Tata Consultancy Services’ (TCS) announcement that it will lay off 2% of its global workforce or about 12,000 employees, primarily from middle and senior levels, is being seen by industry veterans and analysts as the clearest sign that the domestic IT sector needs to fundamentally rewire its business model. The long-standing emphasis on headcount as a metric of success is now giving way to a sharper focus on productivity, outcomes, and future-readiness.
Commenting on the development, former Tech Mahindra CEO CP Gurnani, said that the move marks a shift away from the “Sholay dialogue” approach of evaluating firms by “kitne aadmi the”. He added, “The period of judging IT firms based on their headcount will soon be over, and instead, an output and outcome-based business model should likely be under focus”. Gurnani also pointed to AI as both a disruptor and a creator of opportunity, saying that while some roles may disappear, many more will be created in areas such as data science, AI engineering, and prompt design.
AI disruption accelerates shift
Ganesh Natarajan, executive chairman of GTT Data Solutions, echoed this sentiment, saying that over a million jobs across testing, documentation, and programming could become redundant in the coming years due to AI. “We have to be prepared for a few years of churn,” he said. “We should tighten our seatbelts and be prepared for lots of changes,” Natarajan added.
TCS’s announcement is being viewed as the first concrete sign of what has long been brewing under the surface. For years, IT firms thrived on a headcount-heavy, labour-arbitrage model of offering low-cost services to clients overseas, charging based on manpower, and focusing on process execution. That model is now under pressure from all sides. Clients are demanding output-based pricing and faster innovation, AI and automation are reducing the need for large teams, and wage differentials are narrowing globally.
This shift is reflected in TCS’s internal policy changes as well. New performance benchmarks, including mandatory billable days and reduced bench periods, signal a drive toward higher utilisation and leaner structures. For many long-serving managers, especially those embedded in legacy project models, this is creating a difficult transition. The company maintains that these changes are aimed at becoming “future-ready,” with re-skilling and redeployment programmes underway to align talent with evolving business needs.
Specialised skills take centre
Staffing experts Fe spoke to said this reorganisation is not an isolated case. Neeti Sharma, CEO of TeamLease Digital, noted that backfilling for certain redundant roles has already slowed in recent quarters. “Hiring will not stop,” she said, “but will be focussed on specialised skills”. She added that the pace of reorganisation is likely to accelerate as AI adoption grows.
Sunil C, country manager at Adecco India, said that large-scale corrections often follow major disruptions. “There is mounting pressure to deliver productivity through AI, reshaping the old formula where headcount growth mirrored business growth,” he said.
Brokerages are also aligning with this view. A note from Citigroup analysts pointed to a convergence of factors like slowing growth, margin pressure, and rapid tech changes, that are pushing firms toward leaner models. They highlighted the challenges in reskilling employees, especially in legacy roles, but said companies have little choice but to adapt.
Analysts at Jefferies said that the sector may already be feeling the impact of AI-led automation. “Most deal-wins today are led by cost-optimisation and productivity improvements. IT firms unable to adapt may be forced to cut workforce,” they said. However, they warned of possible execution risks and higher attrition if transitions are not managed carefully.
Markets on Monday responded sharply to the news. TCS shares dropped 1.08% on Monday, while Wipro declined by 3.59% and HCLTech fell 1.47%.
Industry executives agree that while job losses are part of the process, this is not just about cost-cutting. Rather, it’s a broader realignment, where firms need to shift from simply delivering code to delivering value.