Saurabh Gupta — President, HFS Research[00:21]
Welcome everyone. Welcome to today’s unfiltered conversation. We’ve got to discuss AI for sure, but we’re going to discuss how to fund AI in today’s conversation because we’ve been talking to so many enterprises and everybody wants to be AI first, but nobody has the funds to do it. We absolutely see very bold ambitions across industries, but at the same time, we are seeing CFO scrutiny, tighter capital discipline, and then a whole lot of legacy drag. Just running operations and keeping the lights on is taking away the actual transformation investment that you need to make to make AI actually happen. And we did a very interesting research in partnership with UST where we reached out to enterprises asking them their perspectives on self-funded transformation. And eight out of 10 enterprises are saying that they cannot wait for budget cycles to transform. And if they can make self-funded transformation a reality, that really is the way forward. And to talk more about that, I have the pioneer of self-funded transformation with me today, Kailash, who is the Chief Solutions Officer at UST. So welcome, Kailash, to the show. Thank you, Saurabh.
Kailash Attal — Chief Solutions Officer, UST[01:48]
I would say more than a pioneer. I’m probably piggybacking off a lot of things that you all do in your research and trying to see how we can adapt it. So thank you again for having me on this, you know, videocast, as well as joining hands with us to really validate some of the thinking as well as some of the questions our customers have been asking us. So I’m glad to see that we were able to do that research and where it ended up. But again, from a self-funded transformation standpoint, one thing what we realized is a lot of questions kept coming to us as how is this different than cost optimization or how is this different than staged modernization? Where we saw this self-funded transformation become a way to fund these things was in the traditional way, cost optimization started with just an intent that I want savings to myself. Whereas the staged transformation started with an intent that I need money when I want it and I’ll tell you how I will use it. But we needed to bridge that gap from offense and defense together because the market pressures, there is no time right now to go back to the customer from a value standpoint. So how do you do that together? And that’s when we said, why don’t we combine both of them? Why don’t we apply the technology which we will use to generate value for our customer, first apply it internally, free up that cash and use it to generate the value again. So it kind of that loop, you know, is what I call a self-funded transformation as an operating model, wherein we can take the savings out from the operation, but at the same time, from day one, we start to fund it. And customers are liking it because, as your research also pointed out, not many people are waiting for transformation to start before the savings get realized. They just want to do both of them together. And this seems to be a way to get that done.
Saurabh Gupta — President, HFS Research[03:45]
Yeah, so it really sounds very, very compelling, Kailash, in theory. But in real practice, and I know you’ve done it with several of your clients, how do clients think about this operationally and culturally? Because this is not your normal transformation, right? This is something different. And it sort of, as you rightly mentioned, it mixes both the run and transform parts of your business together. So how should clients think about this operationally?
Kailash Attal — Chief Solutions Officer, UST[04:20]
So I think this is where the client’s IT or technology executives can shine. This is where I think personally, because earlier for any transformation, even the transformation that you are recommending that the industry will go through as software, you know, services-as-software will require technology executives to change and bring that change quickly. So what we are seeing in our customer segment is they are now ready to start changing while they are running in the sense, you know, they’re ready at this point to be able to do both the things because, you know, Agile kind of brought that mindset in in software engineering. Now we are also seeing the Agile mindset coming into governance, coming into management practices. So they are getting ready there. But what they don’t know is somebody to show them the way that both the things can be done together by the same role or by the same person. So to me, it’s a full stack management of doing run and transform together. And that’s one thing we are seeing. Some executives, as you have seen in the research, too, are ready. But at the same time, they are saying, I cannot do it alone. It has to be a cross-functional initiative. So that is something we are saying, you know, this requires a strategic commitment at a higher level, at an executive level to say, one, I am not going to dip into your savings. Whatever you are saving, I’m not just going to take it out because in the old model, the savings just went back to the corporate or went back to kitty. Now, that’s one commitment. And the second commitment is I’ll make sure different parts of the organizations, including business, will work with you. So business will have a seat in this entire transformation journey, sort of in my mind. So that’s how the customers are looking. And the customers where we have worked with, we have seen not just the CIO, but even the CEO invested into it. Because to the degree that they are even having a quarterly touch point with us as UST, because they’re also invested because the transformation that they are on with the savings that we are generating is directly tied to the revenue generation activities. So there is a close alignment there. So to me, earlier, we used to say the providers becoming part of the IT organization as an extension. Now we think those lines are getting blurred from a business standpoint. So that’s a change.
