Mumbai: Tata Sons chairman N Chandrasekaran is stepping up direct involvement with Tata Consultancy Services (TCS) as a priority to steer India’s largest IT company through a vulnerable phase and ring-fence the group’s largest cash generator at a time when artificial intelligence (AI) threatens established business models, said people with knowledge of the matter.The renewed focus includes bolstering the role of TCS as default AI partner for Tata Group companies, they said. It will also explore acquisitions of AI-focused startups to accelerate the AI pivot, they said.“The legacy business model of TCS cannot stay the way it was,” said a highly placed executive close to the matter. “Chandrasekaran has told his top team to do what it takes to grow and defend its turf.”Addressing more than 700 TCS employees at an annual company event in Dubai over the weekend, Chandrasekaran stressed the need for continuous upskilling to prepare for the impact of AI.The Tata Group remains highly dependent on TCS dividends to support its diverse portfolio and cannot afford any erosion in the company’s relevance among global clients, a concern firmly on the radar of holding company Tata Sons, said the people cited. As it enters a critical phase, TCS has gained primacy, with Chandrasekaran keen to ensure its growth strategy stays firmly on track amid rapid shifts in technology and client demands.Growth StrategyTCS chief executive officer K Krithivasan and chief operating officer Aarti Subramanian are seen as Chandrasekaran’s trusted lieutenants.They worked closely with him during Chandrasekaran’s stint as TCS chief executive and are expected to drive rigorous, end-to-end execution of the strategy.AI research labs are rapidly climbing up the AI value chain with products such as Anthropic’s Claude Cowork that are threatening to become direct competitors to legacy IT services and software vendors. This could potentially weaken the company’s standing in the global technology ecosystem if it does not move decisively, said the people cited.Triggered by the Claude Cowork announcement, Indian technology stocks got battered on February 4 as part of a worldwide selloff, with the Nifty IT index plunging as much as 8% and nearly Rs 2 lakh crore in market value was wiped out in the sector’s worst selloff since the March 2020 Covid-19 crash. TCS fell to its lowest level in five years, although stocks have seen a modest recovery since.New capabilitiesUS-based firms such as Palantir Technologies and Goldman Sachs have already demonstrated how they are upending third-party software by building proprietary AI offerings or solutions developed in partnership with Anthropic. The recent selloff in global software stocks is a stark reminder that merely rebranding “IT services” as “AI services” is not enough. Companies will need to invest in innovation, build new capabilities and pivot to new operating models to truly differentiate themselves, experts said.Before taking charge at Tata Sons in 2017, Chandrasekaran was at the helm of TCS since 2009, spearheading its growth across geographies.“He has always had his finger on the pulse at TCS, but these are extraordinary times, and he is closely involved with the pivot TCS is on,” said one of the people cited.As of 2024, Tata Sons owned 71.74% of TCS, and close to 80% of Tata Sons’ dividend income was derived from the IT services firm. Tata Sons and TCS declined to comment.TCS has undertaken several pivots to adapt to changing realities, including workforce rationalisation, investments in data centre infrastructure, a sharper focus on consulting, and acquisitions to add capabilities. It took over Coastal Cloud, a Salesforce consulting firm, for $700 million, its largest acquisition to date, in January.It had bought US-based ListEngage for $72.8 million in October — its first acquisition in nearly a decade. It has formed a $2.1 billion joint venture with private equity firm TPG to build data centres in India.The pace of AI execution needs to accelerate, said Pareekh Jain, founder and chief executive of IT research firm EIIR Trend.“TCS, being the largest Indian IT services provider, faces more challenges than others,” he said. “Other large IT firms are giving it tough competition in its core area of large deals. TCS is caught in the middle.”Its traditional strength in large deals is being challenged by more agile players, while the restructuring, though ahead of competitors, is yet to deliver results, Jain said.“TCS needs to significantly increase the velocity of restructuring to lead in AI-led disruption,” he said.Yugal Joshi, partner at IT consulting firm Everest Group, said TCS’ key business area of application maintenance is facing compression and is under attack by peers.“Unlike earlier when peers thought they could not displace TCS as incumbent, they have now become more confident,” Joshi said. “Though TCS continues to win large deals in the UK and other regions, its historical delivery-led success is under strain. Many account teams have let go of resources with no backfills. I do not think they are witnessing materially different headwinds than others, but their response could be better.”
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