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CASE STUDY
.15
CHAPTER 7: TATA CONSULTANCY SERVICES (TCS) LTD. CASE
STUDY
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market and provided capabilities to bid for big government and public sector contracts. At
that time, 83% o f CM C’s revenue came from domestic Indian market and hence other Indian
IT companies were not interested in the acquisition.
IM PO R T A N T M ILESTO N ES
1981 Wins first software export award from the Government of India
TA B LE 19: IM P O R T A N T M ILE S TO N E S C H R O N O L O G Y
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7.2 STRENG TH S, W EA K N ESS, O PPO R TU NITIES, AN D TH REATS (SW O T)
AN ALYSIS
STRENGTHS
1. Biggest Indian IT company
2. Earliest start compared to its Indian peers
3. Tata group backing
4. Pioneered offshore projects
5. International experience since beginning
6. Sold India story for initial 20 years, this helped its Indian IT peers.
7. Tata groups global presence helped in new market entry
8. Followed organic growth for initial 30 years
9. Acquisition o f CMC provided huge access to domestic market and scale
10. Young and dynamic leader
11. Successful and long term leadership pipeline
12. Non linear growth on top o f agenda along with growth in emerging markets
13. Integrated full service model which is solution to its clients problems and IP is also
developed
14. New focus area o f SMEs
15. Actively involved with NASSCOM and CII
16. Established process to percolate the strategy through think tanks
17. Visionary board
18. Consulting led focus
19. Identified geographic growth strategies as one aspect o f overall strategy
20. Realised 2008 downturn in 2007
WEAKNESSES
1. May need to optimise on human resource utilisation
2. May take more time to change compared to its competition due to large size
OPPORTUNITIES
1. Scale up beyond the obvious growth levels
2. Develop the brand globally
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TH R EA TS
1. Uncertainties in global economies as a risk
2. Country level risks
3. Competition developing niche skills and expertise
The company’s huge size in terms o f number o f employees and revenues plays important role
in developing strengths. The size strength inherently provides weakness if not being as
nimble as a niche small competitor does. The opportunities are tremendous since the global
market is huge. The threats are obvious dues to size and spread o f the company’s business
internationally. These all have direct impact on composition and direction o f exports o f the
company.
The current CEO o f the company, N. Chandrasekaran, known as Chandra is charting growth
o f this big behemoth o f Indian IT industry. Chandra is carry forwarding a legacy o f F.C.
Kohli and S. Ramadorai. Chandra probably is knows that the advantage o f head count can
turn you upside down in changing business and economic scenarios. Like its other Indian IT
peers, non-linear growth is on top o f its agenda. Chandra comes from a head on projects and
client focus kind o f a person. He did successful stints in US, U.K., and Europe. The
developed markets for IT services. There are lot o f stories as to how he helped other project
and accounts managers to bid and grow their client accounts. He also worked as executive
assistant to S. Ramadorai. Chandra’s leadership style is smart and objective. As a head o f
global sales, he established company’s business in China, Europe, and Latin America. It was
Chandra’s initiative to tap Small and Medium-scaled Enterprises (SMEs). As an executive
assistant to S. Ramadorai, Chandra developed TC S’s into business units. These units were
given mandate to increase its revenues. This also fuelled entrepreneurship spirit within
employees. Chandra device integrated full service model to combat head count based
revenues. The model will provide business solution to the client.
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The solution would include:
• Designing software
• Develop software
• Manage software
• Focus on top 2000 companies in established markets by utilising full service model as
a solution to address client problems
• Help its customers to globalise
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He is a member o f Executive Council, National Association o f Software &. Service
Companies (Nasscom) and a senior member o f the Institute o f Electrical and Electronic
Engineers. He is on the board o f Tata Business Support Services, as well as many TCS
subsidiaries. Chandra joined TCSL in 1987 after completing his Masters in Computer
Applications from Regional Engineering College, Trichy, and Tamil Nadu in 1986. He also
holds a Bachelor o f Science in Applied Science fi-om the Coimbatore Institute o f Technology,
Tamil Nadu.
7.3 A B O U T TCS
Tata Consultancy Services (TCS) is an IT services, business solutions and outsourcing
organization that delivers real results to global businesses, ensuring a level o f certainty that
no other firm can match. TCS offers a consulting-led integrated portfolio o f IT and IT-
enabled services delivered through its unique Global Network Delivery Model™ (GNDM™),
recognized as the benchmark o f excellence in software development. TCS is part o f the Tata
group, one o f India’s largest industrial conglomerates and most respected brands. TCS has
over 198,500 o f the world’s best-trained IT consultants in 42 countries. Financial
Information, Revenue o f $8.2 billion as o fiscal year ending 31 March 2011.
