AI Disruption in IT Services: Industry Leaders Emphasize Adaptation and Growth

ETtech Q&A: I am the custodian of Cognizant, will do what is right for the company and its future; CEO Ravi Kumar

Cognizant CEO Ravi Kumar S focuses on growth, AI, and expansion, despite a lawsuit from Infosys. He emphasises his commitment to the firm's success, highlighting AI-driven opportunities and operational efficiency to secure Cognizant's position among top-tier IT companies."I am the custodian of Cognizant. I will do what is right for this firm... Everything else, I just want to put on the side," Ravi Kumar S, chief executive of Cognizant, said in his first comments on the lawsuit by his former employer Infosys. In an interview with ET, he told that he is excited about the future and is not distracted by legal challenges. Kumar also said the traditional view of IT services relying solely on cost budgets is changing and artificial intelligence (AI) is creating new addressable spend areas. Edited excerpts: How would you rate your two years at Cognizant? Is the turnaround complete? We've transitioned from a stabilisation phase to now a point where we are showing organic, sequential growth. We consistently hit the upper end of our guidance range over the last four quarters. We've focused on efficient operations, allowing us to expand margins and invest in AI, M&A, and future growth. We expanded our capabilities beyond tech services and BPO to include infrastructure and ER&D, notably through the acquisition of Belcan. We're focusing on a three-vector AI opportunity: AI-assisted code development, AI integration into enterprise landscapes, and unlocking new service pools through agentification (developing AI models that act as autonomous agent). We've returned to a growth phase and are aiming to be in the "winner's circle" among tier-one companies. How do you address the lawsuit from your former employer Infosys? I am the custodian of my current organisation. I will do what is right for this firm. Nothing else matters to me... What I did in the past is my past... I am accountable for securing and safeguarding the assets of Cognizant. I will do what is right for the company now and what is right for its future. I am excited about what I have done so far, I am excited about what lies ahead. Everything else, I just want to put on the side. And I don't want to talk about legal matters, our teams are handling it. How do you perceive the current macroeconomic environment, especially compared to six months ago? The uncertainty has decreased, and the adoption of AI has become more practical. The geopolitical situation is more stable. However, high interest rates and persistent inflation in the US continue to impact discretionary spending. While election-related uncertainties have diminished, we're not entirely out of the woods. Could you clarify the reports of senior leaders leaving Cognizant? Most of the feedback I've received is about us hiring people from outside. We have a lot of exciting opportunities, and people are choosing to join us. We've had a stable leadership team for the past two years. Some departures were deliberate, some were not, but it's part of any change. We're in a better position now than we were two years ago. Are the departures part of a merit-based pruning process? I have not lost people who I wanted to stay at Cognizant. People have left by their own choice. We've attracted a lot of talent, including former Cognizant employees who have returned. We have hired heads of infrastructure, industry solutions, telecom, financial services, HR, operations (India), and a new CFO. How do you respond to allegations of poaching from other companies? We are not actively pursuing people. Most of our hires have come through formal searches, both internal and external. With ongoing geopolitical uncertainties and potential tariffs imposed by the US, what will be the impact on the IT services spending? The traditional view of IT services relying solely on cost budgets is changing. Last year, Cognizant closed 29 large deals (those worth over $100 million), primarily focused on consolidation and efficiency. Discretionary spending for innovation remains challenging due to high interest rates. However, AI is creating new addressable spend areas. In ER&D, budgets for new product development, like autonomous software in cars or embedded software in medical devices, are separate from traditional cost budgets. IT services companies need to focus on being 'in the business' rather than just 'enabling the business'. We're in an age of hyper productivity, with AI contributing to significant code development. For example, 20% of our code is now written by machines. Regarding the 20% of code written by AI, how much do you expect that to increase? It's difficult to predict the exact figure, but the technology is pervasive and improving. Our internal metrics show that developers in the bottom quartile of productivity have seen a 34% improvement, while those in the top 50% have seen a 17% improvement. Clients are using this increased productivity to clear backlogs and address technical debt. What are your top three focus areas for Cognizant in 2025? First is to double down on AI-assisted code development: expect the 20% figure to increase as more code is written by machines. Focus on AI integration and customisation: localising, customising, and integrating AI into business landscapes, including data and cloud modernisation. We have 1,200 projects running on AI-led transformation. Lastly, unlock new addressable service spend: build new capabilities for emerging service pools, such as digital nurses and AI-driven drug development. How would you assess the progress of the changes you've implemented at Cognizant since taking over? We've made significant progress. We've built a stable leadership team, improved employee engagement, and attracted 13,000 people back to the company, plus an additional 10,000 standing offers. We've secured 17 large deals (over $100 million) in 2024, with 10 in the last quarter alone. We've expanded our capabilities, invested in AI, and improved margins. We've moved from stabilisation to growth. Financial services and healthcare, our top verticals, are performing well. We're proud of our achievements, though there's still work to be done. How do you address the concerns about restructuring and leadership changes? Any transformation involves change and disruption. We've been able to attract the leadership we want. Financial services have returned to positive growth. We've infused leadership from both inside and outside the company. We've implemented multiple compensation hikes and promotions. In the last year, we had one of the highest numbers of promotions in the company's history.

