The global financial crisis of 2008 sent the technology services sector into a tailspin, similar to most other industries. Then, all but two IT service providers reduced their employment.Natarajan Chandrasekaran and Francisco D’Souza, however, made wagers against the odds. In the year that concluded in 2009, the hiring rates at Tata Consultancy Services Ltd. and Cognizant Technology Solutions Corp. nearly doubled. Both companies received favourable rewards. When the economy rebounded, this first-mover advantage helped TCS and Cognizant do well. Each year since January 2011, both businesses have added over a billion dollars in incremental revenue.
Rajesh Gopinathan followed Chandrasekaran, who assumed the position of chairman at Tata Sons in February 2017, and two years later, D’Souza handed the reins over to Brian Humphries at Cognizant. To put it frankly, Cognizant’s performance over the past three years has been subpar, whereas Gopinathan has successfully led TCS over the past five years.In early 2020, the covid-19 pandemic shut down commerce. Once more, businesses halted hiring.Yet, this quickly changed.
Businesses around the world increased their technology spending as a result of the twin engines of digitalization and cloud migration, making IT services providers the major winners. There was more work than people to do. Unsurprisingly, businesses providing technological services have once more become the main employers in the past two years.
a case in point TCS had 4,43,676 employees as of June 30, 2020. TCS now employs 6,06,331, an increase of 1,62,655 over the previous eight quarters.
Now that investors and experts are on edge due to worries about an approaching recession in the US, businesses are once again at a crossroads. A downturn will force businesses, including banks and retailers, to review their technology spending, which will eventually hinder the expansion of outsourcing companies like TCS. TCS affirms that there is currently no cause for concern. However, it is certain that IT services companies will be among the last to suffer. In light of this, it is irrelevant to inquire as to whether TCS (and its competitors) overestimated growth and hired a little too aggressivelyThe infographic demonstrates that over the last two years at TCS, staff costs have grown at a compounded quarterly rate of 4.04 percent while revenue has grown at a compound annual rate of 4.08 percent.
Up to this point, the fast growth has helped conceal the rising employee costs. The share of staff costs as a percentage of revenue will rise with a potential downturn, thus eating into profitability. TCS’s profitability shrank from April to June as the operating margin dropped to the lowest level ever, 23.1 percent, a decrease of 190 basis points sequentially. It was the responsibility of the employees. Employee costs as a share of revenue were 57.48 percent, roughly the same as when TCS reported a sequential drop in business from April to June 2020, when the world was ravaged by the pandemic.
Follow and connect with us on Facebook, LinkedIn & Twitter
