New Delhi: AI is changing the way India’s information technology (IT) services industry does business. However, big IT giants like Tata Consultancy Services (TCS), Infosys, Wipro, HCLTech and Cognizant are transforming their business models in the presence of clients that are looking for quicker work, more productive and cost-effective services.
India’s IT services industry generated almost $315 billion in revenue last year and long had been reliant on the traditional practice of charging for the number of employees and hours worked. Yet, for numerous software and tech activities, AI is streamlining the time. This is putting pressure on companies to provide greater services for less.
IT contracts are changing
One of the largest changes is the way that IT companies will charge their clients. Companies are no longer being paid for the number of hours worked, they are being paid according to the results that they deliver.
About 80% of the company’s contracts in the finance, human resources and other business services businesses now tie to performance measures, said TCS CEO K Krithivasan in a Reuters interview. This is nearly double of what happened since the advent of AI in the last quarter of 2023.
The same has been done by Cognizant as well. The expected cost savings arising from the AI and automation agreement will be split between AI company and its client, said people close to the deal. HCLTech has also signed up for a cloud management agreement with payments tied to efficiency gains and business outcomes.
Clients want lower costs
Company tasks are getting done more quickly as a result of AI, and customers are demanding that this should be reflected in their contracts.
Persistent Systems CEO Sandeep Kalra stated that clients are now demanding 25% to 30% cheaper work rates, but also demanding a quicker delivery and enhanced productivity. Meanwhile, AI is making it easier for businesses such as Persistent to secure larger client contracts.
Smaller IT businesses too are reaping benefits from the change. Firms like Persistent Systems, Coforge have experienced double digit dollar revenue growth in the past eight quarters. Smaller in size, they are able to react fast and come up with flexible pricing options.
Pressure on jobs and large IT firms
AI is also reshaping recruitment practices. With coding and other repetitive tasks being taken care of by AI, businesses could require less number of entry-level engineers. This may upset the conventional recruitment methodology adopted by Indian IT industry that has heavily depended on massive infusion of junior personnel.
This is an existing strain. The Nifty IT index has dropped 20% this year, the 10 stocks accounted for nearly $73 billion loss in market value, Reuters reported.
The industry is therefore making a transition from the days when employee size was the key to success, and more in a way of the companies’ ability to leverage AI to provide tangible business outcomes.
