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CGI STRATEGIC MEMO: THE EXISTENTIAL PIVOT

From Staff Augmentation to AI Transformation

CONFIDENTIAL | Executive Leadership Only From: The 2030 Report — Strategic Assessment Date: June 2030

THE SITUATION

George, you face the hardest challenge of your tenure: transforming a 90,000-person organization from a "staffing services" business to a "consulting and transformation" business, while the old business contracts 2-5% annually.

Your company generated CAD $11.5B revenue in 2029. In 2030, you're on pace for CAD $11.6B—flat. This is the first year of essentially zero growth in CGI's modern history. For a company that has grown 8-12% annually for two decades, flat growth is a shock.

The market is reacting. Your stock is down 48% from peak. Your dividend is under pressure. And you have a 90,000-person organization that was built to scale in a high-growth environment.

Here's the honest assessment of your options:

THE STAFFING MODEL IS DYING

For decades, CGI's model worked: 1. Hire developers and engineers in Canada and India at CAD $60-100K annual cost 2. Bill them to clients at CAD $150-250/hour 3. Generate 25-35% gross margin 4. Scale by hiring more people

This model worked because: - Clients couldn't hire enough good developers in North America - Offshore resources were cheaper but still required management and quality control - Building software was complex enough that clients valued experience and relationships

All of this has changed:

AI can now write 70-80% of routine code. The remaining 20-30% requires senior engineering judgment, architecture expertise, and domain knowledge. The ratio has flipped from "90% coding work, 10% senior judgment" to "70% AI coding, 20% senior review, 10% architecture/domain."

This means: - You don't need 90,000 developers anymore - You need 20,000 developers, 5,000 senior architects, and 5,000 consultants - The economics are completely different

The math is brutal: - If a client was paying CGI CAD $1M annually for a team of 5 developers (CAD $200K/dev) - And that team can now be replaced with 1 senior developer + AI coding tools (CAD $150K for the senior + CAD $50K for tools) - The client saves 80% of cost and gets better quality

This is not a problem that better execution solves. It's a structural shift in the economics of software development.

THE CONSULTING PIVOT IS NECESSARY BUT INSUFFICIENT

You've correctly identified that CGI needs to pivot to AI transformation consulting. The logic is sound: CGI has relationships with 3,000+ major clients, understands their systems, and can help them implement AI.

The consulting opportunity is real but capped: - Companies need to understand: where should we use AI? How do we implement it? What's the business case? - CGI can win 6-month to 2-year engagements for this work - The revenue pool is large: maybe CAD $100-150B globally over the next 5 years - But it's one-time revenue, not recurring

Compare to staffing: - Staffing was recurring (5-7 year client relationships, ongoing work) - Consulting is episodic (win the engagement, execute, move on)

This means: - You need 3-4x as many sales engagements to generate the same revenue - Customer acquisition cost is higher - Revenue is less predictable

The real problem: Consulting is also commoditized. McKinsey charges CAD $500K+/week for transformation advice. Accenture charges CAD $250K+/week. CGI is trying to charge CAD $200-300K/week.

In this market, you're competing on: - Brand (McKinsey > Deloitte > Accenture > CGI) - Executive relationships (Strategy consultants > IT consultants) - Domain expertise (specialized firms > generalists)

CGI is the "generalist IT services firm trying to do strategy consulting." You're not bad at it, but you're not differentiated.

THE HARD DECISIONS AHEAD

You need to make three decisions by Q4 2030:

Decision 1: How many people do you actually need?

Your current model assumes: - 90,000 total employees - 60,000 billable developers/engineers - 30,000 managers, consultants, sales, and back-office

This works for a CAD $20B+ staffing-based business. It doesn't work for a CAD $12B consulting-based business.

Realistic headcount for the "target" business model: - CAD $12B revenue in AI transformation consulting + government contracts - ~35,000 total employees (38% of current) - ~15,000 billable consultants/engineers - ~20,000 supporting functions

This requires cutting 55,000 people over 3-5 years.

That's not a typo. You need to cut 55,000 people (61% of your workforce).

This is the hardest part of the pivot. It's why every IT services company is struggling. They have too many people for the business model of the future.

