Why 2025 Will Be The Year Of The Intelligent Engineering Center
For the past 30 years, the IT services industry has relied heavily on a value proposition of labor arbitrage — offering lower cost software engineering services from offshore and nearshore locations. The advent of AI will radically disrupt this value proposition.
The offshore development center has historically been the embodiment of this core proposition. It’s been based on three key sources of value: The ability to scale up capacity of software engineering talent, reduce total cost of delivery of IT projects and products, and bring competence in designing and maintaining software platforms.
AI is already challenging all three. The core value proposition of lower-cost talent will not disappear, but in the future while capacity, cost and competence for software development may be needed, it will not be sufficient in order to stay relevant. This is even more true because with the emergence of GenAI, we are in the midst of three macrotrends impacting the tech industry.
I foresee the advent of a new “intelligent engineering center” that will best enable companies in the tech industry to address them.
A shift from talent as capacity to capability
My company’s proprietary research across 3,000 software engineers throughout multiple countries, industries and programming environments surfaced one — not surprising — fact. GenAI tools such as CodeWhisperer and MS Copilot can significantly improve the productivity of software engineers.
What is more striking is the productivity differential between senior and junior software engineers, with the productivity gains for senior software engineers nearly 2x that of junior engineers.
As fewer software engineers, along with fewer junior engineers, are needed to perform the same amount of work, the focus will shift from providing capacity to delivering distinctive capability. Enterprises will need to make a strategic shift to build IP and competencies that are much more central to the business of the enterprise.
The shift has already begun. A number of enterprises are rapidly shifting their legacy approaches to building offshore development centers. In several cases, these centers are being run by chief product officers or chief technology officers with the mandate to build out their proprietary competence in these centers.
A shift from cost arbitrage to productivity
Cost arbitrage is a one-time value capture. The only way to drive increased value is through continuously improving productivity. Our research shows that AI applied to software development life cycles can radically improve productivity beyond cost by eliminating sources of waste that are often encountered in developing software.
Perhaps the largest source of waste is in constantly changing or unclear requirements that result in wasted coding activities or downtime for software programmers waiting for requirements. Co-pilots can streamline the capture and grooming of requirements into epics, stories and release specifications. GenAI could also be used to identify not only the root causes, but also the opportunities for deploying automation and AI-based solutions to drive continuous productivity improvement.
With intelligent engineering centers, these data-driven findings can offer a value proposition beyond one-time cost arbitrage.
A shift from automation solutions to autonomous solutions
The traditional software platform is essentially an automation solution for business workflows built on a two-layer wedding cake principle, with software being a set of business rules to capture, store and create data. AI brings a third layer which can modify the business rules in the software and the data stored in the database.
That is why, recently, Microsoft CEO Satya Nadella indicated on a podcast that he thinks the SaaS era is waning. In reality, SaaS isn’t dead, but rather completely reimagined thanks to the dawn of agentic AI architectures. This not only impacts the talent that needs to be built, but also the governance, methods and tools that need to be made available.
With these shifts, the status quo in the industry is destined for a gradual and eventual demise, and will give rise to the intelligent engineering center.
The intelligent engineering center raises the bar on each of these areas, with a focus on talent that prioritizes expertise in specific areas away from commoditized skills, data-driven tracking and monitoring of software productivity for continuous improvement, and competencies that adapt to the new reality of AI.
Ranjit Tinaikar is CEO and board member at Ness Digital Engineering. With more than 30 years of experience in the technology services sector, he has built a distinguished career driving growth and innovation across global businesses.
Illustration: Dom Guzman
