Pareekh Jain, CEO of Pareekh Consulting, has observed a noticeable shift in client expectations, with many now demanding up to 20% cost reductions without compromising on output. He explained that clients increasingly believe the same tasks that once required 100 people can now be completed by 80, largely due to productivity gains from technologies like generative AI. Jain warned that unless actual effort is reduced in line with these expectations, the resulting strain could impact profit margins. However, he also pointed out that experienced service providers are seeing rising revenue per employee, which may help maintain margins in some cases.
This trend is becoming evident in the changing composition of client portfolios at major IT firms. For instance, Tata Consultancy Services saw a decline in its high-value client segment, with the number of accounts contributing over \$50 million annually dropping from 139 to 130 over the fiscal year. Wipro experienced a similar drop, with its \$100 million-plus clients falling from 22 to 17. HCLTech also reported a slight decrease in its \$50 million-plus client count.
According to Jain, the adoption of generative AI is playing a key role in these shifts. As work becomes more efficient, clients are reducing their overall spend, which in turn affects revenue per account. To counter this, service providers are looking to grow by entering new markets or offering a broader range of services to their existing clients.
Industry leaders are acknowledging the complex effects of generative AI. HCLTech’s CEO, C Vijayakumar, noted that AI is influencing both the pricing environment and the types of revenue opportunities emerging. He acknowledged that while pricing pressure is real, AI also opens doors to new revenue streams.
Even though deal sizes may be shrinking, profitability could be preserved due to slower hiring trends. Jain highlighted that while revenue continues to grow modestly, employee numbers are staying flat, which helps maintain operational margins.
Brokerage insights support this outlook. For example, a review of Infosys by Motilal Oswal indicated that pricing has remained stable, and the company is exploring value-based models that could enhance revenues despite downward pricing pressure.
Nonetheless, the competitive landscape remains tough. Accenture’s CEO Julie Sweet recently confirmed during an earnings call that pricing across the industry has softened, reflecting the challenges facing IT service providers as they adjust to a new era of client expectations and technological disruption.