Saurabh Gupta — President, HFS Research[06:43]
So essentially, it’s about you have to bring people together to make this happen. Both IT, business, your technology partner, and others to come together and make this happen. I think far too often, Kailash, and you’ll agree with me, is we work in silos. You know, here’s an IT function and here’s not even an IT function. Here’s an IT EMS function or an IT function. And I think those lines are completely blurring. But the question is, can we sort of go beyond our organizational silos and bring people together to make this happen?
Kailash Attal — Chief Solutions Officer, UST[07:24]
Yeah, interesting question and also very real question, Saurabh, because one of the case studies we had in the report was 1,200 people scattered around in seven different departments and each department having run its own CIO function. And then the savings in towers individually could be minuscule, but one plus one became 11 when everything came together. So they all, not only IT came together, but the business sponsor of that IT department from different lines of business also had to come together. And the link there was the CEO, right? The CEO mandating, this is what we need to do. So they all had to come together. And great thing happened was this whole AI as a catalyst. What this has done is because AI became such a quick adoption within the consumer community first, which ChatGPT, the businesses and the boardrooms were forced to think like that immediately. And that brought that urgency of IT executives and IT companies getting that seat in the boardrooms and saying, because, hey, we need this. So to me, this became a great catalyst, a big catalyst for this kind of change right now.
Saurabh Gupta — President, HFS Research[08:32]
Yeah, Kailash, I think, you know, at HFS, we are very passionate about this term services-as-software. And we’ve been talking about this for more than a year now. But I think while everybody appreciates and understands the power of something like services-as-software, where, you know, we delink services from headcount and drive more IP and productized solutions. I think the reality is that over 90% of enterprises are still not AI ready. They’re still struggling and there’s still what I call death by a thousand POCs. That’s happening in a lot of organizations. Do you think a self-funded transformation model is perhaps one of the answers to enable that shift where enterprise can realistically get into services-as-software without freeing up a lot of capital internally? Because that’s really hard to do.
Kailash Attal — Chief Solutions Officer, UST[09:31]
I completely agree with you. And in fact, Saurabh, that’s what we are seeing, that how in a couple of our customers’ cases that self-funded transformation has really not only expedited, but also has set up the platform for services-as-software initiatives. Because I love the concept on services-as-software, where you are making sure of that paradigm shift from having standardized approach to every problem than having a sovereign approach to a particular customer. And that requires, you know, it’s like a pendulum shift. It’s not a custom application development per se, but it’s more like, you know, each business service in an environment codified as a software or codified through new technology. And for that, you need certain investments to be done. And here you have a self-funded transformation as an enabler to do that by optimizing the cost with this new lever within your OPEX right away. And then you can work with someone like us who can kind of get you on that journey from day one because the savings may show a month out, a year out or two years out, but company like us, we can get you started on day one rather than doing proof of concept. Why don’t we just take one of the business process? Maybe it is claim adjudication, claim processing, whatever it is, and see if we can convert that into an intelligent application by itself, right? So we are seeing some of that already happen. And sort of for services-as-software, I think self-funded transformation is not just the enabler, but I think it may be a must. And believe it or not, in the report, what we found is many organizations have been doing self-funded transformation in some shape or form. They have probably not thought of it as a structured approach, but they have always looked at it. Hey, I want to do something new. I don’t have budget. Can I optimize my own resource and do it? Right. So they have been doing in some degree, but here is a method and a process because services-as-software will require a certain level of, you know, discipline, process, framework and some long term thinking. And I think self-funded transformation provides that roadmap or runway, I would say.
Saurabh Gupta — President, HFS Research[11:42]
And Kailash, I think every credible service provider today is talking about more outcome-driven approaches, more risk sharing. But what makes UST special? You know, what differentiates UST versus the others in terms of going to market with a self-funded transformation model?
