The bench strength at top Indian outsourcers has nearly halved in a very short span of time, but that isn’t necessarily a very bad thing for the global services leaders. Higher utilization and generative artificial intelligence (GenAI) are helping them drive efficiencies through the talent pyramid as the $254-billion industry rides out its toughest business cycle since the global financial crisis.

“Large IT services companies typically maintained a bench of 20-30% of their workforce. This has significantly reduced, with many companies now reporting a bench size of around 10%,” said Krishna Vij, business head at staffing firm TeamLease Digital. “This shift can be attributed to increased focus on upskilling and training bench employees for redeployment.”

Data by recruitment firm Xpheno shows that calibration of the bench across IT majors has occurred since the start of FY25 (April 2023) and the fiscal closed with an estimated 170,000 bench size. This is a dip from the peak of 212,000 bench size that was recorded in JFM2023 (January, February, March last year).

“As adversities sustained, margin pressures have remained high through FY2024 and this saw enterprises tightening their bench to control costs,” said Xpheno’s IT staffing business head, Sundar Eshwar.

He added that every 10,000 annual drop in bench size can provide a potential Rs 400 – 450 crore drop in people costs alone and that can be a significant contributor to boost the bottom-line.Ciel HR Services said the IT industry has reduced its bench strength by 10 percentage points over the last two years. Consequently, the benches have been reduced by 50-75%.

Also read | Indian IT sees deal tenures shrinking in rich neighbourhoods

“IT companies have been under profit pressures in the last few quarters given the global headwinds in the environment. Moreover, new technologies such as Gen AI and cloud have been disrupting every sector of the economy including IT,” said its MD & CEO Aditya Narayan Mishra.

Bench strength in the IT industry consists of full-time employees not assigned any active project. Typically, between two projects, IT companies keep employees in reserve and deploy them as and when their customers demand them. Often, the fresh recruits and those undergoing training are also ‘benched’ until they start working on new projects.

Trimming the Flab

India’s outsourcing industry has already witnessed massive headcount reduction with five of the top six major firms shedding over 70,000 employees in FY24 alone.

As global firms grappled with economic challenges, tech demand shrunk, and IT services firms scraped for revenue growth. This increased the bench sizes of software firms due to lesser employee requirements on projects, significantly impacting profitability. This forced IT majors to focus on improving margins as they maximised employee productivity, cut headcount, reassessed the underutilised bench emphasising efficiency in project allocation to remain competitive.

“Additionally, overhiring during the pandemic contributed to the large bench pool, necessitating a shift towards leaner operations. Undoubtedly, the traditional model is transitioning towards strategic talent deployment across IT firms,” Vij added.

Also read | Top four IT firms report 50,000 fall in headcount over last year

Utilisation rates or the percentage of staff members engaged in ongoing active projects, improved across major IT companies to around 80%, nearing peak levels.

Without giving an exact number, IT bellwether TCS said it will continue to recalibrate its lateral hiring focusing more on utilising the capacity built over the prior years. Its smaller rival Infosys said utilisation of 80.7% for the full year and 82% for the fourth quarter was still below its comfort level of 84%, 85%.

Top tier IT majors including TCS, Infosys and Wipro are slowing their campus recruitments as well.

Companies are prioritising skill-based allocation, upskilling, and leveraging the gig workforce to create a dynamic talent pool comprising full-time employees, gig workers, and contractors.

Ramkumar Ramamoorthy, partner at Catalina, a growth advisory firm, sees bench as a function of revenue growth, speed of fulfilment, and breadth of services, industries and geographies. “Higher the growth, higher the bench. Higher the fungibility of resources, higher the speed of fulfilment. And broader the range of services and industries, higher the bench. One of the reasons for us to see higher utilisation in recent years is because of a number of large, cost take-out deals signed by companies. In such deals, there will always be greater control and fungibility of resources with minimal client intervention.”

While Ramamoorthy thinks it is early days, AI is fundamentally changing the way software is being developed, tested and deployed.

