Survey Reveals Enterprises Turn to Managed Service Providers for AI Initiatives

Global enterprises favor provider partners for expertise in generative AI

A recent survey conducted by Information Services Group (ISG) III shows that two-thirds of enterprises are leveraging managed service providers (MSPs) to enhance their generative AI (GenAI) projects.

According to the ISG Market Lens™ GenAI Use Case Study, 65% of the surveyed enterprises are partnering with MSPs for their GenAI initiatives, while 35% prefer to develop these capabilities internally.

The primary reasons for utilizing MSPs include gaining necessary expertise and addressing limitations in internal capabilities. Additionally, companies aim to speed up project delivery, emphasizing the importance of fast-tracking initiatives.

Most service providers are offering traditional managed services, like application maintenance and infrastructure, alongside specialized GenAI services, including data preparation and governance.

“Organizations are applying the concept of the ‘engineer’s triangle,’ balancing expertise, cost, and capacity when selecting an MSP for GenAI projects,” explained Alex Bakker, a distinguished analyst at ISG and co-author of the report. “Unlike typical outsourcing, where expertise is transferred one way, GenAI partnerships allow enterprises to gain skills while also building their own capabilities.”

On the other hand, businesses developing GenAI in-house claim to have specialized knowledge, which helps them create AI solutions tailored to their distinct needs.

An ISG Market Lens AI Study from January 2024 highlighted that many companies view innovation as a key strength. The current findings echo this sentiment, revealing that those who abstain from MSPs rely on their internal expertise to establish GenAI resources. Interestingly, only a small number of organizations mentioned cost factors or concerns about data privacy and security as reasons for their choices.

Despite advancements, 45% of enterprises reported that the lack of specialized AI skills remains a significant challenge, making it difficult to fully capitalize on GenAI.

“The skills gap continues to drive the demand for external support from managed service providers,” stated Michael Dornan, principal analyst and co-author of the study. “Many companies wish they had embraced GenAI sooner, as they could have learned from earlier successes and setbacks.”

The study anticipates a 50% increase in enterprise spending on GenAI initiatives by 2025, as companies hope for improved returns on investment (ROI) from this technology in the coming year.

“Organizations are eager to see increases in productivity and efficiency via GenAI. However, with average spending of $2.6 million per GenAI use case, more extensive projects will be necessary to achieve these objectives,” Bakker noted. “We expect that the growth in GenAI and the ongoing talent shortages will continue to boost MSP contract activity.”

The ISG study surveyed 201 executives from G2000 companies across the Americas and Europe, focusing on those responsible for significant GenAI use cases, in August 2024.

ISG Market Lens™ combines insights from senior executive surveys with expert ISG research on market trends and strategic business initiatives. Recent studies have focused on areas like mainframes, AI, cloud, application development, and cybersecurity.

For more details on ISG Market Lens research, contact ISG.

About ISG

ISG (Information Services Group) III is a prominent global technology research and advisory firm. Partnering with over 900 clients, including more than 75 of the Fortune 100, ISG is dedicated to aiding corporations and public sector organizations in gaining operational excellence and sustainable growth. The firm specializes in digital transformation services such as AI, cloud, and analytics; sourcing advisory; managed governance; strategy and operations; and risk management. Established in 2006 and headquartered in Stamford, Connecticut, ISG has a workforce of over 1,600 experts operating in over 20 countries, known for their innovative approaches and deep expertise in the industry. For more information, visit www.isg-one.com.

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