Structural Shift in the IT Industry. So it is not going to recover as previous episodes

 

Structural Shift in the IT Industry – Beyond Cyclical Downturns and AI

Sridhar Vembu’s recent comments about a “structural shift” in Indian IT highlight more than a passing downturn. They point to systemic fragilities that have been obscured by years of stable, services-led growth. Giants like TCS, Infosys, and Wipro may still be profitable—but they are no longer invincible.

1. Beyond Cyclical Downturns: The Weight of Legacy Inefficiencies

Vembu asserts that the malaise in IT isn’t cyclical but structural—rooted in deep inefficiencies:

Over-reliance on labor arbitrage: The cost advantage is eroding as wages rise and automation handles routine development tasks. AI tools like GitHub Copilot are accelerating this trend.

Low-value service portfolios: Revenue from maintaining legacy systems and basic outsourcing isn’t enough in a cloud-native world. Global clients now expect AI integration, real-time analytics, and platform thinking.

Talent misallocation: Instead of cultivating innovation-focused engineers, the system has churned out armies of coders locked into repetitive roles—roles that AI can now perform faster and cheaper.

2. AI Is a Symptom, Not the Root Cause

AI is undoubtedly disruptive, but Vembu warns that the rot set in long before ChatGPT:

Blind expansion without innovation: While global peers invested in IP and platforms, Indian firms grew headcount and delivery centers. R&D remained a checkbox, not a growth engine.

Organizational inertia: Many firms remain wedded to hierarchical, process-heavy models. In contrast, product companies like Zoho built nimble, feedback-driven teams that adapt faster to market shifts.

Cultural conservatism: A tendency to play it safe led to missed bets in emerging tech—from SaaS to blockchain to decentralized AI infrastructure.

3. Inflection Point: A Fork in the Road

The next three decades won’t echo the past:

Services → Products: IT firms must move up the value chain—building intellectual property, platforms, and SaaS products that can scale. Zoho, Freshworks, and a few startups are showing the way.

Reskilling, not downsizing: The AI wave will reward companies that proactively reskill employees—training them in AI governance, prompt engineering, LLM fine-tuning, and domain-specific consulting.

New work models: The global workforce is shifting toward hybrid and remote-first cultures. Firms that adapt will attract better talent and build more resilient operations.

4. Counterpoints Worth Considering

Some large Indian IT firms are already responding:

Infosys’s Live Enterprise model aims to digitize clients using AI and automation.

TCS has launched ignio, an AIOps platform, and is expanding its AI consulting practice.

Wipro and HCL have announced multi-billion-dollar cloud and AI investments.

But the scale and speed of these transformations may still lag behind the disruption curve.

Conclusion: Reinvention or Irrelevance

Vembu’s message is a timely wake-up call:

✔ Eliminate legacy inefficiencies.

✔ Embrace product thinking and IP creation.

✔ Retrain—not replace—talent for the AI era.

✔ Look beyond the West: India’s own digital transformation offers untapped opportunity.

The Indian IT sector has the tools and talent—but unless it rethinks its foundations, it risks becoming a relic of a bygone growth model.

Ref news https://m.economictimes.com/tech/technology/zohos-sridhar-vembu-warns-of-fundamental-reckoning-in-indias-software-industry/articleshow/120407800.cms