EY AI platform, and I think just the way that they’ve approached integrating it within their employee base but then also how they’re creating more tools, not necessarily larger platforms, because I do think we’ve seen more of an acceptance across, from vendors and their clients on, you need to find a way to work with AI to avoid as Boz was talking about, being disrupted. So, I think making it more of a piecemeal approach. So approaching AI in a smaller way, not necessarily a whole wide scale change, but just simply starting to use like the Outlook tools or the Google Cloud. Using all those little tools that are smaller on the smaller scale as opposed to a widespread embedding this down below, it’s more- and again, you’re building the skills around AI as well. Which you have to start somewhere. You have to have those skills. 

Patrick: Right. And to- yeah. And the folds in nicely with Boz’s point about adoption is slow. And so, if you’re building up those skills, using it in small pieces, you’re getting the kind of expertise and knowledge that will be applicable.

Fujitsu and Deloitte

I want to wrap up by asking you about two particular companies, Fujitsu and Deloitte. And the reason that those two are on my mind in particular, is because when we’re talking about the staffing pyramid and the business model, there are fewer companies that have sort of played with that more than Deloitte over the last few years. And the way that they’re part of the Big Four, but they’re very much like Accenture. So, they have always pushed the, sort of, the limits of what’s possible in the consultancy Big Four model, versus the IT services company model. And then Fujitsu because I know about a year ago this time, we were meeting with them. They were telling us all about amalgamated AI, and they seem to have one of the better, more comprehensive, broader AI stories. And so, while everyone else was chasing the GenAI, you know, the flashing lights, they seem to be a lot more focused on, well, AI is a lot of things. It’s not just this one GenAI kind of thing. So, I wonder if you could each speak for a moment. Obviously, Kelly, you cover Fujitsu, Boz you covered Deloitte. So, I wonder if we could just wrap up with just a couple thoughts on where you see those two companies going in 2025. Boz, again, I’ll start with you.

Boz: Yeah. As you mentioned, I mean, Deloitte has certainly stretched the limits of their business model, including their resource pyramid, as they have started to look and feel and do business more like Accenture than McKinsey although they are a Big Four, essentially. Investing a lot more heavily into offshore resources. Building, like their outsourcing, they call the Deloitte Operate business as well as a key strategic initiative. So, in terms of where do we see Deloitte, how do I think about Deloitte moving forward? I would say Deloitte, at least for the foreseeable future like the next 12 to 18 months/24 months, I don’t expect Deloitte resource management strategy to change much. I would suspect them to double down more on the offshore nearshore resources for their consulting and IT services, given the strategic imperative around Deloitte Operate. And the need for supporting and capturing that many services business, and potentially use that as a door opener for consulting, kind of like that back door consulting opening and can use their stickiness with their clients and trying to increase the presence and have the different conversation as they’ve been on client site doing their managed services for a year or two and then identify new opportunities to bring in their consultants. So, that’s what I think is going to happen. Or now it might be some other as we know they’re going through a major, you know, realignment of the service lines. And that has started about a year ago and going through- should be wrapping up by the end of this fiscal year on May 31st. So I would expect to see more calibration on their audit side as a result of using AI. If we’re to see a company that has more of an impact and on the commercial side on the commercial model and just the business model overall, I would say the audit and assurance that part of the business is much more ripe for disruption at scale because of the way the technology works in the audit clients preparation and whatnot. I suspect, you know, Deloitte will continue to use more labor-based arbitrage for their IT services out of the house and consulting side than the audit side. Just by the nature of the way they’ve been evolving their portfolio and the long-term goal of Deloitte Operate to be on client side.

Patrick: Right. I hate to say this, Boz, but I think everything we’ve heard from Deloitte and from KPMG and PwC and EY, we’re going to have to have a podcast episode about audit before the end of this year.

Boz: Yup.

Patrick: Which is going to be painful. 

So, Kelly Fujitsu- so, it’s not that- I was thinking as Boz was talking about consulting, it’s not just the AI story from Fujitsu that’s interesting. It’s the Uvance story where they’re trying to build up this consultancy practice a little bit more significantly than they have in the past. I mean, how do you how do you look at Fujitsu now? Where do you think you see them at the end of the year? 

Kelly: I think Fujitsu is definitely a company to keep an eye on. I think a lot of times they’re overlooked because they’re so heavily based within Japan.

Patrick: Right

Kelly: I think a lot of companies don’t really think of them as a threat.  Over the past few years, they’ve definitely created stronger sightlines between, you’d call them satellite locations, however you want to do it, in the Americas and in EMEA. And even in Australia and New Zealand, they’ve been on quite the acquisition streak. So, I think they’ve definitely strengthened their overseas presence. Not really comparable to its peers, but I think it’s definitely better than it was. And the way that it’s connected with, Japan in general. 

Patrick: Right

Kelly: But I think it’s also reflected in a lot of their investments. Just thinking about consulting, a company that was very tech focused in their approach to consulting, they knew you can’t just become a consultant. And so, the way that they’ve been doing it, bringing in different consulting firms, through acquisitions, but also hiring and training, I think they’ve done a good way of building it up from zero as opposed to just running forth with it. They’ve done- the way that they’ve approached integrating it throughout and keeping it separate. Even with how they do their earnings, the way that they’re positioning it within the firm is still separate, which I think definitely gives them a leg up. But it is coming from a technology perspective as well. I think their investment in quantum, which has- it’s been more forthcoming in the past ten-ish years.

Patrick: Right. 

Kelly: I think that’s something we didn’t see from a lot of the other IT services vendors; was how strong of a base they had in quantum. And granted quantum is in a different position than AI, but I think it definitely helped them have more of that technical knowledge and a lot more of the capabilities for its AI, and the amalgamated AI.

Patrick: Right, right. So, I think what’s going on with, and I’m glad you brought up quantum, because I think what’s going on with Fujitsu, with Atos, with IBM around quantum, that’s a season four episode that we’re going to have to do in order to talk about quantum.

Final thoughts

So, I want to end by just asking you a question you’re not prepared for. Both of you are experienced travelers for both business and for pleasure, for family trips. I’m curious. Tell me a place you’ve not yet been to that you really want to go? Not for work, but for like a family trip or a fun trip. One place- and it can’t be, you know, Hampton, New Hampshire and Newbury, Massachusetts or anywhere else. It has to be somewhere a little bit exotic, I think. Or maybe you have a good reason to want to go to Ames, Iowa. But tell me, where is it that you want to go? Boz, I’ll start with you. 

Boz: I’ll go with three places. 

Patrick: Three places? 

Boz: Yeah.

Patrick: Okay.

Boz: Alaska. Argentina. Australia. 

Patrick: Okay. All the A’s, just going to go right through the alphabet.

Boz: Yeah.

Patrick: Alaska, Argentina and Australia. Yeah. Okay. All right. Kelly?

Kelly: I didn’t think of Alaska before you said it, but I definitely do want to go to Alaska. And I feel like the other one is Scotland. I’ve never been but I love how it’s- there’s the animals everywhere. It’s so peaceful. I’ve heard idyllic is a nice way to describe it. 

Patrick: Of Scotland. And they have good whiskey so. 

Kelly: *laughs* Yes, they do. 

Patrick: Yes, they do. Excellent. Thank you two very much. We will chat again soon. 

Boz: All right. Thank you.

Patrick: Next week I’ll be speaking with TBR Principal Analyst Boz Hristov and Analyst Alex Demeule about TBR’s family of ecosystem research. Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies large and small answer these questions with the research, data and analysis my guests bring to this conversation every week.

