Siva Ganesan, who took over as AI.Cloud business head in July 2023 at India’s largest software services provider, quit earlier this month, according to two people aware of the matter. His exit followed the appointment of company veteran Amit Kapur to lead its new AI unit.
Two bosses for its AI business in a little more than two years reflect TCS’s uncertainty regarding the new technology, especially since the business itself was overhauled at least three times in the past three years. The Mumbai-based company is also laying off 12,200 mid- to senior-level executives, or 2% of its workforce, to make itself “future ready”.
“It appears that TCS is lagging its peers on this issue and is making changes to address this market gap,” said Peter Bendor-Samuel, founder of Everest Research. “TCS does not yet grasp how to drive to the new AI operating model and how to get their clients to also go on this journey.”
TCS stares at the risk of falling behind in the Indian AI services market that, according to Boston Consulting Group, is estimated to be an opportunity worth $17 billion by FY27. Accenture Plc, which has overlapping markets and client base with homegrown peers, has already started to deliver results from its AI teams.
Mint‘s emailed queries to TCS on 13 September and 24 September remained unanswered.
Double whammy
The focus is back on AI even as the IT services sector faces increasing scrutiny in the US President Donald Trump hikes the fee on H-1B work visas, predominantly used by technology firms, from around $1,000 to $100,000, threatening India’s $283-billion information technology (IT) services sector.
An uncertain demand environment has already forced the company to cut back on hiring AI talent. “This year, demand in general is low and our hiring of AI engineers will not be as high as last year,” said the first executive quoted earlier, who spoke on the condition of anonymity.
Last fiscal, TCS had hired around 1,000 engineers with AI expertise, according to the executive. “There are not as many skilled people in the market. Even if the company wants to hire more, there is a deficit of such talent.”
Yet, TCS’s AI challenge predates the mounting scrutiny in the US.
The company established its AI. Cloud business unit in August 2023, which provided AI and cloud services collectively. This marked the first change in its operational structure for AI. Led by Ganesan, it offered clients integrated AI and cloud solutions under one banner, instead of maintaining smaller teams catering to individual clients.
In May this year, TCS split AI.Cloud into AI & Data and Cloud units, respectively for “acceleration, expansion and sharpening focus”. Ganesan led the combined AI & Data, while his deputy Krishna Mohan took over the charge of Cloud.
However, the company last month announced another rejig: the formation of the “AI and Services Transformation Unit” to be headed by Kapur, who will report to Aarthi Subramanian, TCS’s chief operating officer. The move is aimed at integrating the company’s existing AI teams and capabilities with other service units and industry business groups.
“A reason for the new AI unit is to determine AI-led revenue because there is no clear pricing strategy for our AI services,” said the second executive.
However, according to Bendor-Samuel of Everest Research, AI is denting TCS’s operating margins.
“One of the significant complications TCS faces is that the new AI operating model dramatically disrupts their existing well-honed model and removes the key source of profitability for TCS,” he said. “This is a very hard thing to come to grips with. It is clear they have lost confidence in their existing leadership in this area and are making changes.”
This Gen AI-induced organisational flip-flop has made shareholders cautious. Since ChatGPT was launched in November 2022, the company’s stock has fallen almost 15%. The company’s shares have fallen 29.3% since the start of the year amid slowing demand and growing scrutiny in the US, making it one of the worst-performing Sensex stocks.
Accenture shows the way
TCS’s growth has slowed amid lack of mega deals and uncertain macroeconomic conditions. TCS ended last fiscal with $30.18 billion in revenue, up 3.78% on a yearly basis–the lowest growth in four years.
It risks ending the year with a revenue decline, its first since listing on the stock exchanges in August 2004, Motilal Oswal analysts Abhishek Pathak, Keval Bhagat and Tushar Dhonde wrote in a note dated 11 April, citing the ramp-down of BSNL project.
TCS’s troubles in navigating its AI strategy come when Accenture Plc, the world’s largest IT services company, is leading the pack. Dublin-headquartered Accenture reported $2.7 billion in revenue from Gen AI when it announced its full-year results last week. This marks a threefold jump from the preceding fiscal when it reported $900 million in revenue from the new technology.
The growth in the company’s Gen AI business was rapid.
“In FY23, we had 40,000 AI and data professionals with roughly 30 people working on a handful of Gen AI projects with negligible revenue. Today, we have 77,000 AI and data professionals. We’ve worked on more than 6,000 advanced AI projects just this year, and we delivered meaningful revenue in FY25,” said Julie Sweet, chief executive and chair of Accenture, as part of her prepared remarks in the company’s post-earnings analyst interaction on 25 September.
Gen AI made up more than half of Accenture’s incremental revenue of $4.78 billion. Accenture, which follows a September-August calendar, ended last year with $69.7 billion in revenue. At that base, TCS, which is less than half the size of Accenture, is still struggling to call out revenue from Gen AI.
Accenture’s management attributed strong growth, regardless of market conditions, to AI leadership.
“As we look at the market, we have not seen any meaningful change, positive or negative, in the overall market. We are focused on delivering results regardless of the market conditions by being the most relevant to our clients, and relevance today requires leadership in AI,” said Sweet.
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