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TCS Layoffs: Could this be the Secret to Success in the Indian IT Industry?

Jan 21, 2015 | Technology | Future Market Insights

Tata Consultancy Services (TCS) is India’s largest company by market capitalisation, and is one of the largest private sector employers in the country. A subsidiary of the prestigious Tata Group, TCS operates in 46 countries and has employee strength of over 300,000.

Recently, the media reported that TCS plans to lay off 3,000 employees by the end of 2015. Although there has never been an official communication from TCS about such plans, the reports seem to have fuelled insecurity among thousands of mid- and senior-level executives.

According to Future Market Insights (FMI), many IT service providers are overstaffed and optimal utilisation of human resources leaves a lot to be desired. TCS’decision to restructure itself is not an isolated one, and its competitors may soon have to follow suit to remain competitive in the industry.

The TCS layoff saga first unfolded at the company’s annual event last year, when a top manager spoke about the need to restructure the organisation by letting go of ‘non-performing’ mid- and senior-level employees. Going by the speech, it was simply a routine operational exercise, affecting less than 1% of the total TCS staff. However, the announcement created a furore, and disgruntled employees protested against ‘wrongful termination’ of their services.

Effect of TCS Layoffs on IT Industry and Job Market

If reports regarding the TCS layoffs are true, it could have tremendous impact on the Indian IT industry as a whole. By replacing ‘non-performing’ employees with fresh talent, TCS will strengthen its position in the IT services sector and also be able to cut down on employee costs, which is around 40% of its total revenue. Considering the cutthroat competition in the IT industry, other companies can be expected to follow suit in order to improve their bottom line.

Overstaffing & Underutilisation of Human Resources: A Major Challenge for Indian IT Industry

The Indian IT industry’s success story began over two decades ago, when behemoth organisations in the U.S. and Europe began outsourcing their IT maintenance work to India. The easy availability of cheap and skilled labour helped put the Indian IT industry on the map, and India became the world’s software hub.

However, over the years, the Indian IT industry has faced myriad challenges, primary among them being the downturn in the global economy, overstaffing and underutilisation of human resources. The number of employees deployed for any project is more than the actual requirement, and many employees are kept on the ‘bench’ to meet with any exigency. For example, the employee utilisation rate of TCS was around 72% (including trainees) in 2012–2013. The average employee utilisation rate of TCS in the last four years has been only 74%. Infosys, the other major IT service provider, has also been grappling with low employee utilisation rates for years; its utilisation rate stood at 73.6% in 2014. This underutilisation of human resources has not only severely impacted the bottom line of these IT service providers, but also created a trust deficit among the outsourcers. It is expected that every major IT company will seek to readdress this issue in the near future, and more ‘non-performing’ employees will have to be shown the door.

The Indian IT sector has also been marred by incidents of financial irregularities. Several incidents have come to light, wherein middle and senior management has allegedly indulged in unethical business practices for personal gain. These incidents have shocked the global corporate community and questioned the credibility of Indian IT service companies.

Organisational Restructuring & Outcome-Based Model: The Way Forward for Indian IT Sector

If the Indian IT service companies desire to stay relevant and competitive in today’s ever-changing market, then there is urgent need for revamping of their service model. Instead of focusing on the number of employees deployed on a project, they need to focus on an outcome-based model, in which performance is of paramount importance.

The Indian IT industry is known worldwide for being innovative and result-driven. To maintain its attractiveness and appeal, the Indian IT industry will need to change with the times, and adapt to the ever-changing dynamics. Employees of IT majors will have to be more productive and contribute to the growth of their organisations. Furthermore, continuous growth and innovation will enable the Indian IT industry to maintain its position as the preferred choice for global outsourcers.