Once again, I’m your host Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us and see you next week.

TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms

Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.

“TBR Talks” is available on all major podcast platforms. Subscribe today!

TBR Talks: Decoding Strategies and Ecosystems of the Globe's Top Tech Firms

KPMG Global Analyst Day 2025: Evolving Complex Ecosystems to Solve Enterprise Transformation

Play Episode Pause Episode

Mute/Unmute Episode Rewind 10 Seconds 1x Fast Forward 10 seconds

00:00 / 26:18

Apple Podcasts Spotify

RSS Feed

Share

Link

Embed

Principal Analyst Bozhidar Hristov, Senior Analyst Catie Merrill and Analyst Alex Demeule join “TBR Talks” to share key takeaways top announcements from KPMG’s Global Analyst Day 2025, held in February at KPMG’s global training facility, Lakehouse.

The group also discusses strategies of the leading advisory firm as well as multipartner ecosystem management and co-investment across declared and committed partners, generative AI and data government as a key differentiator, and more.

Listen and learn with TBR Talks!

Submit your Key Intelligence Questions for Patrick and his guests

Connect with Patrick on LinkedIn

Connect with Boz on LinkedIn

Connect with Catie on LinkedIn

Connect with Alex on LinkedIn

Learn more about TBR at ⁠⁠⁠⁠⁠https://tbri.com/⁠⁠⁠⁠

TBR Talks is produced by Technology Business Research, Inc.

Edited by Haley Demers

Music by Burty Sounds via Pixabay

Art by Amanda Hamilton Sy

KPMG Global Analyst Day 2025: Evolving Complex Ecosystems to Solve Enterprise Transformation

TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms, where we talk business model disruption in the broad technology ecosystem, from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors and chip manufacturers to value added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors. I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about KPMG’s Global Analyst Day at Lakehouse with Boz Hristov, Principal Analyst for TBR’s Digital Transformation Practice, Catie Merrill, Senior Analyst for TBR’s Cloud and Software practice, and Alex Demeule, Analyst for TBR’s Cloud and Software practice.

Boz, Catie and Alex, thank you for coming back to the podcast. Season three, very exciting, and I think the first time we’ve done one with four people in the room that I can recall. So, you guys are breaking some new ground here. The four of us, plus our colleague Kelly Lesiczka, were all at KPMG Lakehouse recently for a global analyst summit, which was enormous fun. A couple days, had a really good time. Played little, little mini golf, which was good. Alex, congratulations, won by one stroke. One stroke over me, I’m not going to say how many strokes you had over Catie and Kelly, but anyway. 

What I thought we would do today is a little bit different. We’ve done sort of event perspectives, and we’re still going to publish an event perspective on this. I’m sure it’s out there already, but what I wanted to do was just capture some of the quotes that I heard and wrote down and get your reactions to them. So, these are, as you know, when I sit there at these events I to just write down verbatim what somebody said when it hits me as being pretty important. I’m not going to say who said this quote. I’m just going to read the quote, and then I’m going to ask you guys to all react to it. 

Many-to-many ecosystem relationships

This first one is about- one of the ecosystem leaders talked about the more than just 1-to-1 alliances, but the many-to-many relationships. And what he said was “we need to show up understanding how these many-to-many relationships work, not working them out ad hoc at clients.” Boz, I’ll make you go first. What do you make of that? 

Bozhidar Hristov, TBR Principal Analyst: I would say this resonates a lot with what first of all, we’ve been talking about for the last 18 months, 24 months now, and actually became very loud and clear in the last iteration of our Voice of the Partner report that we published last summer. So, I think it’s all about trust and preparation and investment in skilled resources, strength resources, knowledge management. You know, kind of thinking about that, the ecosystem is growing, and it’s growing in a different way, meaning that you are not just a two-dimensional partner with this- you still are. But you need to think about the implications of the IT architecture of the client. You have the infrastructure, you have the SaaS layer, you have the PaaS layer, you have the data layer. So, all of these are different vendors that you typically interact with on a one-on-one basis. But as clients consolidate their vendor rosters, as clients look to optimize their existing IT spend, they are also looking to optimize and consolidate their suppliers, right? So, for vendors, they need to be very sharp when they show to the client about who are they partnering best with across the IT stack, understanding the client’s IT architecture. So, the notion of like multi-party alliance is exactly that, demonstrating that trust in preparation with joint investments and really trying to get the most out of for the client essentially because clients already have at least three or more vendors that they are interacting with, you know, on the strategy side, on the implementation side, on the managed services side, and then plus a technology vendor or two. So often clients interact with at least, you know, half a dozen vendors. So, as an IT services provider, as a consultancy and trying to position itself as an orchestrator of that ecosystem, you need to make sure you know which vendors are on site and what’s your relationship with those vendors and how deep you can go with them before you even get to the client. 

Patrick: So, you’re coming at that from the consultancy, from the KPMG mindset. Catie, how did that resonate with you when you think about it from the software or cloud mindset. 

Catie Merrill, TBR Senior Analyst: Sure. So, I think, well to answer your question on the quote, I think it was a testament that KPMG recognized that the opportunity and the money is flowing through the ecosystem. And early on they mentioned building the firm of the future. And of course there’s a lot of moving pieces to that. But one of them that they really hit home was the alliance partners, the tech alliance partners, specifically those seven SaaS and PaaS vendors and maybe you have a different opinion, but I think from some of the peers. Maybe we haven’t seen that kind of emphasis, or at least to the same degree. So that was very compelling. And on the tri-party alliance structure, you know, a recognition that to Boz’s point, to be an orchestrator of the ISVs that may themselves not have the right partnership or go to market with each other. So, you know, KPMG’s role coming in and connecting that with, you know, the system of record in the back end, the actual platform that you’re building on and then the front office. So, all those pieces coming together using that to actually deliver a client outcome. 

Patrick: Yeah. And Alex, did you see it similarly? Your coverage is similar to Catie’s, how did that resonate with you? 

Alex Demeule, TBR Analyst: Yeah, I think very similarly. You know, the technology ecosystems that have been forming for years and are still forming today as we go into new, different emerging technology areas. Technology ecosystems do matter. There is differentiation there. Sometimes it’s the case where, you know, everyone’s working with everyone, but that’s not always the case. There are instances where there’s favoritism to a certain extent. There’s competitive pressures that lead to that favoritism. And we see integrations in technology ecosystems form sort of around these constraints. And so, as a services firm, understanding that landscape and understanding where that differentiation actually exists versus a more, you know, ubiquitous approach. It’s very important and it’s getting more important.

Patrick: Yeah. And I think for me, one of the things that jumped out was this idea of showing up at the client. And so that implies that you- the preparation that goes into it includes understanding that it’s not just like every other ecosystem, understanding that, you know, it is okay to pick those six or seven you’re going to work with, and then Boz, to your point, like it is about who shows up as the orchestrator who shows up as the one that can wrangle all those technology partners together.

Learning with alliance partners

All right. So, let’s go to another quote and we’re going to stick with alliance partners here. So, the quote was “our alliance partners are learning with us,” either leaning or learning, my notes are not always easy for me to read and it’s my own handwriting, I’ll say leaning “are leaning with us, and understanding solutions must be industry specific.” So, Catie, from your perspective, that is something we that the hyperscalers and the software vendors look to their services and their consultancies for. But is that industry specific where the whole ecosystem is going? 

