Artificial intelligence is transforming India’s IT services sector, with clients demanding more for less and pushing for contracts tied to performance outcomes. The shift is forcing outsourcing giants like Tata Consultancy Services, Infosys, Wipro, HCLTech, and Cognizant to rework their business models.
Industry executives say the trend is driven by clients seeking steep price cuts and increased productivity, with some even using AI to bring tasks in-house. This has resulted in shorter contracts and a more competitive market, where smaller rivals can challenge the big players.
Jimit Arora, CEO of research and advisory firm Everest Group, notes that the market has become “desperate” for service providers, with the odds favoring clients. The traditional reliance on billable hours is no longer a viable model, and companies are adapting to a more outcome-based approach.
The Nifty IT index has fallen by a fifth this year, with its 10 constituents losing a combined $73 billion in market value. This decline reflects the challenges faced by the industry.
Pricing for contracts is now more likely to be dictated by performance outcomes, rather than hours worked. TCS Chief Executive K Krithivasan says that about 80% of the company’s contracts in its finance, human resources, and other business services segment are based on outcome performance measures.
This shift is evident in recent deals, such as an AI and automation contract between Cognizant and Daimler Truck, which stipulates that AI-related cost savings will be split between the vendor and the client. Similarly, a cloud management deal between HCLTech and German utility E.ON ties payments to efficiency gains and specific business outcomes.
Related: Revolut gains Australian banking licence
As AI drives productivity gains, clients are becoming increasingly vocal about getting more for less. Persistent Systems CEO Sandeep Kalra says that clients are demanding the same work for 25% to 30% less, while expecting faster delivery and higher productivity.
Mid-sized firms are gaining ground.
They have become fiercely competitive, with many customers seeking rapid development of pilot programs and flexible pricing. Phil Fersht, CEO and chief analyst at HFS Research, notes that many Tier 2 firms have been more agile and hungry in this phase, winning mandates by deploying senior leaders quickly and offering flexible pricing.
Persistent Systems and Coforge, two mid-sized IT services providers, have seen revenue growth in dollar terms of double digits for at least eight quarters in a row.
In the middle of this transformation, it’s clear that the Indian IT services sector is undergoing a significant shift, driven by the increasing adoption of AI and the changing expectations of clients.
They will need to balance the need for innovation and competitiveness with the potential risks and challenges.
The big IT companies are adapting to this new reality, with TCS boosting its numbers of engineers who embed with clients to accelerate AI adoption.
Leave a Reply