Kailash Attal — Chief Solutions Officer, UST[12:05]
So, Saurabh, you know, right, we both have seen this industry for the last 25 years. One thing has always been constant is outcome-based model. Every time we talked about, you know, everyone says there was a managed services, managed outcome, managed function, and so we had, in at the end of the day, still some part of the pricing and all that is still tied to resources. But from a, so everybody’s doing it in some shape and form. One thing I believed in was the outcome-based models are not just service providers being ready or being willing to do it, it’s the acceptability of the customers themselves. Are they ready to accept and consume in that model? And that is where UST differentiates itself, because we don’t see many people spending their time in educating customers and adopting to that model in my mind. And I have seen this industry for last 30 years. What I have seen is we’ll go and say this is what you need to consume, but many a time operationally we will tell them how to consume, technically we will tell them how to consume, but at a governance level, from an OCM level, how to consume, that the tickets will be managed this way, you know, or the project will be managed that way, that investment UST makes. Because we work with select clients more attention, we are able to do that and invest that time in educating the customers to realize the benefits and adopt this model and also realize. So that’s one way we differentiate. The second is traditional service providers always showed the map for savings, they never put savings on day one on the table in terms of hard cash. UST is able to do that in a certain, you know, a certain sort of engagement, not all the time. I would be very direct with you, it’s not a standard operating procedure, but in many times where we have relationship with the customer that, hey, can we get you started on this journey quickly with certain way of, you know, working together, that’s where UST has shown that we can put skin in the game, not on our performance but on the transformation itself. The third thing is we have seen a lot of these transformation projects start well but they don’t end well, because while we are able to take accountability for the run operation, because we know, because in known unknowns are there, no knowns are much, but in transformation unknown unknowns are many. But there also, UST is willing to take that risk and say, we will sign up for, you know, pay for performance model, risk driven. That’s where customers have told us that we have been a little bit different in that context. So one, educating customer on how to consume through this model and increase ROI. And number two, being able to get them on this journey started with funds and all that from day one. And then the third one being is even being accountable. Because once you put money at the front end, accountability is already there because it’s already been invested from a company like ours. So that’s where we see that customers are more resonating with what we are saying as a self-funded transformation. So to me, it’s not savings roadmap. To me, it is savings available to you to start your work on day one.
Saurabh Gupta — President, HFS Research[15:14]
That’s fantastic, Kailash. I think in the market today, the why AI is very clear. Nobody is disputing that you need to adopt because that’s how you’ll get to the new value equation. The what in terms of the solutions are also fairly clear and they’re improving at a ridiculous pace right now. Look at what Anthropic just announced with Claude Code and even mainframe modernization with COBOL modernization. So the solutions are coming in thick and fast. I think it’s the how to do it is the question. And I think your approach of self-funded transformation is a very innovative approach. As you rightly mentioned, there have been flavors of self-funded transformation that have been buried into our industry for long. But the method to the madness and the structured approach that you’re bringing in is fantastic. But before I let you go, Kailash, let me ask you this. There’s a lot happening right now. But if I were to give you, if I were to grant you one wish that could come true, you know, what would be your one wish for 2026 that your wish will come true? I did computer science engineering about 32 years ago and AI was my elective.
Kailash Attal — Chief Solutions Officer, UST[16:31]
And that time I even coded in Prolog and Lisp at that time. So one wish I would definitely would want to come true is take one of the business use case and have AI generate some sort of a SaaS platform for me. And I think that that may be there. And I’m tinkering with it as well myself. But that would be one wish. Not because it’s good or bad for the industry. But just for because is, to me, technology is good thing. Innovation in technology is always a good thing. I’m an optimistic person that way. But for me, it is good because for long, customers have been kind of put into that one size fits all. But that’s not the case. One size will never fit all. Humans have a tendency. We all have our own unique, you know, we are snowflakes kind of unique footprint and the businesses are the same way. So I think this new capability in AI, the new models that you talk about, services-as-software, and the things that we’re looking at, I think if that could make at least one or two use cases come alive in a Fortune 500 enterprise, you know, global 2000 landscape, that would be my wish, you know.
Saurabh Gupta — President, HFS Research[17:42]
I would like that to come. That is fantastic, Kailash, because frankly, the one size fits all approach that software providers have had in the industry is one of the primary reasons why we are seeing the SaaS apocalypse happen. You know, the market cap of not just IT service providers, but SaaS providers have dipped tremendously because there is this inherent frustration of why should I as a customer adapt to your workflow? Why shouldn’t your workflow adapt to my ways of working? So I do hope your wish comes true. I think the technology will be there. But I do think you customers will need some vehicle like the self-funded transformation to make that happen. But Kailash, always a pleasure speaking to you. I learned so much by just having this conversation. Thank you so much for taking out the time and sharing some of your perspectives and experiences with us.
Kailash Attal — Chief Solutions Officer, UST[18:40]
No, thank you, Saurabh. And again, like I said, you and your team have done tremendous work on this research. So thank you for doing that. And we learned together. And I learned from everything that you do and the company HFS does. So we are very glad to be partnered in this. And also trying to do, like at UST, we say we transform lives leveraging technology. So here we are all together talking about how we can be transforming billions of lives through this new wave of technology. So thanks for the opportunity. Appreciate it.
