ISG Provider Lens™ Future of Work Services - AI-augmented Workforce Services - U.S. Public Sector 2025

Public sector workplace services evolve through GenAI, hybrid and ESG

Current Market Conditions, Developments and Trends

In 2025, the U.S. public sector — especially state, local and education (SLED) organizations is undergoing a profound transformation in how digital workplace services are conceived, procured and implemented. Key developments include:

● GenAI integration: GenAI has moved from experimentation to embedded capability. Over 75 percent of large enterprises, including public sector entities, now use GenAI in at least one function. Public sector providers are deploying GenAI for service desk automation, predictive analytics and immersive collaboration.

● Hybrid work recalibration: Hybrid work is no longer a policy debate but a design imperative. Structured hybrid models dominate, with 84 percent of organizations adopting them. Experience parity across remote and physical environments is now a core KPI.

● Experience management (XLA): XLAs are becoming standard. Nearly 70 percent of organizations plan to adopt XLAs by 2026, with public sector agencies using them to improve frontline engagement and service quality.

● Sustainability and ESG: ESG has become a board-level priority. Smart workplace technologies — IoT, digital twins and AIpowered analytics are enabling real-time tracking of energy use and emissions. Over 45 percent of public sector occupiers plan to adopt energy and emissions management tools.

● AI-augmented workforce: AI is augmenting — not replacing public sector roles. Federal and SLED agencies are investing in AI-first talent models, immersive learning and ethical AI governance.

● Procurement evolution: SLED procurement is shifting toward bundled, outcome-based contracts. Agencies are prioritizing providers that offer strategic advisory, verticalized solutions and measurable impact.

How have these changed since ISG’s 2024 report?

Compared to the 2024 landscape:

● GenAI has matured from pilot projects to enterprise-wide integration. In 2024, GenAI was a disruptor; in 2025, it is foundational.

● Hybrid work has stabilized. The 2024 report emphasized enabling hybrid work; in 2025, the focus is on optimizing it through environment-based working (EBW) and smart infrastructure.

● Experience metrics have evolved. In 2024, experience was emerging as a differentiator. In 2025, it is a strategic imperative, with XLAs replacing SLAs in many contracts.

● Sustainability has shifted from compliance to competitive advantage. ESG is now embedded in workplace services and not just reported on.

● AI-augmented workforce services were nascent in 2024. In 2025, they are a distinct service category, with providers offering agentic AI, immersive learning and DEIintegrated design.

● Procurement models have shifted from siloed IT contracts to integrated transformation deals, with a growing emphasis on strategic partnerships.

What have been the most significant factors driving such changes?

Several macro and sector-specific forces have accelerated the following shifts:

● Federal and state policy mandates regarding sustainability, digital equity and workforce modernization

● Post-pandemic workforce expectations for flexibility, personalization and purposedriven work

● Technological maturity of GenAI, IoT and cloud-native platforms enables scalable, secure and intelligent services

● Budgetary pressures and the end of American Rescue Pla Act (ARPA) funding force SLED agencies to prioritize ROI and operational efficiency

● Cybersecurity threats and regulatory scrutiny drive demand for integrated, secure and compliant workplace solutions

● Public trust and citizen expectations are increasingly tied to digital service quality and accessibility

How have these changes affected when, how and why U.S. PS clients, especially SLED clients, acquire and implement such services?

As compared to 2024 and earlier, public sector clients are now:

● Acquiring services earlier in the transformation lifecycle — seeking advisory and cocreation engagements before issuing RFPs

● Prioritizing integrated solutions that combine IT, HR, facilities and sustainability into unified workplace strategies

● Demanding outcome-based contracts with XLAs tied to employee experience, service quality and ESG metrics

● Favoring providers with vertical expertise and proven public sector credentials, especially those offering GenAI governance and ethical AI frameworks

● Implementing services in modular phases, allowing for iterative improvement, risk mitigation and budget alignment

● Using procurement vehicles that support agile contracting, such as cooperative purchasing agreements and prenegotiated frameworks

Through FY26, what significant or disruptive changes do we expect to see?

● Mainstreaming of agentic AI in public sector workflows: Autonomous digital agents will become standard in service desks, HR and citizen engagement. These agents will handle complex tasks, freeing human workers for higher-value activities.

● Experience management as a core procurement criterion: XLAs will be embedded in most SLED contracts, with sentiment analytics and behavioral telemetry driving continuous improvement.

● Sustainability-driven workplace redesign: ESG metrics will influence reporting, procurement, space planning and workforce strategy. Smart buildings, circular IT and carbon dashboards will be standard.

How will these changes affect how client firms contract with and do business with the providers of such services?

● Strategic partnerships over vendor contracts: SLED clients will seek providers that act as transformation partners, not just service vendors. Coinnovation, joint governance and shared KPIs will define successful engagements.

● Shift to outcome-based pricing: Contracts will increasingly tie compensation to business outcomes — such as improved employee retention, reduced emissions, or citizen satisfaction, rather than service volumes.

● Increased emphasis on compliance and ethics: Providers will need to demonstrate technical capability and compliance with AI ethics, data privacy, accessibility and sustainability mandates.

● Demand for verticalized solutions: Providers offering tailored solutions for education, healthcare, justice and municipal services will gain a competitive advantage.

● Procurement modernization: Agencies will adopt increasingly flexible, modular and collaborative procurement models, including prenegotiated frameworks, agile contracting and innovation sandboxes.

Conclusion:

In 2025, digital workplace services for the U.S. public sector will have evolved into strategic levers for transformation. The convergence of GenAI, hybrid work and ESG imperatives is reshaping how SLED agencies define value, engage providers and deliver services.

Looking ahead to 2026, the most successful approaches will be those that:

● Embed GenAI across the service stack with ethical governance

● Design for hybrid work with experience parity and smart infrastructure

● Operationalize sustainability through circular IT and carbon intelligence

● Elevate experience through XLAs and sentiment analytics

● Enable workforce transformation with AI-augmented tools and inclusive design

facilities blur, workplace services are becoming the connective tissue of public sector modernization. Providers that deliver integrated, intelligent and outcome-driven solutions will win contracts and will help shape the future of government work.

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