Catie: I think to some extent, yes. I know years ago we covered the trend of industry cloud, and now that’s really morphed into industry AI and I can tell you just on the cloud buyer perspective, industry cloud was really kind of dismissed as like marketing hype. And they didn’t see a lot of value in a quote unquote out of the box industry cloud solution. So, I think in that sense, the value that, you know, a KPMG can provide from that industry perspective, that’s obviously important. I think, you know, it really depends on the vendor. If you look at like a Google Cloud, you know, leading with healthcare and some of their customizations around Vertex. And, you know, KPMG has a big investment in their Google Cloud practice going, versus some other vendors, AWS and maybe some others a little bit more horizontal led. So, I think it really depends on the vendor, but I think we definitely see that level of customization and nuance heading that way.

Patrick: Okay. And Alex, this I think was your first KPMG event, right? 

Alex: It was.

Patrick: It was, so for you is that industry emphasis by KPMG, does that sort of resonate with you when you think about-  

Alex: Oh yeah.

Patrick: Okay.

Alex: Yeah, absolutely. And like, as Catie just mentioned, with sort of this shift between industry cloud to industry AI, you know, I- because, like, she’s exactly right. You know, we hear around, like, we’re just sort of- it’s more marketing hype than anything else. You know now I’m trying to think about sort of reaction to like industry AI and maybe it’s too early to say whether or not it’ll have that sort of criticism. I feel like, my gut is that it won’t have that criticism because I feel like the power and the- just the data aspect and having domain specific data being in pre-training models on that data, to me it seems like it’s going to be something that is a differentiator and is something that is going to be adding value. I think that right now, maybe it’s too soon to tell, but there’s a lot of money going towards that direction, a lot vendors focusing on building those industry models. So, it’s something that there’s a lot of focus in. And I guess time will tell whether or not that focus ends up being more marketing hype or real differentiating value. 

Patrick: But if it’s going to be real differentiating value, a firm like KPMG, that is already having those industry discussions with their partners-

Alex: Absolutely

Patrick: has an advantage. Boz, this was not your first KPMG event-

Boz: No.

Patrick: not by a long shot. Your thoughts on that quote? 

Boz: I was just listening to what Catie and Alex were talking about and I’m just thinking about, to Alex’s point about those small language models, right. So, there’s definitely an opportunity. I think there has always been an opportunity for vendors to apply their industry knowledge to their clients, because clients live in the industry. Right. And having this industry specific data will be so important to drive a more targeted discussion and more outcomes-based discussions. And obviously it’s easier to talk to existing clients because they know you, they know the industry. But I think there’s the bulk shift, you know, in the cohort of the technology vendors to think about the industry through a different way, as they build the solutions, as they partner. Obviously, the consultancies like KPMG, bring that layer of specialization, and know it, but aligning from the get-go, from the development of a solution, small language model otherwise. I, you know, with the technology partner, thinking about the industry first, I think it would be so important because it could be- it’s going to be the on the partner-based platform. When you go to split the accelerator with the industry wrapper, or it’s going to be a specific custom model development with industry knowledge with the client data. So, having those industry conversations with the technology partners, I think will be really important from the beginning rather than just being a one blanket statement and say we have XYZ, you know, industry models. Right? You need to be very strategic about how you develop, how you sell it and how you manage it with clients. 

Patrick: And if I remember right, there were a few industry specific leaders there, healthcare in particular, at the event, but it would be curious to see a year from now when they do their next analyst summit are there, based on this discussion we’re having now about the importance of industry to their technology partners, will there be more KPMG industry leaders emphasizing the importance of industry, going forward? 

Being client zero

So, all right, two more quotes. This one, Alex I’ll start with you. The quote was “we are passionate about being client zero,” what we often call customer zero. But what do you make of that, passionate about being client zero?

Alex: I think that it’s like the exact stance to take right now. And I think that the big example we always talk about, GenAI, you know, what they’re doing to build in-house GenAI capabilities. You know, when we talk about Velocity and Clara, like stuff that’s core to their business, that’s just something that you can point to in the efficiencies that they can kind of get within their own operations. It’s really the approach that needs to be taken. And, you know, as we just talked about change management and I think maybe we’ll be talking about it more. As you’re setting up a strategy behind GenAI change management, if you’ve already gone through that process internally, you’re so much better prepared to go to the client and say, this is how we got our employees engaging with this internally built tool. This is how we did it. And being able to kind of have those best practices dialed from experience, I think makes a world of difference. 

Patrick: Yeah. And we’re going to get to change management in the second. But you mentioned Clara and I think I was shocked Boz when I told him after the event that the KPMG Clara, the audit platform demo breakout was my favorite. I really kind of- I dug what they were talking about when it comes to audit, which I have never, ever said in my life. So, Boz what’s your thought on the “passionate about being client zero?” 

Boz: Scale. I mean, KPMG, obviously they have a large client base. But the majority of their business comes from large enterprises, right? Obviously they have some mid-size clients as well. The different segments in different countries, jurisdictions, regions, yada yada. But I think because KPMG is a large firm, applying being customer zero, being passionate about it. It’s about understanding how you can apply a technology like that at scale, right? And translating that back to the clients. So, you know that the most important clients are mostly equal to your size. 

Patrick: Yeah. 

Boz: Talking about scale, you need to be able to have that application and be like more of a apples-to-apples comparison. So for me, being passionate about being customer zero is about scale, demonstrating scale, and ability to manage risk at scale. 

Patrick: Yeah, that’s fascinating. I hadn’t thought of it that way. All right. Catie, your thoughts on being passionate about client zero? 

Catie: Yeah. Just to follow in, you know, Boz and Alex, I think it’s more just a necessity, but I will say it’s very aligned too with the tech partners doing client zero and implementing their own tech and communicating, you know, value either quantitatively or qualitatively to the clients around GenAI. So, having the partners, it’s another way for the partners to align on delivering the GenAI value to the client. 

Patrick: Right. And for the tech partner, scale is everything. So that feeds right into what you’re saying Boz. And also, we’ve had so many conversations about when it comes to GenAI, how hard the leap is from a proof of concept to scale and for KPMG to be able to say, you know, we’re coming in with scale proven because we’re client zero.

Boz: Yeah.

Patrick: So that’s pretty fascinating. 

Change management

All right. The last one is in fact change management. And the quote is “the road to value is paved with human behavior and change.” I almost jumped out of my seat when she said this because- to just yell amen, amen, amen. Of course it is. And as we have said for a decade now, the technology is never the problem. The humans are the problem. And change management as you said earlier is really a critical part of this. So, Boz I’ll go back to you to start, “the road to value is paved with human behavior and change.” Obviously, you know what I think about that. How did that quote resonate with you?

Boz: Well, I think if you go back to the previous quotes about the passion of being customer zero, applying change management to itself I think it’s important. But, you know, and that’s another part of the lessons and how you can actually connect with the clients about change management, right. Change management is a core service offering for KPMG and most of the other consultancies that we track here at TBR. But I think we also heard very strong examples of use cases while on site at the event about how KPMG did the change management alongside their clients. So, I think it is probably the hardest of all services any IT services company can do. And not that the companies are incapable of doing it, it’s about how you measure the success of a change management program. 

Patrick: Right.

Boz: So that’s the biggest thing. And it’s a good problem to have because you can always come back and continue the change management. It’s like a digital transformation, change management is never ending essentially. So, it’s a good way to think about it. But it also starts with the recognition, that is to your point, it’s not the technology it’s the people that’s the problem. 