Awards
• TCS awarded 2009 SAP Pinnacle Award
Features like TCS’ GNDM^"^, Solution Accelerators, Innovation Network and other
capabilities set us apart. TCS has a strong network o f strategic and solution partners with a
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joint objective o f helping its customers become high-performance businesses by maximizing
the value o f their technology investments.
• IT services
• IT infrastructure services
• Enterprise solutions
• Consulting
• TCS BaNCS
• Other products
7.4 INSIG H T
TCS has bouquet o f offerings like pay by transactions or IT partnership. TCS has global
expertise but local presence. It has 147 centres across world, profitability is 30%, and it is a
cash plus company. TCS takes active part in industry associations like National Association
o f Software Companies (NASSCOM) and Confederation o f Indian Industries (CII). At the
time o f financial backlash around 2008, the company cut down on recruitment, bonuses,
increments were modest, and exploring other markets. Importantly the company kept profits
at same level. The current revenue leading geographies for the company are US and UK.
The company sets revenue targets according to verticals and not according to geographies.
The HI visa issue did not have much effect on the com pany’s business. Application
development and maintenance and Enterprise systems will be having continuous demand.
The company has observed that when Gross Domestic Product (GDP) grows, IT grows. In
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BRIC countries, Brazil is not offering much opportunities and Russia is still in turmoil. The
company is expecting 20% per year increase from domestic India market. The Indian market
needs more sophistication to consume IT services.
The company has a think tank o f top leader for conceptualising strategic ideas, which are then
passed on to a leadership team. Each member o f the think tank becomes responsible for one
strategic idea and sees it through completion. The think tank is used as a vision setting body.
The think tank should deliberate on challenges and opportunities. It should be used for
driving change. The team should achieve mix o f thinking and doing.
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7.5 C O M P O S IT IO N O F B O A R D O F D IR E C T O R S
FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 FY 2009-10
R N Tata, R N Tata R N Tata, R N Tata, R N Tata,
Chairman Chairman Chairman Chairman Chairman
S Ramadorai, Ron Sommer A Mehta, Prof. Clayton M S Ramadorai,
CEO and Independent Independent Christensen, Vice Chairman
Managing Director Director Independent A Mehta,
Director A Mehta N Chandra, Director Director
Aman Melita Independent Independent Naresh N
Naresh Chandra Director Director Chandra, Chandrasekaran,
V Thyagarajan N Chandra V Thyagarajan, Independent Chief Executive
Clayton M Independent Independent Director Officer and
Christensen Director Director S Mahalingam, Managing
V Thyagarajan C M Christensen, Chief Financial Director
Independent Independent Officer S Mahalingam,
Director Director and Executive Chief Financial
5 Ramadorai Laura Cha, Director Officer and
Chief Executive Independent Aman Mehta, Executive
Officer Director Independent Director
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Executive Director Officer Director
and Head, Global and Managing
Corporate Affairs Director
Phiroz
Vandrevala,
Executive
Director
and Head,
Global
Corporate Affairs
V Thyagarajan
Independent
Director
Ajoyendra
Mukherjee
VP and Head,
Global Human
Resources
FY 2010-11
R Sommer, Director
S Mahalingam, Chief Financial Officer and Executive Director
I Hussain, Director
V Kelkar, Director
P A Vandrevala, Executive Director and Head, Global Corporate Affairs
A Mehta, Director
V Thyagarajan, Director
Laura Cha, Director
S Ramadorai, Vice Chairman
R N Tata, Chairman
N Chandrasekaran, Chief Executive Officer and Managing Director
C M Christensen, Director
TA B L E 20: COMPOSmON O F BOARD O F DIRECTORS
It seems Clayton M Christensen plays important part as a board member. He has shared
innovation wisdom with the company’s leadership team. Technology market map, which is a
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two-way classification o f technology and market impact dimensions o f any innovation
project, it guides project outcome around horizontal parameters:
• What is this project trying to achieve?
• Budgeting
• Governing
The model helps company to maintain funnel o f projects in each quadrant in the model.
Derivative projects are best run by elements, which are closest to the business. In platform
innovation, the company gets feedback from the customers. These projects are long-term
projects with 12 to 18 months period with customer and goal being visible. Such projects
become extension o f what the company does today.
