Shockwaves are rippling through the IT sector on news of Microsoft laying off around 3 per cent of its global headcount ( an estimated 7,000 people). As the company hinted on Tuesday that it was implementing changes to reduce the ‘layers’ of management, the tech sector viewed it as an early signal for the Indian IT sector to reduce its paunchy middle.
Although Microsoft did not name Artificial Intelligence (AI) as a cause of the axing, it undoubtedly has had a role to play. Once AI is implemented within operations, IT firms — both services and products — will get flatter. Mid-level staff who are AI savvy will be better equipped to hold on to their jobs, HR analysts told businessline. Industry estimates peg this middle layer of IT firms at over 8 lakh.
“A combination of business slowdown and Agentic AI focus is already impacting the middle layer in Indian IT,” Neeti Sharma, CEO, TeamLease Digital, said. “While there are no mass job cuts, companies have been evaluating the impact of these on the organisational structures. Those who are not able to keep pace with the change in technologies and are just engaged in people coordination and management are more at risk,” she added.
Product vs Services firms
“In IT product firms, as product context changes due to AI impact, the entire people chain can be impacted, including middle-level managers. In the case of IT services, we have to keep an eye on the pace of breakthroughs that AI can bring. If processes like testing, for instance, get disrupted, then it will also affect the managers of the testing ecosystem, which today employs lakhs of IT professionals,” said Kamal Karanth, co-founder, Xpheno, a specialist staffing firm. “But overall, those doing higher cognitive work will sail through better,” he added. Estimates from Xpheno suggest that there are over 8 lakh mid-senior (9-13 years band) employees across Indian IT services and GCC firms.
The founder of a SaaS firm said, “It would be naive” to think that AI is only coming for entry-level jobs. “Companies will need to shrink in size, and AI efficiencies kick in, and they face stiff competition from AI-native start-ups with leaner teams. Even in the case of services, companies will have to prove to clients that they are embracing GenAI and hence cannot bill as many hours as they were,” the person said.
A recent Gartner report noted that through 2026, 20 per cent of companies will use AI to flatten their organisational structure, eliminating “more than half of current middle management positions.”