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tcs: Not the best time for leadership transition at TCS: experts

The leadership transition at TCS could prove to be challenging for the country’s largest software exporter as it comes at a time when the industry is battling macroeconomic uncertainty and geopolitical issues have significantly slowed down growth, experts said.

The CEO designate, K Krithivasan will have to navigate macroeconomic challenges and demonstrate significant value addition at a time when digital and offshoring models introduced by his predecessors have reached maturity and customers are questioning their tech spends, they said.

The pressure to squeeze costs has also set off a fierce competition among large IT companies to grab big projects, often at the cost of profitability, they said.

Also read | All you need to know about the incoming TCS CEO K Krithivasan

TCS has picked Krithivasan to helm the company after the sudden resignation of TCS chief executive and managing director Rajesh Gopinathan on Thursday. Gopinathan will stay on for six months till the transition is complete.

TCS chief operating officer N Ganapathy Subramaniam will also retire in May next year, experts pointed out.

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Peter Bendor-Samuel, chief executive of IT research firm Everest Group, said Krithivasan comes to the helm at a time when the industry is at a major inflection point.

“His reputation already precedes him as TCS has a legacy of grooming outstanding leaders. However, Krithivasan will have the task of delivering value to the business at a time when the digitisation wave has matured and organisations are seeking the long-term output of those initiatives,” he said.

Also read | No dramatic transition; talent pool deep in TCS: incoming CEO K Krithivasan

According to Gartner estimates, growth of tech spending is expected to moderate to 2.4% in 2023 compared to 5.1% estimated last year.

A note by JP Morgan said Indian IT service majors face high exposure to US regional banks which in turn had high exposure to the collapsed Silicon Valley Bank. It said TCS, Infosys and LTIMindtree face high exposure to the banks affected by the SVB crisis and will need to set aside provisions for the January-March quarter for the same.

“This can cause some slowdown in the rate of growth for BFSI vertical in the near term,” Bendor-Samuel said, adding that the crisis will impact digital transformation spending capacity of affected North American banks.

“However, TCS is also best placed to win mega deals in the market which can take care of growth rate for a few quarters,” he said.

Also read | Softspoken, non-flashy type: meet TCS’ new boss K Krithivasan

The company’s ability to have a successor groomed and ready to take over spoke volumes about the company’s long-term vision considering that peers had struggled with similar change of guard, Bendor-Samuel said. “After Chandra (N Chandrasekaran, Tata Group chairman and former TCS chief executive company) pivoted the organisation through the labour arbitrage and offshoring wave, Gopinathan steered the company through the cloud and digitalisation wave,” he said.

Financial services firm Centrum in a report called out Gopinathan’s resignation as negative for the company despite expecting a smooth transition of leadership.

A Motilal Oswal report, too, called the change a near-term weakness. Unlike previous transitions, where incoming CEOs had a long runway in front of them till retirement at 65 years – S Ramadorai (CEO at 51 years), Chandrasekaran (CEO at 45 years) and Gopinathan (CEO at 46 years) – Krithivasan is 58 years old and will be CEO for the next 6-7 years only, it said.

Analysts noted that Krithivasan has demonstrated execution capacity with the performance of TCS’ BFSI vertical across geographies.

Mrinal Rai, principal analyst at technology research and advisory firm ISG, noted that TCS has large BFSI deals across the globe and has reported a high level of customer satisfaction.

“Our research places TCS very strongly in the GRC (governance, risk and compliance) space,” Rai said. “TCS provides risk management solutions to its banking clients, supported by its BaNCS platform. Its capabilities in innovation, research, technology and risk intelligence and strong ecosystem of partners enable it to deliver integrated risk management solutions. Few providers compete with the company at that level.”

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