The Truth in IBM and TCS Layoffs and What it Means to Services Industry Customers and Providers | Sherpas in Blue Shirts

Posted On February 2, 2015

Over the last few weeks, we saw “bad news” about massive layoffs at IBM (100,000) and TCS (25,000), two of the industry’s largest services companies and market leaders. Those numbers proved to be overstated, but clarification on the real numbers isn’t what’s important. The numbers distract from the real issue. Attention-grabbing news headlines and social media’s frequently salacious, overhyped comments created a “fog” around the true picture of layoffs at both companies. So let’s cut through this fog and look at the truth of what is happening and the real issue for services providers and customers.

The truth

Social media and irresponsible reporting allowed initial numbers that later turned out to be significantly over-stated. The official number for TCS was less than 5,000 and IBM called the 100K number “baseless” and “ridiculous.” But even the subsequent clarifications on numbers distract us from the real issue – the fact that the services industry is witnessing a fundamental discontinuity and is in need of massive reskilling to meet customer demands.

Layoffs at IBM and TCS are not signs of companies in distress, and neither company is leaving the services space. Rather, these are two market leaders proactively dealing with the major disruptive transition now happening in the services space. IBM and TCS have been market leaders, IBM the undisputed leader in infrastructure services and TCS the largest provider in the arbitrage and offshore space.

Both companies recognize that they don’t have enough of the new skills needed for the new digital services markets and both have too much talent in the skills that made them leaders in infrastructure and labor arbitrage – services segments that are now diminishing as customers switch to digital services and new consumption-based models.

From our discussions with both companies and with some of their customers, it’s clear that their customers are demanding they take steps to acquire the necessary new skills so they can serve customers’ new demands. For example, providers’ reskilling efforts may need to include such talent as creative UX experts and data scientists.

As leaders, both companies understand that the services market is changing fundamentally. Services and technology leverage are shifting from being an efficiency/cost play to one generating revenue and growth for customers. Both are simply taking necessary steps to ensure they stay relevant and retain their leadership positions as the market evolves and customers demand new skills to address their needs.

IBM’s recent moves appear to be radical and more significant, but that’s because its acquisitions are larger (such as acquiring SoftLayer so it can compete on AWS’s level for cloud services) and it’s also divesting the kinds of business (such as voice services and chips) that could hold Big Blue back from continuing to be a leader in meeting customer expectations.

Issue for services customers

All organizations using third-party resources these days should ask their existing and/or future service providers what steps they are taking to ensure relevance and necessary talent to deliver services in new business models and new technologies.

Issue for service providers

We at Everest Group believe the reskilling actions of IBM and TCS are a harbinger of things to come for all service providers – ongoing rolling waves of disruption affecting talent needed for the fundamental changes happening in the services space. I’ve been blogging about these changes (growing maturation of services, pricing pressures, lower demand for labor arbitrage and shifts in customer demand) for more than two years. With the proactive steps of IBM and TCS, the industry now has tangible proof that the landscape is indeed changing.

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