The bench strength at top Indian outsourcers has nearly halved in a very short span of time, but that isn’t necessarily a very bad thing for the global services leaders. Higher utilization and generative artificial intelligence (GenAI) are helping them drive efficiencies through the talent pyramid as the $254-billion industry rides out its toughest business cycle since the global financial crisis.

“Large IT services companies typically maintained a bench of 20-30% of their workforce. This has significantly reduced, with many companies now reporting a bench size of around 10%,” said Krishna Vij, business head at staffing firm TeamLease Digital. “This shift can be attributed to increased focus on upskilling and training bench employees for redeployment.”

Data by recruitment firm Xpheno shows that calibration of the bench across IT majors has occurred since the start of FY25 (April 2023) and the fiscal closed with an estimated 170,000 bench size. This is a dip from the peak of 212,000 bench size that was recorded in JFM2023 (January, February, March last year).

“As adversities sustained, margin pressures have remained high through FY2024 and this saw enterprises tightening their bench to control costs,” said Xpheno’s IT staffing business head, Sundar Eshwar.

He added that every 10,000 annual drop in bench size can provide a potential Rs 400 – 450 crore drop in people costs alone and that can be a significant contributor to boost the bottom-line.Ciel HR Services said the IT industry has reduced its bench strength by 10 percentage points over the last two years. Consequently, the benches have been reduced by 50-75%.

Also read | Indian IT sees deal tenures shrinking in rich neighbourhoods

“IT companies have been under profit pressures in the last few quarters given the global headwinds in the environment. Moreover, new technologies such as Gen AI and cloud have been disrupting every sector of the economy including IT,” said its MD & CEO Aditya Narayan Mishra.

Bench strength in the IT industry consists of full-time employees not assigned any active project. Typically, between two projects, IT companies keep employees in reserve and deploy them as and when their customers demand them. Often, the fresh recruits and those undergoing training are also ‘benched’ until they start working on new projects.

Trimming the Flab

India’s outsourcing industry has already witnessed massive headcount reduction with five of the top six major firms shedding over 70,000 employees in FY24 alone.

As global firms grappled with economic challenges, tech demand shrunk, and IT services firms scraped for revenue growth. This increased the bench sizes of software firms due to lesser employee requirements on projects, significantly impacting profitability. This forced IT majors to focus on improving margins as they maximised employee productivity, cut headcount, reassessed the underutilised bench emphasising efficiency in project allocation to remain competitive.

“Additionally, overhiring during the pandemic contributed to the large bench pool, necessitating a shift towards leaner operations. Undoubtedly, the traditional model is transitioning towards strategic talent deployment across IT firms,” Vij added.

Also read | Top four IT firms report 50,000 fall in headcount over last year

Utilisation rates or the percentage of staff members engaged in ongoing active projects, improved across major IT companies to around 80%, nearing peak levels.

Without giving an exact number, IT bellwether TCS said it will continue to recalibrate its lateral hiring focusing more on utilising the capacity built over the prior years. Its smaller rival Infosys said utilisation of 80.7% for the full year and 82% for the fourth quarter was still below its comfort level of 84%, 85%.

Top tier IT majors including TCS, Infosys and Wipro are slowing their campus recruitments as well.

Companies are prioritising skill-based allocation, upskilling, and leveraging the gig workforce to create a dynamic talent pool comprising full-time employees, gig workers, and contractors.

Ramkumar Ramamoorthy, partner at Catalina, a growth advisory firm, sees bench as a function of revenue growth, speed of fulfilment, and breadth of services, industries and geographies. “Higher the growth, higher the bench. Higher the fungibility of resources, higher the speed of fulfilment. And broader the range of services and industries, higher the bench. One of the reasons for us to see higher utilisation in recent years is because of a number of large, cost take-out deals signed by companies. In such deals, there will always be greater control and fungibility of resources with minimal client intervention.”

While Ramamoorthy thinks it is early days, AI is fundamentally changing the way software is being developed, tested and deployed.