Outgoing TCS CEO Rajesh Gopinathan’s ops model may have led to unease

A new operating model mooted last year by outgoing chief executive of Tata Consultancy Services (TCS) Rajesh Gopinathan may have caused ‘unrest’ among some employees of the country’s largest software services exporter, several sources in the company and industry experts told ET.

The link between the restructuring and Gopinathan’s sudden exit, however, cannot be clearly established, analysts and insiders said. In a surprise move, Gopinathan announced his resignation from the company after a six year stint as CEO and a 22­ year career at TCS.

He is the only TCS CEO to ever quit and had another four years of his tenure as CEO remaining. Insiders also said that despite some “negative feelings”, the new structure had a buyin from the company’s Board and from Tata Sons’ chairman N Chandrasekaran, it was a work in progress and was doing well despite some teething troubles.

Lack of any top level churn and strong growth in the last three quarters at TCS, however, do not demonstrate any negative impact of the reorganisation, said industry analysts.

TCS did not respond to ET’s request for comment.

In March 2022, the IT behemoth organised the entire company into four new business groups to bring in a greater focus on clients as it is eying the milestone of $50 billion in revenues by 2030.

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“Under the new structure it is hard to find who is in charge in some instances with too many cooks in the kitchen, this is quite unlike the normal TCS interactions which are usually disciplined and on target,” said chief executive of IT research firm Peter Bendor­Samuel adding that given the recent streak of good performance by TCS, it is however hard to say if the restructure caused a significant performance drag. Several executives felt “disgruntled” for having to deal with smaller accounts as their accounts became big and moved to the other unit.

The organisational restructuring announced in April last year may have also resulted in confusion in customer dealing, the sources added. However, other analysts suggest it is too early to assess the impact of such a massive change at the scale of TCS.

An equity analyst, who did not wish to be quoted, said that in the case of peers Infosys and Wipro, CEO appointment and organisational restructuring exercises were followed by a high level of churn. Such churn was not seen at TCS when Gopinathan was appointed in 2017, reappointed in 2022 or after the restructuring program was introduced last year.

“Initial data points do not indicate any increase in top level churn or even a change in growth metrics.” TCS has been meeting or beating revenue growth metrics reported by peer Infosys for the past three quarters. Only retrospective impact analysis of such changes are possible and three quarters is a very short time frame to do so,” said the analyst.

As per the new structure, the existing customer “acquisition” is supposed to bring in new clients, the new “incubation” business group will handhold clients who are at an early stage of engagement with the company­ ideally customers below the $20 million revenue range.

Once they mature to a wider range of requirements they will be serviced by the existing “growth” unit which comprises 200 industry service units (ISUs). Finally, the largest customers with long term engagements ideally $100 million plus clients will be moved to the new “transformation” unit.

Mrinal Rai, principal analyst, ISG said that the main objective of the restructuring was to expand TCS transformation related engagements with large clients and expand its presence in the midmarket segment. Both of these metrics have improved over the last year, however, it may not be attributed to the restructuring alone, he added.

“TCS is usually seen as an IT service provider catering to large enterprise clients. Based on our research, we also now see TCS making inroads in the small mid­market segment also in markets like Europe,” said Rai. The new structure was creating some internal tension, especially when it comes to new client acquisition, said Phil Fersht, chief executive, HfS Research.

“The new structure was geared well to grow existing sizable clients, as opposed to winning new clients,” said Fersht.

“Gopinathan was under some stress because of it, some people were unhappy and disgruntled about it, but any kind of transition has its own set of issues before it settles down,” said another source. In some cases, customers were left confused in some cases about whether they had to engage with a group head or a specific ISU head leading to inefficiencies in providing support to new (especially small) customers in the system, experts added.

“Leaders who had been groomed through the earlier industry service unit model were redistributed to lead these new groups. In some cases, people were suddenly in charge of much smaller but new client markets. There were obviously some teething issues,” said a TCS source close to the initial development. ET could not independently verify if these issues led to Gopinathan’s resignation.

The four new units created were – Acquisition, Relationship Incubation, Enterprise Growth and Business Transformation. The groups were created based on the size of revenue that the individual client provided TCS with the goal to move each client into a next group by acquiring additional business from them.

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