Experts say TCS’ return to vertical ops structure will help it in slump

They said Mumbai-based TCS’s decision to split its largest vertical–BFSI (banking, financial services and insurance)–into two is welcome, but the current environment requires more geography-specific specialisation than what the country’s largest IT firm currently offers.

“For TCS, its recent change in structure has caused a lot of internal politics and issues with access to scarce resources. So going back more to what they are familiar with should help calm the waters as they target more client wins and expansions,” said Phil Fersht, chief executive of IT research firm HfS Research.

Chief executive K Krithivasan was the head of the BFSI vertical during former CEO Rajesh Gopinathan’s tenure and had kept BFSI out of the ambit of TCS’ 2022 operational restructure, which had grouped the company into four units organised by account size.

On Friday, Krithivasan announced a new operational structure that aligns the $28-billion company as per its business verticals, and announced close to a dozen leadership changes.

An equity analyst, who did not wish to be identified, said that according to the new changes, the people who were leading client-specific groups are now leading the top new verticals, like Susheel Vasudevan, who managed the incubation group with a focus on sub-$20 million clients; Krishnan Ramanujam, who led the enterprise group for clients in the $20-100 million range; and Debashis Ghosh, who led the business transformation group of $100 million-plus clients.

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“The reporting hierarchy has not changed. What has changed is that Krithivasan needs these people back in their core verticals managing the biggest customers in each segment, because smaller and discretionary deals have dried up and they need to source demand,” said the analyst.

The analyst said the idea behind the 2022 structure was to incentivise leaders to grow the size of individual client engagements, and those performance metrics will continue to be relevant despite the updated business structure.

ET had reported on March 20 that several TCS executives felt “disgruntled” for having to deal with smaller accounts, as their accounts became big and moved to the other unit under the 2022 restructuring. Customers, too, were facing difficulties in figuring out the correct stakeholders under the structure.

TCS’ BFSI vertical has been split into two to accommodate its scale. While the North America business is being led by Susheel Vasudevan, Shankar Narayanan is leading the other territories.

Over the last two quarters, IT majors, including TCS, have said that slowdown and uncertainty in the demand environment has started impacting BFSI deals as well. Outsourcing expert Pareekh Jain said that with a large number of geography-specific challenges driving customer demand, the BFSI split will allow TCS to focus on large deals in specific regions.

“On the one hand, BFSI is Krithivasan and TCS’ strongest domain, so there is a need to efficiently maintain the pace of growth within the segment,” said Jain. “On the other hand, current market conditions required better control on geography-focused sales to drive large deals, rather than a client group-focused approach.”

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TCS’ BFSI vertical reported more than Rs 86,000 crore revenue in FY23, which was about 31% of the company’s total revenue.

It is likely that as each of TCS’s verticals grow to a certain size and scale, the company will look at more geography-specific splits, said Jain. The current environment is more favourable for large vendor consolidation kind of deals, across sectors, which require a domain-specific approach, he said.

“The new vertical structure also allows the business group leaders better control on sales teams within domains where they have expertise for decades,” he said, adding that the management could have felt comfortable returning to a simplified familiar operating structure at a time when Gopinathan (former CEO), who introduced the new structure, himself is not around to lead it.

Sources close to the company have said that the four client groups–acquisitions, relationship incubation, enterprise growth and business transformation–introduced by Gopinathan in 2022 will continue to exist within the seven business groups.

In his note to employees, Krithivasan has only stated that the relationship incubation group will continue to exist within respective industry units.

As per the Friday note to employees, the communication, media and information services group will be led by Akhilesh Tiwari, while Krishnan Ramanujam will lead retail, CPG, travel and hospitality. The life sciences, healthcare, energy resources and utilities group will be led by Debashis Ghosh, while Anupam Singhal will lead the manufacturing business group V Rajanna will head the technology, software and services group.

TCS has also carved out two new service practices- the first one to focus on consolidated cloud and AI solutions, which will be led by Siva Ganesan, and the second is enterprise cognitive businesses services practice under Ashok Pai.

However, analysts suggest that 15 months could have been too short a duration to test the previous structure, given that the company had not even started disclosing operating metrics related to the model.

“When Gopinathan introduced the new structure in 2022, the market was buoyant and it was meant to be a forward-looking initiative which would have taken 2-3 years to show its impact on numbers. The current market is completely different,” said Jain.

The Downside

“While it’s understandable that (newly appointed CEO) K Krithivasan wants to revert to a structure that made him very successful, this signals a sideways move in contrast to the likes of Accenture, which focuses its structure heavily on geographic localisation of resources that has spurred huge growth for the firm over the past couple of years,” said Fersht of HfS Research.

Accenture had introduced its geography-focused model in March 2020, dividing its business model across North America, Europe and the remaining markets.

Fersht said that under this new structure, introduced by Krithivasan, specific industry units may get preferential access to talent, making it harder for emerging industries to have the investment needed to be competitive or even hurt collaboration across the company.