Future of services is hybrid: Former Cognizant CEO Francisco D’Souza says IT firms well-placed to modernise legacy systems

Legacy modernisation refers to upgrading outdated IT systems, while backlog reduction involves clearing the accumulated technical tasks and maintenance work, both of which AI is now helping companies perform more efficiently.

“Almost every company has a huge amount of tech debt, legacy systems… There has always been a backlog of work. Now we’re seeing that backlog burn down faster than before,” D’Souza said.

Also read: I go to Silicon Valley, walk around to keep up with AI: Former Cognizant CEO D’Souza

Future of services: Hybrid

According to D’Souza, AI is reshaping the services industry. “We think that the future of services is hybrid,” he said, referring to companies that combine human talent with AI, automation, proprietary platforms, and intellectual property.

He described the shift as a move away from labour-intensive models toward intelligence-enabled service delivery. This, he said, represents a “fundamental reset” in the industry.

Recognize evaluates AI on two fronts when making investment decisions: whether portfolio companies are using AI to improve their operations and if they are helping clients become more AI-native.

“Both of those are significant opportunities,” he said.

Even CEOs of IT giants have sounded the bell for an overhaul in IT business models amid AI disruption.

“The business model is ripe for disruption, what we saw in the last 30 years was a fairly linear scaling of IT service. The time is already out for that model,” HCLTech chief executive officer C Vijayakumar said early this year.

AI’s precedent?

D’Souza compared the current boom to earlier shifts in enterprise tech such as the rise of cloud computing. He said legacy systems, which companies have long patched or worked around, are now seen as bottlenecks in an AI-first environment, which requires real-time processing and modern infrastructure.

“In the old days, you could kind of put band aids around your legacy systems and get them to do what you needed to do. In the new world of AI, customers and your stakeholders want real-time experiences, legacy for a company is holding you back,” he said.

D’Souza said that while AI will have a significant impact on services, large IT companies are unlikely to fully automate due to the complexity of legacy systems. Instead, he expects a middle-ground approach to emerge.

“You’ll see a model that still requires people... but those people will be augmented by AI,” he said. “The model will be somewhere in the middle.”

Clean-sheet companies

When asked about comparisons between large IT services companies and lean AI-first startups in Silicon Valley, D’Souza said the newer companies benefit from starting with modern architecture and a clear objective.

“These AI-first companies... emerge because they are clean sheets of paper solving a very specific issue,” he said. “The traditional large-scale IT services business is working with companies that have significant legacy and don’t have a clean sheet of paper.”

Moneycontrol has reported that a new generation of AI-native startups are scaling rapidly with leaner teams at a time when enterprises are trying to cut costs and trim headcount.

For example, San Francisco-based AI code editor Cursor, built by a team of just 20, has reportedly clocked $300 million in annual recurring revenue (ARR) in less than a year. AI-powered app builder Lovable, headquartered in Sweden, reached $40 million in ARR within five months, with a team of only 15.