Gundogan departure to Barcelona wouldn't be a serious issue for Guordiola he is one of the best manager in the world thus he can easily replace Gundogan role in the team, I think Gundogan personal desire to play for Barcelona when the opportunity came up was responsible for his departure thus issue of contract improvement isn't the problem, however recall when Man City was having issue with left backs in the squad yet he allowed Joan Cancelo to join Bayern Munich on a loan deal despite that Guordiola still won the treble, issue of key players leaving a strong club and with a perfect replacement of such players is one of the yardstick in rating a very good manager thus the team will still remain formidable next season.
Left back position isn't really crucial, although Manchester City still don't have pure left back, but it's more easier to replace Cancelo's position. While Gundongan's position can only be replaced with Kevin De Bruyne, but Pep choose to let De Bruyne and Gundongan play at the same time, maybe it's more stronger and wouldn't completely depend on one player. If De Bruyne injured or he run out of his stamina, Pep need to find the solution. Maybe we will see Alvarez would play in central attacking midfielder?