Patrick: Yeah.

Boz: I think we talked earlier in a different conversation about how with AI, just to continue on that technology, any technology, but the AI specifically right now, GenAI is presenting such a hesitation of all employees and almost feels like it’s sometimes enterprise employees may be sabotaging the adoption. And, you know, it’s hard, you know, because they may be seeing that as a threat to their existing, you know, positions. So, change management, it’s a prerequisite, but it’s also just kind of a necessary evil that has to happen. And without it, you know, no technology will survive, Right? 

Patrick: Yeah. So, Catie, KPMG said the road to value is paved with basically change management. Boz just described change management as a necessary evil. So, on the road to value, is there a necessary- how did it resonate with you? What did you think when you heard that?

Catie: Just when I heard that, I mean, we talked to enterprise cloud customers, and I have so many quotes where they’ve actually said like, change management is the hardest part. So, it’s definitely something that we’ve actually seen firsthand in our research. So that’s really the first thing that hit me. And I know there were a lot of customer stories at the event where they talked about where KPMG came in and actually implemented a change management group. Either, you know, after kind of that technology modernization and kind of before the data piece. So, you know, we have a lot of those examples, and just kind of going forward and looking for where AI plays into all this specifically agentic AI and kind of the different types of, you know, the collaborator agents that work with the human and are more context aware and kind of how that will play and more the creative problem solving aspect of it. So, yeah, those are- that’s my thought on that. 

Patrick: Excellent, excellent. All right. And Alex, what do you think when you hear than. 

Alex: Yeah, I mean I feel like I just have to reiterate what my colleagues have already said because I think they hit the nail on the head. You know, the customer breakout for CVS, the Sherwin Williams CFO, like this idea of legacy employees entrenched in old ways making it hard to progress with these transformational efforts. You know, it’s always a recurring theme. And those two didn’t even involve AI. So, it’s something that’s important with all IT projects. And I do think that with AI, it takes a step up in importance because of the magnitude of the change that it can have on an employee’s day-to-day life. If we continue to go down this path of where we think we’re going. So, it’s something that is going to be very hard, and that’s to be at the user level, and it’s going to be something that has to be tackled by a bunch of different ways. Whether that be at the technology layer. You know, I’ve talked about this with others about, you know, abstracting agents away. And so how are you managing orchestrating agents with as few prompts as possible? So, the end person, the human engaging with these agents, they’re interacting with the agents as little as possible. And that is sort of the technology side of it, teaching the user how to prompt accurately, precisely so that the tool can do what the employee wants it to do. It’s a new area that pretty much everybody’s coming at with a beginners mindset, you know, we’re prompt newbies at this point. Like maybe some of us have taken more courses than others. But, you know, across the economy, it is a beginner mindset when it comes to GenAI and interacting and using GenAI. And that has to be something that’s handled with training and technology consideration. 

Patrick: Yeah. And that gets really into the human behavior part of that quote. And I think one thing we heard about during one of the sessions was a transformation that had gone on where they intentionally didn’t use the word transformation. They actually came up with a name for the project. I think it was Leapfrog or something like that, where they talked about- so they didn’t have to use the word transformation, which fits right in with sort of the human behavior part. You want to do this change, but you don’t want to call it change management. You don’t want to call it digital transformation. You want to call it something else. 

Final thoughts

So, as always, when we do these wrap-ups from an event that we attend, we always have to talk about either the most fun part of it, the best part, in this case, about Lakehouse as a facility, or the best food. So, I’ll let you guys choose what you want to say, whether there was something that you really loved about Lakehouse., Boz, you’ve been a couple times now, Catie you’ve been a couple times, too, right? Or was this- this is the first time, too, all right. So, what you loved about Lakehouse, or what food you loved or just overall, what was the most fun part of the experience? Boz you’re the most experienced one, so you have to go first.

Boz: Well, unfortunately, I couldn’t spend the entire time there, so that was kind of like my personal kind of like, “oh, I should’ve” you know, “I could have. I should have,” you know, if I could, I mean, I’m sure I’d spend more time, but what I really enjoy out of, like obviously the facility is fantastic, you know, but I really like how, you know, KPMG, gives us a chance to browse around, you know, the gift shop and pick up some swag. So, I definitely appreciate that. You know-

Patrick: As you’re sitting here in your swag.

Boz: As I’m sitting here in one of my swags that I have picked up, you know, from KPMG. So, yeah. So definitely appreciative about that. 

Patrick: Nice. Catie, how about you. What was the best part, or the best whatever.

Catie: Yeah. The facility obviously. Great. I was very surprised. I mean, you guys told me how big it was before going in there, but I was very surprised at, you know, the magnitude of the facility and all the amenities. I enjoyed using the gym and playing golf with you guys. So, yeah, it was, all around a great experience.

Patrick: Playing golf, but it was mini golf, So it wasn’t-

Catie: But mini golf. 

Patrick: Gotta make it so- We don’t want anyone to mistake that we went to Lakehouse and played nine real holes. Alex?

Alex: For me was the networking with KPMG folk. You know, I like, this is my first KPMG Lakehouse Analyst Day and I’ve been on, you know, Teams calls with a lot of these folks but I’ve never met them in person. And so being able to meet them in person and, you know, get their takes on some of the same questions, I’m thinking of, that was really good. I felt like I walked away feeling like I made some good connections. And, I really enjoyed, you know, talking to them as people and learning about their personal lives a little bit, too. 

Patrick: Yeah. 

Alex: A lot of really good people over there. 

Patrick: Yeah, a lot of really good people. And I’ll say, because this is the podcast that I do all the time, I get to say three things that I loved. One, the one-on-ones, everybody showed up for those one-on-ones, like so tuned in to who we are, like what we care about. Obviously I met a number of them before, but they were, I mean, those one-on-ones were like, let’s go. There was no trying to extract any information. They were just coming right at us with, you know, this is what we think and asking those questions. So that was really good. Another thing I really liked was when one of the KPMG leaders told me that they had read Boz’s most recent piece about the legal acquisition they made. Which was great that they had read it. And then they were like, I don’t know why you even wrote that. It didn’t even matter anyway. So, it’s very dismissive of your piece which I thought was very funny. And then I loved the first night sitting around, having drinks, with it was to your point, Alex talking with Kevin, one of the people that was there, but just sitting around with the KPMG- it was so relaxed. And I also love the fact that I had the Barolo, and by the end of the night, pretty much everybody was having the Barolo. I think we drained all their bottles there of that particular wine. So, it was enormous fun. So, any other last words on the KPMG event before we wrap?

Boz: Looking forward to the next one.

Alex: Yeah. I can’t wait to go back.

Boz: Hopefully I can make it the entire time.

Alex: I love 80-degree heat in the winter. 

Patrick: Yeah, true. Leaving Massachusetts for, the warmth of Orlando was nice a couple of weeks ago, so, excellent. Boz. Catie. Alex, thank you very much. 

Alex: Thank you.

Patrick: Next week I’ll be speaking with TBR Senior Analyst Kelly Lesiczka about her takeaways from KPMG’s Global Analyst Day and all things Management Consulting. Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies large and small answer these questions with the research, data and analysis my guests bring to this conversation every week.

Once again, I’m your host Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us and see you next week.

TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms

Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.

“TBR Talks” is available on all major podcast platforms. Subscribe today!

