New Delhi: Tata Consultancy Services has decided to shut its operations centre in Lucknow and has asked project managers to finish their programmes by December. While the company has given the employees an option to shift to other locations, #SaveTCSLucknow was trending on Twitter as IT professionals claimed their jobs were at risk.
Hours after this announcement, India's biggest IT firm declared disappointing financial results for the quarter ended June 2017. The company's profit fell 10% while revenue declined 0.2%, compared with the previous quarter. With profit margins shrinking, the pressure to stay competitive has increased. Trimming the headcount is the most immediate solution that management embarks on.
And the layoffs story may get worse. The IT sector is projected to shed 1.5 lakh to 2 lakh jobs every year over the next three years as the industry is disrupted by new technologies like automation, artificial intelligence and cloud computing. And the only option before techies is to learn new skills.
Mid-level techies who are in the 35 plus age bracket and earning between Rs 20 lakh and 2 crore per annum are the most at risk, according to Kris Lakshmikanth, CEO and Managing Director of Head Hunters India, an executive search firm. Rather than outright firing, management may resort to other means to persuade them to leave. "They may shut a Lucknow operations Centre and give the employees an option of moving to Patna or some other small centre. How many people would want to move? Many of them would have a home, a family and a home loan which they cannot afford to let go off," he told News18.
Earlier this year, global consultancy firm McKinsey in a report said that nearly half of the IT workforce of nearly 40 lakh will be “irrelevant” over the next 3-4 years. The report suggested that firms must invest in new service lines and solutions and build new capabilities besides acquiring and re-skilling employees in emerging technologies.
The business model of IT firms till now was based on price arbitrage: the premise a techie in India could do the same work that a techie in America does at a fourth or a fifth of the cost. This led to India becoming the outsourcing and services hub of the world. Typically, an Indian IT firm was skilled in application maintenance, 50% of revenues came from this. However, the digital transformation underway is making this stream redundant.
Most applications now are cloud based and the need for maintenance has come down. One can work on the cloud on the go: A bank or finance professional with a mobile/laptop and an internet connection can work from anywhere, cutting out the need for an IT firm to upgrade and maintain systems, which Indian companies specialised in.
The McKinsey report said: "India's IT-BPM industry is feeling the impact of the global slowdown and global political uncertainties as clients go slow on their decision-making and investment processes."
Lakshmikanth said that there is tremendous pressure on Indian companies to reduce costs by 10% annually in order to stay competitive. Increasing automation is also taking a toll. IT can be automated upto 25% and that is happening to cut overhead costs.
The fate of BPO is even more precarious because the extent of automation is even greater. Upto 80% of a call centre's function can be automated, thus reducing the headcount.
The billing model of Indian IT companies in the past was a function of time and manpower. On a certain project they calculated the number of people and the man hours each put in and worked out the project cost on that basis. But now clients are paying per transaction. So it makes more sense to automate as much as possible, increasing the efficiency and speed of transactions processed.
The technological and geopolitical headwinds that Indian IT is running into mean that disruptive forces will change the nature of the industry. Unfortunately, layoffs are the most visible and distressing manifestation of this.
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