The news of TCS Chief Executive and Managing Director Rajesh Gopinathan stepping down prompted investors to ask worried questions about his succession at India’s largest IT services firm. However, Gopinathan is being replaced by Krithivasan, another TCS veteran, which should mean a nearly seamless transition.
Interestingly, TCS is not the only IT company undergoing a transformation. TechM’s charismatic boss CP Gurnani is set to retire in December and will be replaced by Mohit Joshi, who comes to TechM after heading Infosys’ global services division with the designation of Infosys chairman. Another chairman of Infosys, S Ravi Kumar, left the company in November 2022 to join Cognizant as CEO.
This means changes have happened or will happen soon at the top of the three major IT services firms. Cognizant, which is Nasdaq-listed, reported revenue of $19.4 billion in the fiscal year ending December 2022. It is seen as an Indian IT organization with about two-thirds of its 350,000 employees based in India.
NSE-listed TCS had revenue of $27.2 billion in FY22 (year ending March 2022). TechM’s FY22 revenue was $6.5 billion — making it smaller and more specialized than the other three companies mentioned here. Infosys, which may be hit by the loss of two of its most senior executives, had FY22 revenue of $16.3 billion. Taken together, it forms a large part of the IT services industry with a combined employee strength of around 1.5 million.
Changes in personnel at the CXO level can result in significant changes to corporate strategy. Indeed, this is why the boards of corporations often look for new people. Individual companies, especially such large ones, have their own internal bureaucracies and set procedures and look to their CEOs to drive strategic initiatives.
If the CEO is brought in from outside, there is usually a significant change. Of course this can be a good thing, but it also means disruption, creative or otherwise. Furthermore, there is always a difference in the operating style of the individuals, even if the succession is drawn from within the company, as is the case with TCS. Individuals always have their own protégés, usually with differing opinions on strategic focus.
These changes come at a challenging time for the IT industry. Working from home for three years has resulted in enforced changes in approach. Stricter US visa rules have also meant changes in recruitment patterns. Brexit has prompted corporations headquartered in the UK to open offices in Ireland or elsewhere to maintain unimpeded access to the European Union. The Ukraine war and high inflation have put the brakes on global growth.
There has also been a huge fluctuation in the currency. While the rupee has crashed against the US dollar, it has seen volatility against the euro and the British pound, and strengthened against the yen. Thus, there have been times when EU and UK revenues have translated into lower rupee returns.
Every IT company has complained about margin pressure and high employee churn, with more than 25% per quarter over the past three years. Most have also struggled to find a way to manage the moonlight.
Opinions vary sharply on moonlighting in an industry where employee costs, productivity and data privacy are all important variables. For example, Gurnani is happy to have Chandni employees as long as they meet their deliverables for TechM. But Infosys and Wipro consider it a crime to be sacked. According to senior executives, TCS tries to discourage this by “showing sympathy”.
There are now signs that attrition is easing and a related variable – subcontracting rates – is falling, mainly because there is less work. This is at least partly because the startup ecosystem has slowed down, as these companies were largely responsible for creating many opportunities for coders.
Industry aggregate estimates and company-specific guidance and projections suggest that IT services will struggle to generate moderate-to-high growth until the global economy recovers. What’s more, those estimates would need to be lowered, as they were mostly done before the recent upheaval in global banking. Banking and finance verticals are seeing cutbacks in IT spending, and other sectors have also postponed discretionary IT spending.
This means that the change in the C-suite is happening at a critical moment, both for the companies themselves and for the sector as a whole, given that these are the big guns. This isn’t necessarily a bad thing. New faces at the helm could bring in creative twists in strategy that could help these companies weather the tough times.
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