TBR Talks: Decoding Strategies and Ecosystems of the Globe's Top Tech Firms

AI PC Hype vs. Reality: What 2025 Holds in Store for the PC Market

Play Episode Pause Episode

Mute/Unmute Episode Rewind 10 Seconds 1x Fast Forward 10 seconds

00:00 / 17 minutes

Apple Podcasts Spotify

RSS Feed

Share

Link

Embed

Research Analyst Alek Maxfield and Senior Analyst Ben Carbonneau of TBR’s hardware research practice share insights into the performance forecasts and emerging solutions of leading semiconductor providers and OEMs.

Additionally, the pair discuss their predictions for the hardware market in 2025, including the possibility that the much-discussed AI PC refresh will be overshadowed by other drivers of enterprise spend.

Listen and learn with TBR Talks!

Submit your Key Intelligence Questions for Patrick and his guests

Connect with Patrick on LinkedIn

Connect with Ben on LinkedIn

Connect with Alek on LinkedIn

Learn more about TBR at ⁠⁠⁠⁠⁠https://tbri.com/⁠⁠⁠⁠

TBR Talks is produced by Technology Business Research, Inc.

Edited by Haley Demers

Music by Burty Sounds via Pixabay

Art by Amanda Hamilton Sy

AI PC Hype vs. Reality: What 2025 Holds in Store for the PC Market

TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms, where we talk business model disruption in the broad technology ecosystem from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors and chip manufacturers to value added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors.

I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about 2025 predictions for AI PCs with Ben Carbonneau, Senior Analyst for TBR’s IT Infrastructure practice, and Alek Maxfield, Research Analyst for TBR’s Devices practice.

Analyst’s coverage

All right, Ben, Alek, gentlemen, thank you very much for coming in today. Being on this podcast, I thought we might start with an overview of your portfolios. I’ve done this podcast now, this is, I think season three. I know my portfolio TBR really well. I know the companies that my practice covers, but I’m not entirely sure I know the companies that you guys cover. I probably know them, but I don’t know which ones fall into which practice. So, if you could maybe just walk through, who do you cover? Alek, who do you cover, Ben? And then we’ll jump into some of the questions I have about your predictions for this space going forward. 

Ben Carbonneau, TBR Senior Analyst: Sure. I can lead off this question. So, our Devices and our IT infrastructure practices are kind of organized under one broader practice. I think of it more as a hardware practice, where my coverage is mostly IT infrastructure focused, covering companies like Dell Technologies, HPE, Lenovo, Super Micro, companies like those infrastructure providers of compute for the data center, storage and networking. And then Alek also covers jointly Dell and Lenovo from a device perspective as well as some other companies. So, Alek if you want to elaborate on that.

Alek Maxfield, TBR Research Analyst: Yeah, exactly. So, our overlap is that Dell and Lenovo where they’ve got the IT infrastructure side as well as the devices side, and then the ones where I’m sort of, acting as the primary author, would be Apple, as well as HP Inc. 

Patrick: Okay. Yeah. And so, that’s interesting that you’ve got that overlap because we have something similar in other practices where we look at SAP very closely from the services side, but of course we don’t cover SAP the way that the Software practice does. So, all in all, it’s, I think that my experience of being here in TBR longer than you two, certainly, is that we’re increasingly doing more sort of cross practice stuff, breaking down a lot of the silos.

AI PC nomenclature

So, I want to get into the predictions document that you released at the end of last year, looking into 2025 and a couple of things that jumped out at me. One was you stated pretty clearly that- and what we’re going to talk about primarily are AI PC. So artificial intelligence, do you, do you call it like artificial intelligence enabled PCs or embedded PCs, or what’s sort of the right way to think about it?

Alek: So, that’s something that has come up a lot over the last year since December 2023 when Intel put out their first sort of line up with the chips that were kind of creating this new AI PCusbsegment. So, AI PC is a little bit of a loose definition, I think, the loosest possible definition. And then you can specify within it, but the loose as possible definition is a PC with that neural processing unit. So that’s sort of that heterogenous processing aspect where there’s not just the CPU and the GPU, there’s an additional- the NPU specifically for those AI tasks. 

Patrick: Okay.

Alek: So, that’s kind of where the AI PC thing comes in. 

Ben: And I would only just add to that. I think you hit the nail on the head with the inclusion of the neural processing unit on those AI PC chips. So as PC silicon has evolved kind of first it was mostly CPU centric. But now at the heart of almost all PCs are what we call a system on a chip. And that integrates multiple different processing units onto one piece of silicon die and that would be a CPU, a GPU, and a NPU. So that is kind of what we’re thinking of at TBR, when we define AI PC, it’s something that features one of these AI PC SoCs. So, I think another important distinction to make is that AI workloads aren’t new, obviously, with the release of ChatGPT, you know, we hear AI more and more and marketing language. And I think, you know, a lot of the OEM is would like you to think that this is a brand new category, but really AI enabled workloads have been possible on PCs, leveraging GPUs, for gaming or professional visualization workloads from the likes of Nvidia for several, several years. And I think now a really good metric that I like to look at is, you know, while the NPU does enable some of these lighter workloads, and I think really the value proposition behind the NPU is energy efficiency. So, this handles things like video blurring and audio suppression, some of the heavier workloads like model fine tuning, those are going to be taking place on Nvidia GPUs. And a good, little number here is if you’re kind of a computer nerd like Alek and I, we follow TOPS, which is trillions of operations per second. And it’s an AI metric for performance. I think to be considered in Copilot+ PC, which a lot of these new AI pieces are. The NPU has to be able to do 40 TOPS performance alone. And that is in contrast to, I think Nvidia’s newest RTX GeForce 4090 GPU for PCs, which does 1321 TOPS. So it’s not really comparable in the sense of total workload performance, but really just kind of what the NPU is designed to do, which is handle those more pervasive background AI tasks.

Patrick: And in the broad scene of technology, it kind of makes sense that you would have, I mean, every single smaller piece of the PC or the tablet or the whatever, even the phone is always going to be a smaller amount of compute power than the mainframe, so that totally makes sense. But that is a huge difference between 40 and what’d you say 1300? 

Ben: 1300. Yeah. 

Expectation recalibration

Patrick: Yeah. So now that we know what we’re talking about with respect to AI PC’s and I like that the definition can be a little fuzzy. You stated though, in your predictions document, that the AI PC OEMs misjudged the market, thinking that new AI PCs would drive a refresh cycle. Do you think those OEMs have sort of fully recalibrated their expectations now? Do you think they see what you’re seeing, which is that slow ramp up to adoption that’s dependent on other ecosystems? Or are they still do you think they’re still betting on that hard charging refresh cycle? Where are we right now.

Alek: Yeah, I think they’ve definitely tempered their expectations over time because I think when we were first seeing AI PC kind of emerging as that new product category, the proliferation of the AI PC was sort of at the forefront of what was going to be driving the next refresh cycle. And they’re definitely still mentioning it, and they definitely see it as one of the factors. But I think right now it’s sort of the least of three important factors, which are, huge aging install base where those commercial PCs are going to have to be replaced regardless of anything else. The end of Windows 10 support, which is going to be- it’s currently set for October 2025. And then the last aspect is the kind of leaps that they’re making in the technology in AI PC and how they’re sort of creating experiences to drive adoption of the AI PC. So, it’s definitely still one of the factors, but I think it’s sort of been- they pulled back a little bit from it being THE factor.

Business model changes?

