AI and outsourcing: What’s the future? (Part one)

In this first part of a two-part article, we look at some of the current and future trends and implications of artificial intelligence (AI) for outsourcing, based on our experience as specialist technology and outsourcing lawyers.

We’re predicting here how AI will impact “traditional” forms of IT outsourcing (ITO) and the management and transformation of business processes through outsourcing (for these purposes, business process outsourcing, or BPO), but not (at least for now) the growing market for the outsourcing of AI development, implementation and deployment – or “AI as a service”.

Along the lines of the doomsters’ confident predictions that AI will destroy humanity as we know it, or at least turn us all into paperclips – and pretty soon – there are those in the outsourcing industry making confident predictions. To call out just some:

• AI will upend outsourcing as we know it, in particular BPO.
• It spells the end of offshore and onshore labour-centric outsourcing and staff augmentation.
• AI-driven chatbots will replace most call centres.
• AI will, in fact, be substituted for all human inputs into outsourced processes.

There’s a superficial, unnuanced, logic to all of this, but is it right? The short – and honest – answer must be that we simply don’t know. Any more than we know how long it might take before we start seeing those big claims for AI materialising (or not).

AI has, in its various forms, been around for a while, for example, in process and software automation. It’s embedded in legacy systems that may not even be badged as AI – a risk waiting to turn into a legal nightmare, but that’s for another time. Remember that robotic process automation (RPA) was supposed to transform BPO. But did it? OK, those legacy AI systems and embedded tools and RPA look to be quite different from the current batch of generative and “frontier AI” systems, which seem to offer vast potential.

Predictably, as we’ve seen since the start of tech hype cycles, there’s much noise about “new-generation AI”, either from the doomsters (see above) or the hypesters. But what’s really happening out there, and what’s likely to happen?

Based on what we’re seeing, this is our main prediction on timelines, and a few other things.

Until AI and its outputs can be trusted (if only to deliver its technological, operational and commercial promise, without too many hallucinations or rogue outcomes) and be shown to comply with corporate ethics, and laws and regulations like the EU’s AI Act – as well as a host of other “shadow AI laws” – it won’t have the dramatic effects either the doomsters or the hypesters are claiming.

By “shadow AI laws” we mean current laws around the world that are quite capable of applying to AI systems, processes, inputs and outputs, but that haven’t yet been tested in the courts. With mounting civil rights and other pressures – for example, from trade unions and works councils – we expect to see many more cases brought to test AI against existing laws and regulations.

So, there is an elevated level of unpredictability and potentially significant risk about the interaction of new-generation AI with shadow AI laws. AI compliance – and the growing need to assure it – will be essential, especially in highly regulated sectors like healthcare, financial services and critical national infrastructure.

We can expect that, even if they don’t follow the EU’s AI Act, other countries will adopt new AI laws and regulations, which will of course affect speed to market and adoption rates and levels, along with the impact on the outsourcing market.

How far can we expect AI to transform outsourcing as we know it? AI has been and continues to be developed and deployed by several leading outsource service providers as an integral part of their solutions and services, though currently in specific applications like analytics, chatbots and language translators, and in back-end data analytics.

Savvy service providers are beginning to position their services as AI-enabled. But there is no reason to assume that AI’s main impact will be limited to the BPO service stack. In ITO, we expect to see specific application to infrastructure management and support, application data management, systems testing, as well as in enhancing network and IT systems cyber security and resilience. And of course, we should expect to see AI fully integrated in a wide range of business processes and operations, providing true process automation.

We predict that there will be new roles for human agents within outsourcing services, some of which will be much higher up the value chain than at present, as there is an increased demand for those with expertise in developing, implementing, integrating (including re-engineering legacy systems and applications) and deploying AI. Not to mention those needed for auditing and remediating AI systems, processes, data inputs (think of all those data lakes that need filling and cleaning), and data outputs and decision-making.

We can assume that AI will still “hallucinate” – or whatever it’s called then – and that, invariably it will continue to get things wrong through biased data inputs or defective algorithms, systems and processes. So, humans will, no doubt, still have valuable roles to play in sorting things out.

In time, AI may likely lead to material staff attrition at certain levels, but this is most probably a way off. And there are likely to be new actors and roles in the outsourcing markets, too – for example, in AI systems testing, assurance and certification.

We have only just started to see the impact of AI compute on the environment, let alone being able to quantify it. But we can expect greater regulatory scrutiny, reporting and regulation, and with them, new requirements and markets for environmental compliance, testing, certification, monitoring and reporting services.

If you are unsure on our predictions, why don’t you ask an AI chatbot. There are plenty on the market!

• Also read part two, where we explore what the integration of AI in ITO and BPO will
mean for customers and providers in outsourcing relationships and contracts •

Simon Bollans is partner and head of Stephenson Harwood’s technology and outsourcing practices. He focuses on IT transactions, outsourcing and emerging technologies. He has significant experience advising on complex IT and managed services arrangements, BPO/IT outsourcing, and systems integration and digital transformation projects. Simon also advises on new disruptive technologies, including AI and machine learning.

Mark Lewis is a senior consultant in Stephenson Harwood’s technology and outsourcing practices. For over 35 years, he has specialised in transactions for, and advice on, the acquisition and use of IT and business process products, systems and services, including all forms of outsourcing and cloud computing transactions. He is a visiting professor in practice in the London School of Economics Law School, where he lectures on AI and machine learning, cloud computing and cyber security.