What makes IT giants like Infosys and Cognizant lay off thousands of employees

Roles are being made redundant to bring cost down


Forty-five-year-old Ravi Kumar (named changed), a mid-level manager who was working with an IT services company, was laid off recently on pretext of restructuring. Since then, Kumar has been searching for a job, but in vain. Their home finances have gone for a toss. Luckily for Kumar, his wife works at another IT major, and hence the lay off may not have an immediate, dire impact. However, Kumar's wife is also staring at uncertain times as she too fears losing her job.

“Roles are being made redundant to bring cost down as people with several years of experience build up a wide portfolio during the course of their work. Roles will become redundant as portfolio becomes wide and firms think they are paying too much for the work they need to get done. This trend caught on in 2018-19. Hence, the global slowdown was a good opportunity to send people away as trade war has been cited as impacting revenues,” Kumar told THE WEEK.

Media reports about large-scale lay offs in Indian IT services companies have been doing rounds for the last few days. It has been reported that Infosys and Cognizant are contemplating laying off thousands of their employees. This includes even senior and the mid-management level employees, and experts feel that it is only the beginning and the trend will only increase in the coming months.

“Many of the senior and mid-management level people are overpaid by these Indian IT services companies. Despite that, their productivity has not increased over the years. Many roles such as senior and mid-level project managers have, of late, become redundant due to automation. Earlier, for around 100 people, there used to be ten project managers. Now, one or two project managers can manage around 100 people. The rest of the posts obviously have become redundant,” observed Kris Lakshmikanth, founder and the CEO of the executive search firm Head Hunters India Limited.

According to Lakshmikanth, there are many other factors behind the lay offs. “Many of the Indian IT services companies such as Infosys have hired thousands of local workers in the US. These workers are paid very high salaries and on an average the salary of each employee hired in the US equals to around three employees hired in India due to the higher exchange rate of the dollar. This has also put an additional burden on the bottom lines of these companies and hence they are putting pressure on the Indian staff and gradually laying them off. Earlier, this was mainly the trend in MNCs. Of late, many of the Indian IT services companies are doing that on a large scale,” he added.

Another expert believes that many of the mid-level managers cannot be re-skilled and retrained as they cannot adapt to the new changes and the requirements of these companies. “Many of the Indian IT services companies have, of late, started facing margin pressures due to a tough business environment. Despite that, they had opened up their purse strings and have been paying high salaries to many of the senior and mid-level management people. Many of them (employees) have not adapted to the changes and cannot be re-skilled, and hence they have become non-productive. Additionally automation has also led to many of the positions becoming redundant and hence there is no requirement for many of the mid-level posts in these companies,” pointed out Aditya Mishra, director and CEO CIEL HR Services.

Mishra further observed that due to this trend, campus recruitment will also get affected. “Many of the campus recruits, although have got offer letters, may not get appointment letters. Offer letters are letters of intent that the company is considering to hire them but it is only the appointment letter that confirms the appointment. This may not come” remarked Mishra.

Some experts have also pointed out that the present developments may be due to different factors such as the company phasing out different technology offerings that may not require the service of certain people who were managing them. “Automation has made the role of a project manager redundant as now a software can track the progress of the software project at different stages and there is no requirement of project managers. Another issue that I have observed is that in many large Indian IT services companies, many senior and mid-level managers start feeling complacent. They start feeling that their job is secure and they can manage things easily. This makes them less productive and they do not adapt to new changes and technology requirements. Many of them are well past their 40s. Of late, due market pressures, the performance of many of such managers has come under scrutiny. They are now being asked to leave,” B.S. Murthy, CEO of the firm LeadershipCapital Consulting told THE WEEK.

Some experts such as Alok Shende of Ascentius Consulting in Mumbai are of the opinion that currently, most of the numbers are mere speculations as automation mainly affects people at the junior level. “I feel that many of the senior and the mid-level people have become saturated in many Indian IT services organisations as there is not much scope to move up the ladder as very senior level posts are few. Since these managers also find it difficult to switch over to other jobs due to the tough market conditions, they gradually get stuck in an organisation. Over the years, they become less productive and their position also becomes redundant. After a certain point of time they are asked to quit the organisation. Hence these lay offs,” said Shende.