Takeaways from TCS Analyst Day, October 31, 2023
The current and upcoming quarters are proving to be a challenge for global IT service providers, with many announcing job cuts or holding back increments. Customers are pulling back on discretionary spend, but at the same time, they are committing to long-term contracts, increasing ambiguity. With a lack of certainty about the impact in the short-to-medium term, providers such as TCS aim to weather the challenging economic environment by looking at the future of IT services and operations with an AI lens, willing to adapt and thrive.
This research byte showcases how TCS, a juggernaut in the IT services industry, is facing these challenges in the current economic environment and what measures it is taking to ensure that it remains well-positioned for the future. We write about TCS’s focus on innovation, adaptation, AI, and platform-based operations, based on the strategies shared during its recent analyst day in October 2023.
The global business environment is currently facing several challenges, including conflicts in Ukraine and the Middle East, rising inflation, and supply chain disruptions. These challenges are severely affecting IT providers, who now are expected to do more with less.
Following are some of the challenges that IT providers are facing:
-
- Increased demand for digital transformation: Businesses are accelerating their digital transformation efforts to remain competitive in the ever-changing marketplace. This puts increased pressure on IT providers to deliver innovative and agile solutions.
- Skills shortage: The global shortage of IT skills is making it difficult for clients and IT providers to find and retain qualified talent. This is driving up costs and hindering the scaling of operations.
- Rising costs: The rising cost of hardware, software, and labor, among others, is putting pressure on margins and making it difficult to pass costs on to customers.
Despite the challenges, IT budgets seem to increase per our Worldwide IT Spending and Staffing Outlook 2023 survey. This is because business leaders no longer see IT as a cost center but as a strategic driver of growth. As a result, they are giving their IT departments greater resources to help plan for a possible recession rather than asking them to tighten their belts.
TCS executives echoed the sentiment during the recent TCS Analyst Day event in Mumbai, India. Despite spending cuts and revenue decline in immediate quarters, TCS is witnessing a strong order book, with customers committing to long-term contracts, according to VP and Global Head, Investors and Analyst Relations, Kedar Shirali. The provider is signing at least one mega deal per quarter, with a total contract value of over USD 1 billion. It signed two deals in the recent quarter ending September 2023.
As articulated by K. Krithivasan, CEO, in his welcome note via a video message, TCS aims to address such a challenging economic environment by focusing on innovation, adaptation, and AI. He mentioned that with its broad-ranged capabilities and investments, TCS desires to be an all-weather partner for its clients, helping them across all cycles of their business journey.
How AI is Transforming IT Services and Operations Support
Artificial intelligence (AI) is one of the most transformative technologies of our time. It has already made a major impact on IT services and operations support, and its importance will only grow in the years to come.
AI can be used to automate a wide range of tasks in IT services and operations support, including the following:
-
- Service desk: AI can be used to automate tasks such as incident triage, ticket routing, and knowledge base search. This can free up human agents to focus on more complex issues.
- IT infrastructure management: AI can be used to monitor and manage IT infrastructure, such as servers, networks, and storage. This can help prevent problems before they occur and improve the overall performance of IT systems.
- Application development and maintenance: AI can be used to automate tasks such as code review, unit testing, and deployment. This can help improve the quality and speed of software development and maintenance.
In our recent report on generative AI titled Generative AI: The Next Pivotal Point for Productivity and Efficiency, we highlighted that by incorporating generative AI into existing services, primarily coding and knowledge management, and offering dedicated training workshops and assessment frameworks for ROI and build-versus-buy decisions, service providers are facilitating a smoother and more informed transition for enterprises looking to integrate generative AI into their operations. As generative AI moves toward mainstream adoption, service providers with strengths in domain knowledge, data management, and responsible AI will stand out.
It is important to note that AI is not a silver bullet. It is a powerful tool, but it needs to be used wisely. IT firms need to carefully consider how they can use AI to improve their IT services and operations support offerings. They also need to ensure they are using AI responsibly and ethically.
TCS, too, focuses on AI to improve productivity and efficiency. The company believes that AI has the potential to increase knowledge work productivity tenfold, as emphasized by Chief Technology Officer, Dr. Harrick Vin. The company uses AI to automate tasks, develop intelligent software, and create smart workplaces. TCS executives also shared their insights on how the company is planning for the future with a knowledge work capacity improvement approach of decide and act, supported by a futuristic centralized knowledge hub. “Decide” involves human tacit knowledge required for designing or deploying software, and “act” involves AI and automation agents. The approach helps address the needs of customers and the workforce.
The company is investing in upskilling and reskilling its workforce, with the efforts resulting in reskilling about 100K associates every year. The company is aware that it needs to continuously change and adapt to sustain its growth path.
AI + Cloud
To be in line with the changing environment, TCS has made a strategic decision, to consolidate its cloud units into one, with an AI overlay. The unit, Cloud.AI, will be spearheaded by Siva Ganesan, bringing together AI and cloud ecosystems and partnerships. Siva shared a few transformational client stories. For instance, he mentioned how TCS leveraged TCS AvianaTM Industry Solution to drive net promoter score improvement for a leading US-based airliner by 36%. The offerings are backed by strong partnerships with hyperscalers supporting their AI initiatives, as well as a partnership with NVIDIA.
TCS is capitalizing on its cloud initiatives with its suite of industry-tailored solutions, including TCS BaNCS™, TCS DigiFleet™, TCS Optumera™, TCS Dexam™, and TCS Clever Energy™. The company is focusing on platform-based operations by using its TCS Cognix™ suite to offer end-to-end operations transformation to clients across more than 13 industries. TCS witnessed a 50% increase in major transformation programs leveraging TCS Cognix™ as enterprise customers adopted cloud and AI for application modernization in finance, supply chain management, human capability management, and customer experience.
Under Ashok Pai’s leadership, TCS has consolidated its cognitive business operations and Cognix platform to create a future-ready operations model. Building on its cognitive business operations model created in 2018 and TCS Cognix launched in 2021, the organization is now gearing toward a future operating model for its enterprise clients. The integrated global business services and information technology and infrastructure services structure that enable TCS to deliver end-to-end outcomes to customers were the key highlights of the session. We believe this future operating model would form a strong foundation for TCS in the AI landscape, as it would allow it to operate in a truly integrated manner and serve through an outcome-based engagement model. This would enable it to harness the productivity benefits of AI and share those with its clients.
Analysis
TCS is taking several steps to ensure that it is well-positioned to weather the current economic challenges and thrive in the future. The company is focusing on innovation, adaptation, and AI. TCS is also investing in upskilling and reskilling its workforce and consolidating its cloud and AI units.
TCS’s focus on AI is particularly noteworthy as AI is rapidly transforming the IT services industry. This ensures that TCS is well positioned to benefit from this trend. The company has a strong track record of innovation and a large pool of talented engineers. TCS is investing heavily in AI research and development. It is also focusing on platform-based operations, which can help companies reduce costs, improve efficiency, and accelerate innovation.
As highlighted in Generative AI: The Next Pivotal Point for Productivity and Efficiency, we at Avasant believe that service providers, such as TCS, are pivotal in helping enterprises integrate generative AI in a manner that is tailored to their specific applications and aligned with their risk tolerance, offering an alternative to deploying standard large language models (LLMs), such as ChatGPT. They offer a wide array of services, such as consultation and implementation of LLMs, solution accelerators, and vector databases, along with providing model fine-tuning and security and compliance toolkits.
