Clients asking for cost optimisation amid economic uncertainty: TCS CEO

Tata Consultancy Services is seeing a lot of requests for cost-optimisation amid macroeconomic uncertainty in some markets including North America, according to its managing director and chief executive officer K Krithivasan.

"In any given quarter, there will always be some amount of de-growth. What's happening now is that de-growth is not being compensated fully because clients are optimising and there is some deferral happening," Krithivasan tells reporters in a press conference after the company's Q2 earnings.

"If the existing projects get paused or optimised more than the incoming revenue, it results in muted or moderated revenue growth," Krithivasan says, adding that once things settle down, this optimisation will be compensated by new projects.

On Wednesday, India's largest IT services company reported a decline in its U.S. dollar revenue for the first time in 13 quarters.

Growth in the IT industry has moderated, says the TCS CEO. "Till there is certainty on the global economic outlook, this moderation will continue because many customers will try to conserve cash for a difficult period ahead," he says, adding that there is an anticipation of a slowdown, so people are behaving accordingly.

TCS' order book stood at $11.2 billion at the end of the September quarter. The U.K. continues to be the top performer, leading with 10.7% growth. North America grew 0.1% and Continental Europe grew 1.3%. In emerging markets, Middle East & Africa grew 15.9%, Latin America grew 13.1%, Asia Pacific grew 4.1% and India grew 3.9%.

"In North America, the overall macroeconomic situation is slightly confusing. The unemployment rate is still low and inflation is slowly coming down. Household savings are coming down, it's projected to slow down further in 2024," says Krithivasan.

Work from home ends

The IT firm has asked its employees to come to the office. "We have hired a large number of people over the last three years. For most of the time, they were working in hybrid mode. We strongly believe that they need to come to work so that the new workforce gets integrated into TCS's larger workforce. That is the only way they will understand, learn and internalise the TCS values and the TCS way," says Milind Lakkad, chief human resource officer, TCS.

"We are asking people to come to work on all days in a week. We will continue to assess the work models and evolve depending on what works best for our customers and our employees," Lakkad says.

With gross additions below departures, TCS' workforce stood at 608,985 as of September 30, dropping by 6,333 people compared to the previous quarter. The company's employee headcount stood at 615,318 in the June quarter.

"We have recalibrated our hiring numbers due to reduced attrition. Our total hiring is less than our attrition this quarter, hence the negative number," says Lakkad.

The software major will offer 100% of the variable pay to 70% of its workforce. "The remaining workforce will get paid based on the business performance," says Lakkad.

According to N G Subramaniam, chief operating officer at TCS, employees who come to the office observe and learn things that cannot be learned from home. "We have been advising our employees to come and work with us in the office. The advantages are being realised. People feel that it is better to be in the office. So we have got about 70% of our employees in the office. Given the large-scale hiring that we did and the kind of attrition that we experienced, it is advisable to get everybody back to the office at this stage," Subramaniam says.

TCS did not give up any of its office spaces even during the Covid-19 pandemic, says CFO Samir Seksaria. "We continued to invest in our office infrastructure. Office expenses might have gone up but we don't see a substantial impact on margins," Seksaria says.