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Photo: HT
Photo: HT

IT companies resort to layoffs as pressure mounts due to covid crisis

  • Global IT companies have gradually reduced their headcount in last two years as they embark on automation and related technologies
  • The covid crisis may have accelerated that process as newer challenges have emerged for these firms

BENGALURU : The information technology (IT) industry is laying off thousands of employees across the globe and in India, on grounds of non-performance, lack of projects and rightsizing surplus staff as pressure mounts on firms due to an uncertain business environment.

Global IT companies have gradually reduced their headcount in last two years as they embark on automation and related technologies. The covid crisis may have accelerated that process as newer challenges have emerged for these firms.

International Business Machines (IBM) Corp. is laying off about 2,000 employees globally as the company reshapes its business. While the impact on its India employees is not clear, it is estimated that few hundred would be impacted, as India accounts for about one-third of IBM’s global headcount of over 350,000 employees.

IBM didn’t respond to queries on India impact.

Nasdaq-listed Cognizant Technology Solutions Corp. has recently laid off thousands of employees in India, who were on bench. India is Cognizant’s largest employee hub with more than 200,000 employees out of its global headcount of nearly 290,000.

In IT services companies, employees on bench are considered “non-billable" resources as their cost is not billed to any client. Typically, firms maintain a small percentage of bench employees so that they are prepared to execute new projects immediately.

State IT employee unions in Karnataka and Chennai have alleged that Cognizant is executing mass layoffs after benching nearly 18,000 employees across India. The numbers could not be independently verified by Mint.

A Cognizant spokesperson said the layoffs are likely to be performance-based exits. “Performance management is a normal process across all companies in the IT industry, including Cognizant."

Analysts believe employees on bench will inevitably be the first ones to be laid off. “Layoffs are obvious. The existing business models of these IT companies are under tremendous pressure as new deals are very hard to come by. Even the deals that come are much smaller, take longer to close and are more outcome-based. Also, the existing contracts are being renegotiated. Bench employees are non-billable so they would be hit first," said Sanchit Vir Gogia, CEO and chief analyst, Greyhound Research.

“In terms of profile, employees with critical skills like artificial intelligence (AI), data science, and user experience are likely to be retained for longer than the infrastructure services workforce. Also, expensive roles such as senior project managers with 8-12 years of experience and not associated with any outcome-based roles are vulnerable as well as the most basic ones who are not trained or involved in repetitive tasks," Gogia added.

Accenture is in the process of slashing up to 900 jobs in the UK in a bid to reduce costs in the face of lower demand for its services, according to reports.

An Accenture spokesperson for India said, “Beyond this, we are not planning extraordinary global workforce actions". In the UK, Accenture is initiating a “redundancy programme" in consultation with the employees.

In the Q3 (March-May) earnings call, Julie Sweet, chief executive officer, Accenture said, “We have identified some real areas of efficiencies and so that has obviously headcount implications to it, which maybe what you are calling layoffs. We really see it as focusing on our cost structure and then otherwise, managing our supply and demand as I went through before, pretty ordinary course."

Indian IT services companies like Tata Consultancy Services (TCS), Infosys Ltd, Wipro Ltd, and HCL Technologies Ltd may not have undertaken any massive layoff exercise but it can be inferred that performance-based exits are happening.

TCS said during its Q4 earnings that they would not cut any jobs due to the impact of covid-19. To be sure, hiring, salary hikes and promotions are being put on hold almost across all IT companies.

UB Pravin Rao, chief operating officer, Infosys said recently that they have “no plans for mass layoffs" though performance-based exits will continue.

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