In 1970s, TCS developing India centric software services was kind o f disruptive and low
cost, offshore development Innovation model. The company is investing in biotechnology
like drug discovery, synthetic biology, genomics, and related areas. This is something new
for IT industry. The company got some early adopters. The company is working on a
medicine through an Indian lab on malaria. Once the medicine is invented, it will be
disruptive innovation.
Infinity was a strategic project to develop better internal communication within the company.
The company had had revamp its networks, support systems, IT infrastructure, IT telephony,
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collaboration tools, knowledge management tools, and web 2.0 kind o f framework. It reduced
travel and communication costs. The company also uses balanced scorecard to measure the
effectiveness o f such innovation projects.
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• IT outsourcing component is expected to grow from US$ 225 billion in 2009 to US$
239 billion in 2014 at a CAGR o f 1.1%.
• IT services offshored are expected to grow from US$ 31.1 billion in 2009 to US$ 42.8
billion in 2014 at a CAGR o f 6.6%.
BPO spend is expected to increase from US$ 152.1 billion in 2009 to US$ 201.5 billion in
2014 at a CAGR o f 5.8%. IT spend forecasts by global technology analyst firms like Gartner,
Forrester, IDC and others indicate a growing market for IT and ITES for industry verticals,
service offerings and geographies o f interest to the Company and excellent prospects for
growth in the future.
TCS continues to focus on serving large global clients in the major markets o f North America
and Europe including UK. The Company’s key focus in these mature markets is to grow its
wallet-share in key customer accounts by increasing the scope o f engagement. TCS is also
focused on winning new key accounts in these major markets by using its integrated full
services and GNDMTM offerings. The Industry domain and consulting led focus has enabled
the Company to push for aggressive growth. The Company has numerous multi-year
relationships established with global multinationals in these markets and continues to provide
them a muUiple range o f services. In North America, the Company has further strengthened
its local presence by focusing on growing its investments in Cincinnati, Ohio, by recruiting
local talent to support North American operations. In Europe, the Company has increased its
focus on the Western European markets like Germany, France, Switzerland, Benelux and the
Nordic region.
The company has observed uncertainties in global economy as one o f the risks. Slow or
uncertain recovery in the major markets or economic shocks resulting from instability in the
Middle East can affect the company or sovereign defaults in Southern Europe could lead to
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cuts in IT budgets and result in demand compression, pricing pressure and / or increased
credit risk from vulnerable clients. To mitigate the risk, the company’s approach is:
• Broad-basing the number o f key clients by gradually moving clients up the revenues
bands, so concentration risks is reduced.
Total Revenue
40.000
n .o m
30.000
4A 25.000
e
o 20.000
kr
15.000
10.000
s.ooo
G R AP H 17: R EV EN U E F R O M FY 05 T O FY 11
As can be seen from the chart, the revenue has been continuously rising. It is interesting to
note that there seems a drop in comparative revenue growth from FY09 to FYIO. This may
be because o f American recession o f 2008. The jum p in revenue growth from FYIO to FYl 1
probably shows the recovery from the recession.
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COMPOSITION AND DIRECTION OF EXPORTS
Events
130
2007-08 Service offerings:
o IT Solutions and Services
o Asset based offerings
o IT Infrastructure Services
o Business Process Outsourcing
o Engineering and Industrial Services (EIS)
o Global Consulting Services
131
FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11
Revenue was on the continuous rise, percentage drop in revenue in FY 2009-10 may be
because o f 2008 American recession.
25000.00
22863.00
20000.00 18685T21
15000.00 f
10000.00 4-
5000.00
0.00
FY 2005-06 FY 2006-07 FY 2007-08
Revenue showed steady rise until FY 2007-08. This was the period post recovery from 2001
recession.
132
FY 2008-09 FY 2009-10 FY 2010-11
Slight revenue drop in FY 2009-10 was probably because o f American recession o f 2008.
The global meltdown took some time to recover. For the company, recovery could have been
quick since it diversified into different geographies.
70
9.2 59.06
60
-5 * 4 3 - 52.80 53.87
"50^5------- ■ N o r th A m e r ic a
50
■ UK
■ Eu ro p e
40
■ India
30 — B -A s ia Pacific
■ Iberoan nerica
O th e r s
10
It is evident from the chart that dominance o f the US in revenue share is decreasing
continuously. Similar is the case with revenue from UK, it is also declining. Probably the
133
sharpest decline in revenue is from Europe. Revenue from India is also on slight decline.
Revenue from Iberoamerica is on flat growth. Revenue from Asia Pacific was on continuous
rise. Revenue from Middle East and Africa showed slight growth.
