The 6 Unexpected Challenges Facing the Service Industry in 2023

Arvind Mehrotra
8 min readJul 17


Over the last few quarters, the tech landscape has seen multiple layoffs, valuation challenges, and a general contraction in the tech economy.

On the one hand, the highs of tech service demand during the pandemic are beginning to cool down, and companies may have over-hired and scaled without adequate preparation. On the other hand, a new kind of demand is emerging, where tech clients are more conscious of ROI than ever before. What are the challenges that will stem from this shift? Here are the top six:

1. Too much emphasis on standardised services and insufficient focus on R&D & Innovation, move to Servitization at least.

Many service providers make the mistake of focusing on quantity rather than quality, spreading themselves thin across massive, high-volume resourcing projects that do not require specialised skills or IP. Now, with advancements in automation and AI, many of these tasks are being taken over by machines. As a result, companies may lose out on a big chunk of revenues from these low-end services.

Hand in hand with this trend, tech service providers will also face flak for not investing enough in research and development. India, for instance, is an IT service giant, but its export of proprietary and innovative software remains low. Even in the service industry, R&D is essential to stay competitive and provide client experiences that stand out globally. Servitization or creating a Product mindset for service companies can go a long way in differentiating.

It’s easy to see how manufacturers and end consumers benefit from PaaS, but what does it mean for service organisations? Hopefully, everyone is familiar with the term “non-value-added processes”. However, we’ve all experienced pervasive, time-consuming, repetitive, yet critical tasks. Such tasks you and your team dread but can’t avoid. It is about finding innovative ways to automate those tasks, freeing up work time and raising employee morale, thereby boosting retention. When you sign long-term contracts, your company might be unable to afford such expensive ways (such as raising pay). We expect Servisation or PaaS to change field service management radically: IoT will become more important than ever. Real-time data is more valuable, with IoT-enabled devices acting as the primary source for usage data with 5G rollouts. Field service departments and technicians will become revenue generators rather than cost centres. Customer service and support will become even more robust, with organisations investing in mobile solutions and experimental technology to optimise their first-time fix rate and increase customer satisfaction scores.

2. Talent retention and behavioural skill gaps, build skill inventory requirements matrix.

Even with mass layoffs and unemployment in the tech industry, it doesn’t remain easy to retain talented and experienced professionals. It is exacerbating due to the skill gap caused by the divide between formal education and the needs of the industry. When employees rise through the ranks, acquire relevant skills over the years, and become thought pioneers in their own right, companies struggle to retain these highly coveted professionals.

The service industry has to undergo a cultural change to prioritise talent and reward genuinely value-adding outcomes. For example, flexibility in the workplace, more opportunities for client interactions, behavioural skills development and essentials like childcare may provide employees with a meaningful and engaging work experience.

The challenge for employees and companies is identifying skill gaps and measuring the same compared to the industry levels. LinkedIn Skills Graph represents a meaningful, globally relevant skill identification and mapping step forward. These platforms are useful because they collect base data using a skills taxonomy, defining useful skills and ways to measure them. An organisation can develop a skills map that outlines categories of roles and jobs of critical importance and provides a distinctive advantage. It can hire from the market non-critical skills but develop employees with distinctive skills it needs. The HR team can build and retain a skilling tracker that helps identify educational and training requirements. It can create training plans for such skills through training or experiential learning.

3. High workloads but not enough career growth, leverage Generative AI

When companies focus too much on low-end services, employees have much on their plate but not much fulfilling work. As a result, they are not challenged and do not learn new skills on the job, stagnating career growth. In my experience, this can result in a vicious circle of process-driven, iterative workloads that cannot be profitable for the company or the employee beyond a point. Post-pandemic, already-difficult working conditions are even more daunting. Many people leave those professions entirely — sometimes even if they don’t have another job. However, fewer people may decide to join those professions, so the pipeline for replacements also gets smaller. Such decisions may well lead to staffing shortages far into the future. OpenAI’s ChatGPT and similar AI tools may not replace jobs anytime soon but will help productivity & create work-life balance on a short-term basis. Such services can help workers across many industries — from tech to media — do their jobs better and more quickly. Organising your busy work schedule may be time-consuming, but ChatGPT and other forms of AI can help make the process a little smoother. Workers should be careful when using AI tools, as the tech can be prone to misinformation, and it can remove the human touch from tasks like writing. Most companies also haven’t established formal rules around employee use of the AI tool. Thus, using such tools to deliver your output carefully would be best.

