Tata Consultancy Services (TCS), India’s largest IT services firm and one of the world’s leading digital transformation providers, today announced a strategic workforce realignment impacting approximately 12,000 employees, or 2 percent of its global workforce, to take place over the course of fiscal year 2026. This marks the largest down‑sizing initiative in the company’s history.
Strategic Imperatives Behind the Decision
1. Macroeconomic uncertainty and demand slowdown
TCS has faced a challenging demand environment in key markets such as North America and Europe, where clients are delaying project decisions amid broader economic headwinds and global trade uncertainties. This has led to booking delays and softness in non‑essential technology spending. TCS CEO K Krithivasan confirmed such delays as a key factor prompting action.
2. Rapid workforce growth and margin pressure
Since 2020, TCS expanded its workforce by approximately 36 percent, outpacing revenue growth and increasing per‑employee cost by nearly 25 percent. Analysts argue this led to a “headcount problem” more pronounced at TCS given its sheer scale and complex structure. Cutting about 2 percent of headcount may reduce costs by around 4 percent, equating to roughly 12 percent of TCS’s net profit for FY2025.
3. Structural shift in operating model
In line with evolving industry norms, TCS is transitioning from the traditional pyramid model to a “diamond‑shaped” organization—leaner middle layers and more investment in specialist and AI‑driven roles. Former industry leaders have described this move as marking the end of the “size‑over‑productivity” era in Indian IT.
Responding to Speculation on AI Impacts
Despite industry speculation linking the layoffs to AI automation, CEO K Krithivasan strongly clarified that the downsizing is not due to AI replacing roles. While TCS acknowledges productivity gains of about 20 percent from digital technologies, it asserts the cuts are driven by skill mismatches and lack of deployment feasibility for certain roles—particularly at mid‑ and senior levels, with some junior employees who remained on extended “bench” unaffected by project assignment also impacted.
Employee Support and Workforce Transition
TCS emphasized that this realignment will be handled with utmost compassion and transparency. Key measures include:
- Reskilling and redeployment: Over the past quarter, TCS has reskilled more than 550,000 employees in basic AI skills, and over 100,000 in advanced technologies, though many could not find deployment within existing frameworks.
- Compensation and benefits: Laid‑off associates will receive complete notice‑period compensation, severance packages, extended insurance coverage, and outplacement assistance to support professional transitions.
- Phased implementation: Layoffs will be implemented gradually across multiple quarters in FY26 to minimize operational disruption and allow for redeployment where feasible.
Industry Response and Labour Tensions
The decision has sparked concerns among labour groups. The Karnataka State IT/ITeS Employees Union (KITU) filed a dispute alleging violations of the Industrial Disputes Act, prompting the Karnataka labour department to engage with TCS for resolution. Meanwhile, employee unions under NITES have also escalated the matter to the national labour ministry.
Investor Outlook and Competitive Landscape
Following the announcement, TCS shares declined approximately 1.7–1.8 percent, reflecting investor skepticism over execution risk and concerns about continued margin pressure. Unlike Meta’s widely lauded layoff move in 2022, the market response to TCS has been cautious, highlighting differences between trimming excess capacity and responding to weak demand dynamics.
Meanwhile, rival firm Infosys has adopted an opposite stance—no layoffs and continued hiring with a focus on reskilling and long‑term stability—positioning itself as resilient amid uncertainty.
Looking Ahead: TCS’s Repositioning Vision
TCS reaffirms its commitment to evolve into a future‑ready organization, with sharper focus on AI, automation, cloud, and digital transformation services. The company aims to improve operational agility, optimize its employee structure, and ensure competitive positioning in global markets. CEO K Krithivasan has ensured that service quality and client delivery will remain unaffected throughout the restructuring.
Conclusion
TCS’s announcement of an approximately 12,000‑employee layoff program reflects strategic recalibration in response to slowing demand, escalating cost structures, and a shifting skills landscape. Anchored in a commitment to compassion and future readiness, the company aims to emerge as a leaner, more technology‑driven enterprise while offering support to those affected by the realignment.