70
59.2 59.06
60 ‘
50.35 ■ N o r th A m e r ic a
50
■ UK
40 s E u ro p e
■ In d ia
30 ■ A sia Pacific
■ Ib e ro a m e ric a
20 -1
■ M id d le East a n d A fric a
■ O th e r s
10
Specific FY 2004-05 to 2007-08 data shows US and Europe revenue on decline. UK and
India also shows slight decline in revenue. Revenue from Asia Pacific, Iberoamerica, and
Middle East and Africa showed gradual revenue growth.
60.00 T----------------------------
53.87
52.80
51.38
50.00
40.00
I N o r t h A m e r ic a
I UK
30.00
I E u ro p e
I In d ia
20.00
10.00
0.00
2008-09 2009-10 2010-11
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Revenue from US and India showed continuous growth for the period FY 2008-09 to FY
2010-11. Revenue from UK showed sharp decline while revenue from Europe showed slight
decline.
The company realised downturn o f 2008 in December 2007. Few o f its customers stopped
business and company thought it to be exceptions, but found it as becoming a pattern. To
overcome the downturn, the company restructured itself and became customer focused. The
company pushed paddle o f efficiency. The company started being more close to the customer
and proactively asked for areas where it can help them. Interestingly, the company did not
lose a single client. The company learned that in downturn it should not emphasise much on
following big deals, as those typically are delayed or cancelled.
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7.7 CON C LU SIO N AND IM PLICA TIO N S O F FIN D IN G S
The company’s U.S. business shrank in 2008, overall for the past five years since 2009, it has
been growing approximately 25% on a compounded basis. The company understood that
focus is required on emerging markets like India, Latin America, and China for growth
opportunities. It also understood that growth in emerging markets could not compensate for
the contraction in demand from U.S., U.K. or Europe.
The company had actively diversified its geographic presence. It had identified geographic
concentration o f revenues as a risk. This can be observed through change direction o f
revenue. Share o f revenue from UK and US in terms o f percentages has been decreasing
gradually. There was sharp decline from revenues from Europe. This trend shows saturation
for IT services for the company in developed economies. Whereas revenue from Asia Pacific
was on continuous, rise and from Middle East and Africa showed slight growth. This trend is
inline in-line with global trend that shows growth in developing economies and saturation in
developed economies. Revenue from Iberoamerica showed flat growth. Interestingly revenue
from India showed slight revenue decline in terms o f percentage. This can be because o f the
strong domestic India revenue the company developed since beginning unlike its peers.
The company has planned an organic growth in the emerging markets. For example, in
Brazil, it worked with a partner initially and developed the market from ground up. Then
acquired the partner and now developing the revenue further. The strategy directly affects
com pany’s direction although as far as the composition, it wants to offer full service in all
geographies.
In Latin America, the company is focused on multiple countries like Mexico, Brazil,
Columbia, Ecuador, and Chile. Largest markets are Mexico and Brazil. The company serves
multi-national as well as national clients. It is the same strategy in China. Developments in
China are taking time due to culture and language barrier. The company believes in develop
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any new market in two phases. In first phase, the company does not put any big revenue
numbers but puts strengths that you need to develop credibility in that market. The strengths
are:
1. Acquiring few clients
2. Recruiting and retaining people
3. Creating delivery methodology
4. Build a reference base
Once these four strengths are developed, then the company puts up scale. The company used
this new market development strategy in Mexico, Brazil, and will follow the same strategy in
China.
The company believes in building client relationships in spite o f the volume o f the client
order. Hence, the company would like to call itself a trusted partner o f the client. The
company believed that in economic recovery after the recession, US lead the way and Europe
was lagging behind. The company did not face any recession effect in emerging markets. The
company observed that its problem in emerging markets is its business mix. The company’s
business mix is based on discretionary spend which means the IT budgets are not earmarked
and are made available for use as needed by clients. Hence, there is no annuity revenue and
the company has to work hard to get these orders.
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REFERENCES
• TCS Annual Reports
http://www.tcs.com
Interaction with the company official
TCS targeting 1000 customers in SMB segment this year, The Economic Times
The world turned upside down, A special report on innovation in emerging markets.
The Economist
Inever take my team for granted: TCS' Chandrasekaran, The Economic Times
Software Exporter to Expand Footprint in Emerging Markets, The Wall Street Journal
Meet Tata Consultancy's New Boss, Forbes.com
Beyond the Economic Crisis Success and Sustainability - Prof Pankaj Ghemawat,
Video
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