In recent articles we’ve covered the broad strategic pillars technology service providers need to consider, along with some immediate actions to begin the journey to Strategic Technology Partner. An abiding theme has been that incremental, cost-focused application of AI and automation to existing business processes is table stakes. Customers are already seeking this in their discussions with service providers, and in some cases ‘pricing in’ the cost reduction they believe should be endemic to the service provider industry, even when, in most cases, it isn’t.
Transformational change requires a strategic reboot that considers the immense upside AI and automation can bring to customer value. Customers, for their part, want to embrace the value AI can bring to their organisation, but generally can’t move beyond ideation and proof of concept into production. That’s because the underpinning capabilities provided by vendors, partners and in-house teams are not fit for purpose in the hyper-fast change environment AI demands.
Clayton Christensen’s seminal 1997 book, The Innovator’s Dilemma, explores the problems of innovating from within a scale organisation. While the need to keep growing top-line revenue and profit remains, the highly structured, risk-averse environments of well-established corporations effectively snuff out the forces of innovation, leaving truly transformative change in an industry or market to new, nimble players unbound by the status quo. It might seem obvious that a new capability or service brought to an existing customer base should yield immediate uptake and a shift in market position. But the cost and effort of educating the market, iterating the product and, most importantly, managing a controlled cannibalisation of existing revenue mean it almost never works. Startups and small players can move quickly and, instead of being kept out of a market by the incumbents’ moats, move the game on so those moats no longer matter: what they were protecting isn’t important any more. As they say, change happens slowly, then suddenly, and still catches everyone by surprise.
Service providers can, in theory, take a few different routes to transformation. A common approach is to acquire a business with the skills, capability and business models that match where customers are heading. The current issue with AI-driven services is that, while the technologies are transforming so quickly, organisations are standing on the sidelines waiting for things to ‘settle’ before placing their bets. That means there is very little production-grade traction to show an acquisition target has got it right; the acquired customers may have moved on by the time the deal is done. Then come all the issues that impede innovation in a large organisation, which can smother what the agile smaller business was doing once risk, compliance, financial reporting and cultural assimilation come into play. The combined growth rate of acquirer and acquired is lower than either enjoyed before the deal while the integration program unfolds over months and years.
Partnering can help deliver outcomes for customers by using a partner’s capabilities, offerings and skills to augment existing services where relevant. Partnerships suffer from misaligned strategies, because two organisations will have different outcomes in mind, and from an imbalanced view of value, where the incumbent seeks to levy a margin on the partner’s services without adding any real value. Either the partner takes a profit hit to offer a ‘wholesale’ price to the incumbent for billing consolidation, or the two organisations work harder to make their combined offering greater than the sum of its parts, with more upside for both. Smaller operators truly embracing AI and automation may be able to make the incumbent’s services redundant altogether, but they struggle to demonstrate the longevity, security and stability that end customers’ procurement criteria demand.
Internal innovation hubs shielded from the scale organisation’s vicissitudes are a risk-averse approach that tells the business all the ideas will come from the anointed innovation centre and everyone else should butt out. Ideas struggle to escape orbit when it’s time to productionise what was developed and tested, even with live customers, in a vacuum away from the realities of core operations. CEO-level sponsorship and directives can overcome the inertia, usually at a cost to productivity, profitability and business IP built up over years, as good people leave. Building an innovation culture into each department or function, and letting business unit leaders focus on and prioritise innovation with the support of the wider business, takes time and money but can be effective. The issue then becomes how to innovate across the entire customer journey, possibly making departments or functions obsolete as new ways of doing business take hold. A blend of centralised project and capital allocation under the CEO, with delegated responsibility for leaders across the business to seek out and implement change, appears to be the most effective – if most difficult – way to achieve a lasting outcome.
What will we see evolve over the coming years? We think the whole gamut of outcomes: promising startups that flame out as the game changes too quickly for money to be made; consultancies whose advice to incumbents withers before it can be put into practice; big investment by incumbents, some in the right areas but much in the wrong ones; and organisations that stare down the status quo from within, focused on a transformational goal tied not to a particular technology bet but to their enduring aspirational value to clients. To get there, some incumbents or startups may need to try each of the approaches above, often with a change of leadership, before landing on the right one.
In the end, we believe it will take a blend of all these approaches to deliver truly transformative change for an incumbent service provider moving towards Strategic Technology Partner. A future STP may combine acquired businesses, internal innovation and external partnering to take market share from the slower-moving organisations customers are leaving for partners that can truly deliver on their AI ambitions.
This article first appeared on LinkedIn on 1 April 2026.