Can TCS Survive Chandra's Exit?

N Chandrasekaran's exit marks a major shift for TCS, leaving its leadership to navigate AI disruption without the group chairman's deep expertise.

At India's largest information technology services firm, Tata Consultancy Services, August 12 morning was business as usual, even as Chairman N Chandrasekaran announced his decision not to offer himself for reappointment when his term ends on February 20, 2027.

According to sources, many senior leaders at TCS were aware that Chandrasekaran, fondly called Chandra, would make such a decision.

While the news has raised questions about the impact his departure will have on the Tata group, the change is likely to be felt most at TCS.

When Chandra's appointment as Tata Sons chairman was announced in January 2017, the thinking centred on stability and continuity.

Many believed there would continue to be close synergy between Tata Sons and TCS, as Chandra deeply understood the company's core operations.

After all, it is rare for the chairman of a conglomerate to have previously led one of the group's key businesses.

From time to time, Chandra tapped into TCS' vast talent pool to build new businesses and bring a stronger technology focus to the group, leveraging his familiarity with the business.

One example was the appointment of Pratik Pal, a TCS veteran, to head Tata Digital as the group started building the business.

Another instance was bringing Aarthi Subramanian, now chief operating officer of TCS, to Tata Sons in 2017 as the Tata group's chief digital officer.

Her role was to lead the conglomerate's digital, technology, and innovation agenda across its diverse portfolio of companies.

While he harnessed TCS' talent, Chandra also leveraged the company's technology prowess to modernise and overhaul several group companies. One example is Air India's technology road map.

This was perhaps inevitable, given that Chandra spent the majority of his career at TCS. He continued to be actively involved in TCS' growth strategy, especially as artificial intelligence began reshaping the IT services business.

Many within the company say he was instrumental in TCS' foray into data centre services.

TCS has formed a strategic partnership with private equity player TPG and set up HyperVault. TPG has made an initial investment of $1 billion.

Peter Bendor-Samuel, founder and chairman of Everest Group, believes TCS, is clearly going to miss having such a knowledgeable and strong supporter as chairman of it majority owner.

Chandra was responsible for building TCS into the industry powerhouse it is and his strong support has been helpful as TCS works to adopt to the new AI industry dynamics, he shared.

TCS Navigates Life After Chandra

"The new industry reality of increased competive intensity combined with the necessity to evolve its business model to accommodate the new AI driven world will require increased investments and challenge existing mindsets," said Bendor-Samuel.

"These changes are likely to require that TCS allocate more of its cash to these challenges and sets up a potential conflict with the broader Tata Sons which relies on the cash generated from TCS to fund its many other investments and business," Bendor-Samuel added.

"Chandra spent his entire career inside TCS virtually before becoming Tata Sons chairman and understands its people, clients, economics, and competitive dynamics at an extraordinary level," pointed out Bendor-Samuel.

'TCS CEO and MD K Krithivasan ('Krithi') has therefore had something most major-company CEOs never enjoy: A group chairman sitting above him who previously ran the same company,' Phil Fersht of analyst firm HfS said in his LinkedIn blog.

The change of guard at Tata Sons, therefore, also marks a shift for TCS.

The current leadership at TCS, including CEO and MD Krithivasan and COO Aarthi Subramanian, is closely aligned with Chandra.

They will now have to steer the company through the AI tornado without Chandra's expertise and experience.

Krithi and Subramanian have already started the shift within the company, with the layoffs announced last year -- the second in the company's history.

A Bank of America note on the changes at Tata Sons and their impact on TCS said: 'Chandra's familiarity with the company meant an involvement in the company's strategic and leadership planning. This included the company's planned pivot to AI services announced last year. There was also assistance with handling relations with key customers as well as business partners.'

"As new leadership takes over TCS and Krithivasan will need to educate the new team as well as advocate to keep a greater share of the earnings it generates. It will also need to lower margin expectations to accommodate the new industry dynamics and the investments required to drive the change," Bendor-Samuel said.

As Fersht highlights, this could also be an opportunity for competitors, both global and Indian peers.

'For Infosys, HCLTech, Cognizant, Wipro, LTM, and the rest of the Indian-heritage IT services pack, the opportunity is not to attack TCS with another version of the old offshore model. It is to approach major TCS accounts with a much more aggressive proposition around AI productivity, vendor consolidation, outcome pricing, and reducing dependence on labour,' Fersht wrote in his LinkedIn post.

For Krithi and Subramanian, the writing is on the wall. This is the time to prove that TCS can survive and thrive without Chandra around.

Feature Presentation: Aslam Hunani/Rediff