UST CEO Krishna Sudheendra predicts a major transition in the IT services sector from hourly billing to outcome-based contracts driven by artificial intelligence. This shift requires IT firms to take on more project risk while delivering guaranteed results, changing how large-scale technology deals are structured and valued.
The IT services landscape is undergoing a transformation as artificial intelligence redefines the traditional business model, according to Krishna Sudheendra, CEO of UST. Sudheendra compares the current influence of AI to the early days of the internet, noting that the technology is drastically lowering the cost of cognitive tasks. For the industry, this means the long-standing practice of charging clients based on time and materials is facing significant pressure.
Moving Toward Guaranteed Outcomes
Under the traditional IT outsourcing model, providers typically billed clients for the time and resources used to complete a project. Sudheendra notes that the future is shifting toward outcome-based contracts. In this new arrangement, the service provider takes on more financial risk by guaranteeing specific business results rather than just providing hours of labor. This evolution is already in progress, with UST recently implementing an AI-first member enrollment system for a large U.S. insurance provider that supports 60 million members.
This transition comes at a time when technology spending is under scrutiny. While corporate boards are pushing for clear AI strategies, many Chief Financial Officers remain cautious. Factors such as elevated technology spending during the pandemic, persistent inflation, and geopolitical instability have led to a more conservative environment. To bridge this gap, companies like UST are increasingly funding initial proof-of-concept projects entirely, ensuring they can demonstrate tangible value before a formal contract is secured.
Adapting Business Models and Talent
The change is also impacting the structure of large-scale technology deals. While the industry previously relied on massive outsourcing contracts ranging from $50 million to $200 million, the current trend favors smaller, more targeted projects in the $30 million to $50 million range. While the individual deal sizes may be smaller, the company reports an increase in deal velocity and customer trust, moving toward a concept described as service-as-software.
To support this shift, UST is retooling its workforce, having trained 25,000 employees in generative AI tools. The firm is also recalibrating its career structures to prioritize domain expertise and AI governance. With support from long-term investors like Temasek, the company has chosen to focus on its evolution into an AI-native firm, opting to defer its initial public offering plans for now. The recent spin-off of its Healthproof platform has also provided the firm with additional capital to support its ongoing research and AI-focused service lines. Investors tracking the sector should monitor how these outcome-based models impact profit margins, as taking on project risk can lead to different financial outcomes compared to traditional billing methods.