4. Unhealthy service saturation: Add specialisation, partner with disruptors and become impactful.

a) Specialisation: While specialisation can be useful during a service company’s growth period, it can be a bane in a difficult economy. For example, a company that exports its services only to a specific market are seeing the impact due to constraints in geopolitical and supply chain disruptions in that region. The same applies to service capabilities, with companies unable to adapt to a new world of generative AI, Web 3.0, and blockchain. Growing specialisation is hard, especially when you are short on investments. Implementing augmented reality capabilities enables sharing expertise faster organisation-wide — regardless of tenure or skillset.

b) Bringing in the disruptors: While there is growing demand for technology services, much of this demand is outside the ambit of traditional service providers. Software as a Service (SaaS), for instance, has become an enterprise staple, but not every service company has the federation capabilities to oversee a unified tech environment. Service providers must think outside their tried and tested box and diversify both in portfolio and market reach.

c) Being Aglie and Impactful: As a service organisation leader, it’s up to you to empower your teams to be agile and impactful.

Going beyond productivity may look like this:

· Resolving an issue or providing intelligence remotely

· Investing in cloud technologies

· Delivering accelerated innovations through artificial intelligence and augmented reality

· Moving beyond a mindset of “let’s do something cool” to “let’s do something that will help transform our business.”

5. Neglecting hardware, develop HaaS (Hardware-as-a-Service)

Interestingly, the tech hardware market thrives even in a slightly bearish economy. Many companies are looking to solidify and maximise their hardware investments, reversing the trend of massive cloud purchases in the last few years. However, service providers often neglect hardware capabilities in their portfolio or relegate them to the backburner only as ancillary to their software-based offerings. In 2023, catching up with clients’ hardware requirements will be a key challenge for service providers. Businesses are impacted by outdated IT infrastructure because it causes performance and troubleshooting issues. In addition to having a detrimental effect on productivity, trying to upgrade the hardware or resolve compatibility difficulties while attempting to keep up with new and sophisticated technologies raises production costs. Leasing or licensing business models are examples of the hardware as a service (HaaS) model. In this case, the consumer pays for its services and does not buy the hardware. Thus, the customer pays for the value offered by the service. Businesses can use the hardware as a service to lease them from a service provider. They have an advantage over their peers because they can afford the newest technologies.

6. The expectation of data-driven customer experiences, adopt Customer Success Technology

With customers holding their service providers to very high standards, companies need to leverage a vital lever: data. It is possible to gather quantifiable information on various aspects of service delivery, from client adoption rates, bottlenecks, and feedback to market sentiment and new ideas. Advanced analytics can even deliver accurate forecasts on service demand and pinpoint exactly where customer expectations gaps are. As a result, there is simply no excuse for not focusing on customer success and using data to deliver outcomes as we move towards a service-driven economy where the LTV ( lifetime value ) of customers is of primary importance and continuity of relationship. 2023 will see increasing investment in technologies designed to understand and engage gainfully to understand our customers across all channels and parts of the organisation engaging with the customer. All of this is to ensure we deliver great experiences and earn the trust of our customers.

Ultimately, the service industry is going through a churn, not a downswing. New and emerging technologies are creating more opportunities than ever, and remote/hybrid work has opened up brand-new talent pools. By navigating these six challenges successfully, companies will not only find themselves on the winning side but also solidify their position for a new era of technology service delivery.

To discuss these challenges and opportunities with me, email me at



Arvind Mehrotra

Board Advisor, Growth Enabler, Strategy & Culture Alignment and Technology Advisor