Patrick: So, it’s obsolescence and obsolescence are driving the first two. And then really it’s the new stuff is going to latch on to that. Yeah, that makes sense. And so, when I think about them having to recalibrate does that- how much- does it change their business model at all in terms of how they’re investing. Or is it sort of we were going to make those investments in bringing out this new technology anyway, investments both in the technology itself, but then also in like the go to market and the, you know, the sort of selling it. Has that changed at all or are they sort of continuing down that same path?

Alek: I think, that was something that was actually really interesting. I think I kind of get what you’re getting at where, I think Dell was one of the companies that was really interesting to look at last quarter because, just recently in January, they had sort of a refresh of their whole portfolio where it’s AI PC focused, but they were conspicuous silent on AI PCs in 3Q24. Where they were kind of, I think they were modifying their sort of go to market timing a little bit because they see the refresh cycle and AI PC adoption as being pushed forward. They were kind of trying to capitalize a little bit later, kind of seeing the writing on the wall in terms of that sort of cycle being pushed out.

Co-opetition

Patrick: All right, that makes sense. And that actually explains why in reading the predictions document, you highlighted not Dell, but actually HP and Lenovo more. And one of the questions I had on that was you talked about new offerings and you said these companies I’m going to quote here, “will continue to position these agents as complements to Microsoft’s Copilot+ rather than replacements. As they will shy away from both attempting to compete with Copilot+ and other cloud-based offerings, and from alienating Microsoft, a vital partner when it comes to AI.” So, when I read that, it strikes me as such a clear example of co-opetition vendors having to compete and cooperate at the same time. Microsoft has done that its entire life of Microsoft. That’s who they are, but HP and Lenovo may be not as well versed at or well-practiced at that co-opetition. So, are they going to be able to manage? Because doing that requires managing your alliances, your ecosystem, your go to market, all those challenges around how you position yourself in co-opetition. So, when you think about HP and Lenovo, are those companies ready for that kind of environment? Are they going to be able to succeed in that kind of environment? 

Alek: I think so. I think we kind of see it as sort of an extension of what they’ve done already with the Windows side of things, where we have the PC OEMs and they obviously have to work in tandem with Windows, where, for example, there will be things like Windows Defender, is the Windows proprietary security features.

Patrick: Right. 

Alek: And then, you know, the OEMs have their own security sets that sort of work alongside that. So, I think it’s going to be kind of an expansion of that.

Patrick: Right, that’s interesting. So, and that’s an area where they have been doing that forever and they’re not new to the game of doing cybersecurity, they’ve been for a long time embedding and enabling cybersecurity alongside Microsoft. But at the same time they’re competing with them. So, Dell in particular, I think of as having a really robust set of cybersecurity offerings. 

Alek: Yeah. Exactly. 

Advisory offerings

Patrick: Okay. All right. Yeah. That makes a ton of sense. So, you also mentioned in the predictions, I’m going to quote again, “OEMs will always focus on the development and delivery of advisory services that help organizations identify how they can maximize their ROI when purchasing AI PCs.” I have to admit, I read the whole thing. That’s the first thing that jumped out at me. I know this is the third question and the second time I’m quoting, but that word advisory for me just sets off alarms because maximizing ROI when buying AI PCs, that can mean so many things. It can mean business model changes, efficiency through organizational changes, things that consultancies typically do. It can also mean staying very much within the lanes of what is the value you’re going to get, or how can you optimize the value in this particular purchase or in this particular set of purchases? Some OEMs are very good at staying in that lane. Other OEMs, in my experience, have a tendency to want to wander into the business side of things and into the business consulting side of things. So, when you think about the companies you cover and this very much goes to both of you, do you anticipate the advisory side of their offerings expanding as they expand how much they’re selling AI PC’s, how much their portfolio expands? Does the advisory part expand with it? And I’m highly biased when I ask that question because I think it shouldn’t. I think the companies that do well are the ones that stay in their own lane. But if there’s the opportunity there and they would be leaving money on the table for a consultancy, maybe they’re not going to do that. So where do you come down on how this is going to all play out? 

Alek: I think really kind of your last point was sort of what my thinking was on it, where they don’t have any interest in leaving the money on the table in these situations. And also, there’s been this huge push, you know, over the past several quarters, and it’s just going to continue over the next, you know, several years where companies are really focused on increasing their services businesses. You know, just because hardware is a tough market.

Patrick: It is.

Alek: PC hardware is a really tough market. So, they’re definitely going to be trying to I think, increase their own services capabilities to sort of push- 

Patrick: Services is a tough market too, 

Alek: That’s true. That’s true. 

Patrick: It’s dependent so much on people and permission and hardware companies traditionally have gotten permission through the things that people actually- the physical things that you’re buying, and people has not been the top priority for hardware companies.

Ben: Sure. Yeah. So from my perspective, I see kind of more of that advisory piece as it relates to these AI deals and engagements more being kind of like, if I think of it and I’m the OEM, I think of it more in my cost of sales rather than something that I’m explicitly offering to gain revenue. I think it’s just a way- I think especially for PCs like Alek was alluding to, obviously a commoditized market. You know, PC OWMs are hoping that maybe it won’t be the case of the AI PC. I think it will continue to be a commoditized market. So, they need to offer these services to bolster their margins and whether they’re really gaining any extra revenue dollars from these advisory services, I think is less to the point. And more of the point is just kind of increasing the depth of the engagement with the customer to sell those things that they’re good at, which are like support services. 

Patrick: Right? 

Ben: You know, not those advisory pieces, but I think almost and I kind of tie it back to, you know, what HP and Lenovo are offering with HP Companion, and Lenovo AI Now, those two AI agents. It’s really kind of having these complementary adjacent offerings in their portfolio to be able to try to differentiate themselves from the other competitor. When really, you know, who knows? Do they really think these are going to be big consumption drivers? I don’t think that they’re going to be super differentiated like advisory services. Again, you know, these are hardware OEMs. They’re not skilled in the people business. Right.

Patrick: Right.

Ben: So, I think they understand that. But by having these offerings and being able to talk about them in a discussion, I think it just helps their sales motion with a deeper engagement, whether the services wind up getting delivered, or the AI agents wind up actually being used over Copilot. 

Patrick: Yeah. I’m glad you said that, because in the predictions document, you talk about how it’s going to be very hard to differentiate. And services might be an area where they can do that. And I read that and I was skeptical for two reasons. One, differentiation is almost always impossible. It really is sort of a holy grail and sometimes a holy grail that is too much effort and is wasted trying to reach it. But then I was skeptical that services could actually be where a hardware OEM could come and do that. But I think I see something here where they’re not doing it for the revenue so much as they’re doing for the retention. They want to hold on to those clients. They want people to get locked into buying their equipment, their stuff. And actually, that is something that services companies, that’s the most important metric of their own, you know, how they’re evaluating their own success is client retention. And so, if they can latch onto that as part of what their services do for them, then they actually will- the differentiation will come simply through the “we hold on to our clients.” It’s going to be an interesting space to watch. 

Changes from GenAI

So, I got to ask, you know, the sort of this time of year- all the questions around generative AI and thinking about what’s coming. And I’m curious, and this is a not an easy question, I understand, but put yourself in December of this year, December of 2025, what are you going to look back and say, this is the development that I expected to happen, and I’m glad it did, or this is what came out of nowhere and I’m surprised by it. Or this is the way that we’re talking about generative AI now that was different from where we were at the beginning of this year in January. Like, what’s the biggest change? I guess in a long way of saying and giving you time to think, what’s the biggest change that’s going to come because of generative AI in your particular space? Or maybe more broadly across the ecosystem?