C Vijayakumar on HCL Tech's strategy for long-term success

C Vijayakumar, CEO of HCLTech, emphasizes the transformative potential of AI and the need for proactive adaptation in the IT services industry. He highlights the importance of growth and relevance over protecting existing revenue bases and the continued investment in capabilities to stay competitive."Every service industry is getting significantly disrupted. So, I truly believe IT services industry is at an inflection point and we should not be complacent. If we can be more proactive in adopting to the changes, talk to our clients about what is the art of the possible and really walk this path with that kind of a mindset and not with a mindset to protect your revenue base and protect your existing footprint because if you do not do it somebody else will do it," says C Vijayakumar, MD & CEO, HCLTech. How do you see the pace of AI's disruption impacting the IT services industry, and what steps do you think are crucial for organizations to take to stay ahead of the curve and ensure they're not just protecting their current revenue base, but also embracing the transformative potential of AI? C Vijayakumar: This is really not a time to be complacent and saying that we saw the cloud wave, we saw the digital wave, now there is AI wave and we will navigate it because the pace of change and the significance of what AI can do, a lot of work. Every service industry is getting significantly disrupted. So, I truly believe IT services industry is at an inflection point and we should not be complacent. If we can be more proactive in adopting to the changes, talk to our clients about what is the art of the possible and really walk this path with that kind of a mindset and not with a mindset to protect your revenue base and protect your existing footprint because if you do not do it somebody else will do it. You have to be proactive about what this technology can deliver for the clients and it is not going to happen overnight. It is going to be a journey, but you have the right proof points to build conviction as you go through the journey. Then, it is a matter of change management. How are you really driving this change within your organisation and in your client organisation to drive adoption and finally, the outcomes from the technology. You would appreciate the spirit of my next question which is that if I look at the last waves, which is from mainframe to enterprise and from enterprise to SMAC and SMAC to digital, now AI, these transitions have lasted for three to four years and post that clarity in a sense has emerged. The AI wave has already lasted for three years and yet there is no clarity. Is this wave different because the earlier waves are centred around technology, this one is centred around manpower? C Vijayakumar: No, this is a lot more technology intensive. It is already kind of taking out a lot of productivity and I do believe this wave is quite different and much more significant and profound than any other waves that we have seen. Like you can kind of classify as internet, you can say cloud, then you had digitisation and now AI. The comparison should be more towards internet and rather than digitisation and cloud, because they were just incrementally leveraging technology for business and building business models which is pivoted around technology. But here AI is, I mean, somebody compared it to electricity. What electricity can do has been quite unimaginable. So, it is a long-term change and it is complex, it is going to scale, but humans, people can simplify it because eventually when you start consuming everything, it needs to be in a simple way and that is a journey that industry needs to go through. HCLTech for the longest time has been beating market estimates. They have been growing at a rate which is higher than the industry average. Your margins may not be the best in industry, but your growth is the highest in industry. Any change in that template or that policy will sustain? C Vijayakumar: Definitely we are all in the same industry and some business mix change could mean different margin profiles. But the way we see it is delivering a few percentage points higher growth at stable margins creates much more value than increasing your margin by 1% or 2% and delivering a lower growth. If you do a math, you will always find out that growth has a premium, of course, at a stable margins, I think that is the template that we have followed and it allows us to invest in what is right. What is right to remain relevant for your clients. Even today, I am sure a lot of investors always want us to deliver higher margins, but it is not that we are not delivering higher margins, but we are reinvesting in expanding our sales or investing in all the right capabilities. So, it is a balance that we have to achieve always. But every company like a traditional engineering company or manufacturing company would say that we are going through a capex cycle. In IT terminology and for HCLTech, how long will this investment cycle continue? Is there a timeframe you can give? C Vijayakumar: It is not so much of a capex cycle because most of our capability and solutioning, all of that is really, it is all a part of our operating expenses and right now there is a big opportunity that we all have to encash on. So, maybe at least in the next three-four years we will have to invest in all the right areas to remain relevant. It is more than growth and margins. The biggest outlook for any leadership in this industry should be, are we being relevant? Is our relevance being questioned? And how can you remain relevant with all the changes? If you approach it like that, you will end up doing the right thing in the long run. At what rate do you think the total addressable market for Indian IT companies like TAM is growing? C Vijayakumar: See, if you take the Gartner's forecast in FY24, it was to grow at around 4-4.5%. Gartner is expecting it to go to maybe 5% or 6%, depending on which service line that you are talking about, so that is the increase in the overall spend. Now, you may ask why Indian companies have not grown so much. There is some deflation in some markets and every company has their own challenges. But if you ask me, is there a big opportunity there? I would say a resounding yes. And we just need to see how to translate that into growth. Markets always vote for one simple thing, rate of change. If the rate of change in last two years has become from good to bad, stocks have come down. When bad is becoming good, markets will start rewarding it. Can I say that incrementally and sequentially now, we will see improvement in your performance. It may not be marked, but in terms of a trajectory, slow but steady. It will be going up rather than staying flat or come down. Can I get a sense? C Vijayakumar: Yes, the way to look at it is, one is the overall growth and the second one is the underlying growth. Sometimes there could be some shifts in your portfolio. There is a large contract which you are transitioning from an onshore model to offshore model. There could be some deflation. But if you just peel the onion and look at the underlying growth, that is actually getting better with every quarter. So, will it be a tall order to imagine that Indian IT companies or Indian IT sector per se will come back to double digit growth? C Vijayakumar: It is not a straightforward answer. But is there an opportunity? Yes. Can you be relevant? Can you be more aggressive in adopting new technologies and working with your clients, showing them the art of the possible? I do think there is an opportunity for the industry.