• Chesapeake Group

Declining headcount at large Indian IT firms




The reports for layoffs in the Indian IT firms have been in the news for quite some time. According to one report by McKinsey, nearly half of the workforce in the IT services firms will be “irrelevant” over the next 3-4 years. With the increasing adoption of newer digital technologies, skillsets of the current IT workforce is becoming obsolete. Hence, the majority of the workforce will have to be re-skilled and re-trained. Also, implementing digital technologies, such as Automation and Artificial Intelligence, do not require a large workforce. Therefore, the overall growth of manpower in the IT sector may be muted in near to mid term.


The predictions of these reports have now started to show in the companies’ workforce numbers. For the first half for FY 18 (June and September quarters), four of the top six Indian IT firms – Infosys, Cognizant, Wipro, and Tech Mahindra – have reported decline in their headcounts. Tech Mahindra reported the largest decline of 8.3% while Cognizant reported decline of 2% and Wipro and Infosys reported a decline of c.1% each. Tata Consultancy Services showed a marginal increase of 0.5% in its headcount. However, HCL Technologies stands out as a clear outlier, with a headcount increase of 2.6% in first half of FY 18. The picture becomes more vivid when one compares these numbers with the year-ago period, when all these firms reported an overall increase in headcount. The growth then was led by Cognizant and Tech Mahindra with an increase of 9.8% and 8.7% respectively.


The switch to productization and digital implementation – which are less people intensive – has had a significant impact on the de-growth of the workforce, Also, there is a conscious effort by organization to streamline costs in the wake of the slowdown in top-line growth in recent years. The layoffs have allowed the companies to decrease operational costs, improve utilization and margins, and report better than expected profitability numbers.


Amidst the declining headcount numbers, Flexi hiring, which refers to hiring for project-specific temporary jobs, seems to be on the rise in Indian IT sector. A recent report by Indian Staffing Federation (ISF) forecasts double digit growth for flexi staffing in Indian IT sector. According to the report, the IT flexi staffing market in India will grow at an annual rate of 14-16% to reach $5.3bn by 2021. This will be driven by the demand in emerging technologies, including Artificial Intelligence, Machine Learning, Cloud, Analytics, Internet of Things etc.


IT companies seem to be moving towards a variable costs structure, that tracks industry demand. Meanwhile, they are also re-skilling their workforce with relevant skillsets to be able to service the future demand. TCS recently reported that over 60% of its workforce has undergone skill upgradation programme; Wipro has put in place a programme for training 33,000 employees annually on digital skills; Infosys has tied up with the MOOC firm Udacity to train its employees in digital technologies. This long-term focus seems to augur well for the IT workforce, however, it remains to be seen how much collateral damage (layoffs) will be caused in the meantime.


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