Ben: Personally, for me you know, with respect to devices specifically, I think it’ll be changes in the adoption of some of these AI agents. So, I know that, for instance, Copilot+, one of the main features that Microsoft is touting is recall, and the ongoing joke kind of in the devices space is that recall keeps being recalled. So, I think it went out just a few months ago to some of the Windows Insiders. I think it’ll be interesting to see adoption of kind of some of these more almost seemingly invasive technologies like Microsoft Recall and how that will be received by the public. And then how that might drive adoption. I think another thing, with respect to AI PCs is we always hear that refresh, you know, that third factor, like Alek was saying, AI PCs being a driver of refresh is really dependent on killer apps being developed. 

Patrick: Yeah. 

Ben: So, you know, there’s a lot of investment going toward ISVs, whether that’s from some of the silicon vendors or from the PC OEMs and developing applications that leverage the NPU. But personally, it’s my take that I don’t think there will be any definitive killer applications for the AI PC. And I think this just ties back to that 40+ TOPS versus 1321 TOPS thing we’re talking about at the top.

Patrick: Right, right.

Ben: So, I think the NPU’s value is really in extending battery life as the chip can be more efficient for certain workloads than the GPU. But enabling a net new killer application, I personally don’t see that happening. 

Patrick: Okay.

Ben: So, in December, I’ll be eager to see if I’m eating my words, or if I was-

Patrick: It’s sometimes a harder prediction to make that something’s not going to happen. So. Yeah, Alek anything from you on this one?

Alek: Maybe not this December, but next December. I think something that is interesting to me is like, how much of the increasing AI PC adoption is going to be because people are going out of their way to buy AI PCs, because they want the AI PC specific features, or how much of it is just going to be the consequence of, “well, I need to refresh my PC anyway because I’ve had it for four years and all the PCs in this price bracket or whatever that I’m looking for, just have an NPU” regardless of whether you really want it or need it or not. And how much- because the whole thing is, you know, we’re going to have however many percent of the total PC shipments that go out are going to be AI PCs by this time. And it’s like, maybe this is something that you can’t really know, and they’re not really- the OEMs aren’t going to say this, but I think that there is sort of that dynamic that I’ll be watching where it’s, you know, how much is it really that they’re sort of driving this great interest in the AI PC and how much of it is a consequence of they’re just stuffing their portfolios with AI PCs?

Patrick: It’s just baked in. Right, right. Yeah. 

Energy considerations

How about one last question. Energy. You touched on briefly in the piece and then, you know, I’ve got an interest in it. Because there is that concern, that huge concern in our broader generative AI predictions piece, we talked about energy quite a bit and the concern that the demand for energy around generative AI. And with an AI PC, is it alleviated because you’re only at 40 TOPS. You’re not at 1300 TOPS? But I really honestly don’t know. So, what is the long-term play around energy with respect to AI PCs? Do they take more energy? Do they spin faster, therefore they require more. 

Ben: To me, I think, that runs in parallel with kind of what I see in the infrastructure market. If I just think of the PC as an edge device. I think, you know, what we’ve seen over the past several years, there’s more and more data being collected and processed by organizations, and more of more of that is happening at the edge. I think there’s always that, you know, go to the cloud or repatriate from the cloud. That’s always going to be, kind of a cyclical thing based on costs. But I think that as more AI processing happens at the edge, there’s definitely, a possibility that it does save that energy with less being sent up to the cloud, processed in the cloud, and being sent back to back to the core data center. 

Patrick: Right

Ben: So, less data transmissions and more AI processing at the edge, I think does have- you know, is possibly something that will conserve energy in the long run. 

Final thoughts

Patrick: Yeah. Well, I hope you’re right, because I think that’s one of my biggest concerns. So excellent. Gentlemen, this was so much fun. Really enjoyed it. And, we’ll have another chat if not in December- or if not before that, certainly in December. So we can find out whether we were right or wrong. Thank you guys.

Alek: Awesome. Thank you.

Patrick: Next week, I’ll be speaking with TBR Principal Analyst Boz Hristov and Senior Analyst Kelly Lesiczka about the potential labor pyramid collapse. Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies large and small answer these questions with the research, data, and analysis my guests bring to this conversation every week. 

TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms

Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.

“TBR Talks” is available on all major podcast platforms. Subscribe today!

TBR Talks: Decoding Strategies and Ecosystems of the Globe's Top Tech Firms

DOGE Disruption in Federal IT Services: Zero Financial Impact, Despite Uncertainty and Low Expectations

Play Episode Pause Episode

Mute/Unmute Episode Rewind 10 Seconds 1x Fast Forward 10 seconds

00:00 / 17 minutes

Apple Podcasts Spotify

RSS Feed

Share

Link

Embed

TBR’s Public Sector Senior Analyst John Caucis joins the podcast to share how the very real concerns have led to net-zero impact on federal systems integrators’ financial performance in the last fiscal quarter, with some leading services firms revising guidance upward. Are the fears going to be substantiated into the next fiscal quarter, or will demand for IT modernization within the U.S. federal government remain?

Public Sector Analyst James Wichert also joins Patrick this episode for a discussion on the realities of Department of Government Efficiency’s impact on vendors and the market.

Listen and learn with TBR Talks!

Submit your Key Intelligence Questions for Patrick and his guests

Connect with Patrick on LinkedIn

Connect with John on LinkedIn

Connect with James on LinkedIn

Learn more about TBR at ⁠⁠⁠⁠⁠https://tbri.com/⁠⁠⁠⁠

TBR Talks is produced by Technology Business Research, Inc.

Edited by Haley Demers

Music by Burty Sounds via Pixabay

Art by Amanda Hamilton Sy

DOGE Disruption in Federal IT Services: Zero Financial Impact, Despite Uncertainty and Low Expectations

TBR Talks Host Patrick Heffernan: Welcome to TBR Talks. Today we have a special bonus episode with John Caucis and James Wichert to talk about what’s happening in the federal space.

Upcoming and existing analysis

John Caucis, TBR Senior Analyst: Thanks Patrick, there’s a lot going on. As I’m sure everyone’s aware, there’s no shortage activity these days as the Trump administration and their Department of Government Efficiency has and continues to upend the market. Where we stand right now with our research in the federal IT market, we’ve published three special reports over the last several weeks, detailing first the sphere of companies that we track, systems integrators or FSIs as we call them, federal systems integrators, how we see them positioned to contend with the challenges stemming from DOGE, the Department of Government Efficiency, how we see them in terms of strengths and weaknesses, areas of opportunities. That was our first special report. We followed that up now with a series of reports that we’re- a series of blogs, I should say, that we’re going to refer to as the DOGE Impact Series, the first two of which, and they’re following the earnings cycle of the companies that we track in federal IT, the first two blogs, went to press recently. SAIC released their fourth quarter earnings a couple of weeks ago, and we put together our thoughts on the impact of DOGE on SAIC, which I’ll talk more about in a few minutes, as well as Accenture. Accenture Global released their earnings for, I believe, what’s essentially the first calendar quarter of 2025, their fiscal year is somewhat offset the calendar. So, we got some insight from them on how DOGE is affecting their federal business. So, you can expect to see additional blogs come out, you know, within a week or two of the company earnings. We already know when General Dynamics, for example, is going to be releasing their next earnings. CACI will be around the same week, this is in and around the week of the 21st of April. So that’s upcoming.