When should you announce this? - You could announce it all at once: "We're restructuring to 35,000 employees over 3 years" - Or you could phase it: "We're right-sizing to 70,000 by 2031, then to 50,000 by 2033"

My recommendation: Phase it. The market and your teams can't absorb a 55,000-person cut all at once. But be clear that this is the trajectory.

Decision 2: Which business segments do you keep / exit?

Decision 3: What's your financial policy?

You need to be transparent with investors: - "We are pivoting from high-growth staffing to consulting. Organic growth will be 0-2% for 3-5 years while we restructure." - "We are cutting the dividend. Current dividend (3.1%) is not sustainable. We expect to cut 25-30% in 2031." - "We are investing heavily in AI consulting and government contract expansion. CapEx will be 3-4% of revenue." - "By 2035, we expect to be a CAD $12-14B revenue company with 14-15% EBITDA margin and CAD $1.0-1.2B FCF."

This transparency is painful but necessary. It prevents nasty surprises later.

THE OPERATIONAL PRIORITIES FOR H2 2030 AND 2031

Q3 2030: 1. Announce "Strategic Restructuring Program": Acknowledge that staffing model is under pressure. Announce investment in AI consulting and government contracts. Signal that headcount reduction is coming (but don't announce specific numbers yet). 2. Begin management discussions: Talk to your regional and divisional heads. Get alignment on which people to keep, which to retrain, which to exit. 3. Identify AI consulting wins: You need some high-profile wins in AI consulting to make the narrative real. Find 3-5 major clients and land transformational engagements.

Q4 2030 and 2031: 1. Announce specific headcount reductions: Tier 1 (clear reduction to 75,000 by end of 2031), with timeline to 50,000 by 2035. 2. Execute separations: This is where the pain is. Severance, retraining, careful management of which regions are affected. 3. Invest in AI consulting: Build a dedicated AI transformation practice. Hire consultants from McKinsey, Accenture, and startups. Pay top of market. 4. Grow government contracts: Invest in business development with government agencies. Win large, multi-year contracts.

THE COMMUNICATION STRATEGY

Your leadership team, the board, and investors need different messages:

To your leadership team: "The staffing business is under structural pressure from AI. We have three options: (1) Decline slowly and accept lower growth forever, (2) Radically transform to consulting and reduce headcount by 50%, or (3) Sell the company. We're choosing (2). This is hard. Many of you will need to leave or retrain. But this is the path forward."

To your board: "Our historical model of 10%+ annual growth is not achievable anymore. We're transitioning to a consulting business that grows 5-7% annually with higher margins. This requires cutting headcount from 90,000 to 50,000 over 5 years and investing CAD $500-700M in AI consulting capability. The transformation will be complete by 2035, at which point we'll be a much smaller but more resilient company."

To investors: "CGI is restructuring from a staffing-based model (declining due to AI) to a consulting and transformation model (growing due to demand for AI expertise). Near-term (2030-2033): flat to low-single-digit growth, margin compression, dividend reduction. Long-term (2033-2035): return to 5-7% growth, margin expansion, restored dividend. We're investing for the next decade, not the next quarter."

To employees: "AI is disrupting the staffing business. We have to adapt. For those in government or consulting, your future is stable or growing. For those in staffing, you have options: move to consulting/government teams, take retraining, or take voluntary separation. We'll be transparent about timelines and severance."

THE HARD TRUTH

George, you built CGI into a global powerhouse by consistently executing. But this challenge is different. You can't execute your way out of a structural business model shift. You need to destroy and rebuild.

The staffing business that made CGI great is dying. The consulting business of the future is harder to scale, lower margin, and more competitive. But it's the only path forward.

The good news: you have a durable government business (CAD $3.8B revenue, ~16% margin) that gives you time to transition. You have relationships and credibility. And you have cash to invest in the pivot.

The bad news: you're going to lose a lot of people. Many of your best consultants will leave for McKinsey or startups. The stock will be under pressure for 3-5 years. Your dividend is going to be cut. And you'll be smaller in 2035 than you are today.

But you'll also have a company that's viable for another 20 years, not one that's slowly declining into irrelevance.

The 2030 Report | Confidential Strategic Counsel | June 2030