What have we seen so far

What we have seen thus far: zero impact. And our next federal benchmark will be out in about a week or so, covering the fourth calendar quarter of 2024. And there was for all intents and purposes, zero real impact on the companies aside from the uncertainty that has descended upon the market. We didn’t see any impact financially. None of the companies that we track, you know, they’re still on track, Booz Allen and CACI and none of the companies that reported their fourth quarter earnings dialed down any aspect of their earnings, growth or profit wise, as a result of expectations with respect to DOGE. In fact, Booz Allen, CACI, they elevated their guidance for their fiscal 25. Booz Allen’s fiscal 25 just ended on the 31st of March, CACI’s fiscal runs to June 30th. We haven’t heard although we will be keeping an eye, obviously, on their first quarter results to see if that changes. So, no impact in the fourth quarter aside from the election itself. And, you know, the qualitative uncertainty that has descended upon the market.

James Wichert, TBR Analyst: I think based on our last podcast discussion, all of my vendors had already shared their earnings. So, not too much to talk about on that front updates wise. But what I would say is interesting is now that the quarter is over, and I’ve been filling out reports and everything, it would seem like award activity slowed down in the first quarter compared to prior years. And, you know, maybe that’s part of the uncertainty with DOGE. I would certainly say the newsrooms for several companies have slowed down. They’re less willing to share information at this point. Like, John said, a lot of the tangible disruptions, like, you’re not going to see it in 4Q and we’ll certainly hear about it in this upcoming earnings cycle. I think the tangible disruptions to a lot of vendors, and they’re certainly undergoing chaos, but it won’t be as drastic as I think a lot of people are thinking. So, looking at all the contracts that have been canceled, Peraton’s had something like $20 million canceled just in the first quarter. It was all work with, I think it was the CDC. And then you dig into that, but it was like the total contract value of all their opportunities canceled. But then you dig into it and each of the contracts are already largely done. Most of the funds are already obligated. And then, you know, that’s a similar story with a lot of the other vendors I track, like, you know, the total contract value is like, you know, relatively high, you’ll see like $100 million for some of them. And then you dig into it, and a lot of these contracts are already, you know, the work’s been largely completed. You know, most of the funds are obligated. So, you’ll certainly see an impact.

And, you know, maybe some guidance’s, I know some people elevated their guidance in the last quarter. Maybe we see a little pullback on that just given all the uncertainty all around, but I think the tangible disruption for several of these vendors, it’s not going to be the -10% or something that the market’s expecting for this quarter.

John: But ICF, James, I believe is one of the companies that had dialed down its guidance.

James: Yes.

John: But did they or did they not cite DOGE as a reason for that or?

James: So, for ICF dialing down their guidance, a lot of that was at the time USAID was being heavily disrupted and they already had some substantial- like, ICF is one of the smaller vendors we cover, and so, they had like an over $100 million contract with USAID to do, I think it was demographic surveys, and that alone got caught up in that, they had additional work with USAID. So, it significantly messes with their estimates for the federal part of the business. There’s also the uncertainty of a large part of DOGEs disruptions have been in the federal health space, which is pretty much where a huge chunk of ICF’s federal business is. I think 25% of it in 2024 was HHS alone. So, for them, the worst case is 10%. Assuming, all their big fears come true. I think their best case they were saying was flat. And I think Maximus was in a similar spot. Not nearly as drastic, though. So, I think Maximus is forecasted maybe, and, you know, correct me if I’m wrong, I think it was plus 1% and then -3% overall. But the federal business wasn’t expected to drive it down at the time.

And, all right, this is certainly like a tricky situation. There’s a ton of uncertainty and everything’s changing from day to day. I mean, the big update I saw like a day or two ago was Musk maybe taking a step back from DOGE and, you know, his, like, special government employee status is set to expire around May or June. And, you know, they believe they’ll be able to reduce the US deficit by like $1 trillion in that time frame. And then now very recently he’s like, it was either last night or this morning, he’s saying like it’s not happening. It’s fake news. But it is an interesting situation, like what happens next if he does go away, what happens to DOGE. And you know, if the department does stick around, that Hulk Smash approach, it’s nearly over. It could really be an opportunity for consultants and FSIs to get in there and start working with them. There’s only so much they can probably hack away at from agencies’ budgets and, Patrick, I know you’ve talked about how government is services before, and if you cut government you cut services. So, when you cut government spending, you’re saying essentially that service isn’t worth it. And at this point, maybe the vendors have a chance, if he does step away and DOGE sticks around, and it’s changing its approach. It does have a way to pinpoint the remaining areas to trim down on spending, but the bigger opportunity would be how they can offer modernization services that enable operational efficiency. You know, especially it’s like tens of thousands of employees, if not like hundreds of thousands of federal workers are, you know, their jobs are cut. And HHS has already begun the process of slashing 10,000 jobs.

Patrick: Yeah. I’m glad you said the word uncertainty 4 or 5 times there. And that’s exactly where we’re at. John, any other last thoughts?

John: Well, James makes a good point with respect to what services are expendable, what services aren’t. I think that’s still up in the air. And he makes another good point that I want to dovetail on, which is the amount of modernization work that still needs to happen. Yes. Five years ago, the pandemic really put the spotlight on the need, the dire need in the civil space, in many cases for IT modernization. The DoD, the intelligence community, they’ve been much more- they’ve been ahead of the game in terms of modernizing, as you would expect. You know, we have nation state rivals that we need to stay ahead of, or at least on par with technologically. And so, they’re much more mature when it comes to cloud computing when it comes to AI, GenAI, agentic AI, quantum computing, etc. But even with the acceleration and modernization that the pandemic drove, it sped up what was already a snail’s pace in terms of the speed of modernization. It did speed that up somewhat, but not- there’s still so much work that needs to be done. I mean, it’s hard to gauge that.

Patrick: Right.

John: But, if you- one way of perhaps looking at this is if you look at the federal IT budget in the last year of the Trump administration 1.0, it was about $92 billion. In the last year of the Biden administration, it was roughly, I think, with the numbers that we’re seeing now, are between and $130 and $135 billion. The increase over that four-year period is roughly $85 billion. If you look at the increase in cloud spending, it’s not following the same trajectory. So, we’re trying to figure out, well, where did that $85 billion in additional spending go? Did it go to people? Did it go to technology. Did it go to software and hardware? And maybe that’s what DOGE has been looking at, you know, saying we had expected, you know, greater investment in technology, hardware, software. And we know that there has been some certainly, you know, certainly in the DoD and the intelligence community. But has there been enough investment there, or has it just been you investing in expanding IT staffs? We don’t know. That’s another area of uncertainty. But the bottom line is this, the volume of modernization work is still- there’s still a lot that needs to be, and there’s a lot of work to be done there.

Patrick: Right, that’s super helpful John because it’s sort of putting- there’s how the federal government has to actually continue to operate, you know, things that- you still gotta keep the lights on, you still gotta pay the bills. And then there’s the federal government actually does need to modernize a lot of its IT systems. And then to James’s point about, you know, flat or, you know, the worst-case scenario for a lot of these companies, that middle section that I just said, that modernization, that’s going to provide them with the opportunity even if there’s chaos and uncertainty in terms of everything else going on.

Final thoughts

So, gentlemen, thank you very much. We will do this again, I suspect, in the near future because change is constant at the moment and chaos rules. So, talk to you guys, probably in a couple of weeks.

John: Thank you.

James: Sounds good.

TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms

Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.

“TBR Talks” is available on all major podcast platforms. Subscribe today!