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Business Strategy IT Industry Tata Consultancy Services
Business Strategy IT Industry Tata Consultancy Services
Strategic Analysis
Business Strategy
This report is submitted as part of industry analysis project of the course
Business Strategy, under the guidance of Prof. Rushi Anandan, in Post
Graduate Programme In Management at SPJIMR, Mumbai
Table of Contents
INDIAN IT INDUSTRY OVERVIEW .................................................................................................. 3
INTRODUCTION ................................................................................................................ 3
EXTERNAL ANALYSIS ......................................................................................................... 4
PORTERS FIVE FORCES MODEL (INDIAN IT INDUSTRY) ........................................................... 7
SWOT ANALYSIS - IT & ITES INDUSTRY .............................................................................. 8
TATA CONSULTANCY SERVICES .................................................................................................... 9
INTRODUCTION ................................................................................................................ 9
SWOT ANALYSIS ........................................................................................................... 10
TCS RESOURCES & CAPABILITIES ..................................................................................... 11
TCS STRATEGY ANALYSIS ............................................................................................... 12
RECOMMENDATIONS .............................................................................................................. 19
REFERENCES .......................................................................................................................... 21
Disclaimer: This report should be treated strictly for academic purpose and should not be
used elsewhere. Users of this report are required to take permission from authors before
reproducing or publishing this material anywhere else.
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IN DI AN IT IN DU S T R Y O VER VI EW
Introduction
In an increasingly flat world, significant complexity and uncertainty is getting attached to the
unprecedented economic crisis. The Indian economy has also been impacted by the recessionary
trends, with a slowdown in GDP growth to seven per cent. The focus and exponential growth in the
domestic market has partially offset this fall and insulated the country, resulting in net overall
momentum. The IT-ITeS industry in India has today become a growth engine for the economy,
contributing substantially to increases in the GDP, urban employment and exports, to achieve the
vision of a young and resilient India. During the year, the sector maintained its double digit growth
rate and was a net hirer. This growth has been fuelled by increasing diversification in the
geographic base and industry verticals, and adaptation in the service offerings portfolio. While the
effects of the economic crisis are expected to linger in the near term future, the Indian IT-BPO
industry has displayed resilience and tenacity in countering the unpredictable conditions and
reiterating the viability of Indias fundamental value proposition. Consequently, India has retained its
leadership position in the global sourcing market.
India is now the leading country in providing IT Enabled Services in the world. According to a recent
study, Indian IT & ITES is expected to grow at 10.8% in 2009, the lowest in the last five years, due to
the current global meltdown. But in next four years, it would grow at 13.9% to touch revenue of
$110 billion. NASCOM, the premier institute which manages all the IT and ITES companies in India,
estimated that the revenue of the IT Enabled Services will cross the revenues of IT industry by 2010.
The export revenue generated from ITES is about US$ 47.5 billion and has a projection of more than
US$ 86 billion by 2012. (CAGR 20.7%)
400
300
200
100
0
23.6
FY06
37.6
FY08
47.5
FY09
60
FY10
86.6
FY12
FY20
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Why Outsourcing?
Outsourcing system allows companies to contract for services that are not within the scope of their
expertise, so that they can focus their time, money and energy on their core competencies instead
of wasting valuable resources trying to gain Understanding of areas that are somebody else's
expertise".
Challenges
While the industry has significant headroom for growth, competition is increasing, with a number of
countries creating enabling business environments aimed at replicating Indias success in the IT-BPO
industry. Hence, concentrated efforts are required by all stakeholders to address the current
challenges, to ensure that India realizes its potential, and maintains its leadership position.
External Analysis
Current position of IT/ITeS sector in India
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Environmental Scanning
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Legal
IT SEZ requirement: IT companies can set up SEZ with minimum area of 10 hectares and
enjoy a host of tax benefits and fiscal benefits. Positive
Contract / Bond requirements: Huge debates surrounding the bonds under which the
employees are required to work, which is not legally required. Negative
IT Act: Indian government is strengthening the IT act, 2000 to provide a sound legal
environment for companies to operate esp. related to security of data in transmission
and storage, etc. Positive
Companies operating in Software Technology Park (STPI) scheme will continue to get
tax-benefit till 2010. Mildly Positive
Environment
Energy Efficient processes and equipments: Companies are focusing on reducing the
carbon footprints, energy utilization, water consumption, etc. Positive
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Medium
Shift
from
High to
Low
Very
High
Low
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Market Share:
Sources of Revenue:
Weaknesses
Excessive dependence on USA for revenues US
Companies are cutting down IT budget hence
revenues to be hit hard of Indian IT firms
Excessive dependence on BFSI sector for
revenues Banking sector is facing a crisis
globally and is going to spend less on IT
High rates of attrition Although slowdown in
global economy has lowered attrition rate but
the industry still faces high attrition rates as
compared to other sectors
Decreasing competitive advantage rising
salary expenses is taking away the cost
advantage enjoyed by India.
Threats
Global economic slowdown may continue for
several years hence low IT spending globally
US Govt. against outsourcing
Shrinking margins due to rising wage inflation
Rupee-dollar movement affects revenue and
hence margins
Increased competition from foreign firms like
Accenture, IBM etc.
Increased competition from low-wage countries
like China, Indonesia etc.
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Leadership in IT Outsourcing: TCS is the largest IT consulting company in Asia with 143,000 of the
world's best trained IT consultants and an acknowledged pioneer, innovator and thought leader in
the IT space, having literally coined the term Offshore Development. It is also a global consulting,
IT services and systems integrator with a 40-year track record and world class processes and
methodologies. TCS has won many accolades for its significant contribution to the maturity and
visibility of the Indian IT services worldwide
Trusted Partner: TCS is part of one of Asia's largest conglomerates - the TATA Group. The group,
with annual revenue of more than USD 72.5 billion+ (Feb, 2009), spans across diversified industry
segments such as consumer package goods (CPG), energy, telecommunications, financial services,
chemicals, engineering & materials. The TATA Group, a symbol of trust in India, is known for its
pioneering spirit and the brand stands for business excellence and integrity.
Headquarters
TCS is headquartered out of Mumbai, India.
Location
TCS is operating in 47. TCS has 50+ delivery centers in India across 15 cities; 15+ development
centers outside India. TCS employees are spread across countries. Thus, Global presence helps in
country availability of competencies for any technical assistance mission or application project. Also,
TCS deputes the associates on long term and short term basis to the local countries for specific
engagements.
Turnover
Tata Consultancy Services Limited (TCS) is a leading and Indias largest provider of IT Services,
Business Solutions and Outsourcing with revenues of USD 6 Billion during FY08-09.
Number of customers
Over 985 active clients; 6 out of Top 10 US Fortune companies are TCS clients.
Customer revenue contributions are presented below:
SWOT Analysis
Tata Consultancy services (TCS) is one of the major IT service providers. The company provides a
wide range of services including business consulting, information technology, business process
outsourcing, infrastructure, and engineering. The company has extensive global reach, which
provides a diverse revenue base. However, increasing competition threatens to erode its market
share.
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Strength
Extensive global reach
Strong financial performance
Employee management skills
Innovation labs
Opportunities
Focus on SMB segment
Growth in worldwide IT services
Focus on high end business and IT
consulting
Expanding operations in countries like
China
Weaknesses
Significant exposure to financial services
market
Lack of scale in consulting operations
Threats
Increasing employee costs
Intense competition from foreign firms
like Accenture, IBM etc.
Consolidation in the end markets
Rupee appreciation
Increased competition from low-wage
countries like China, Indonesia etc.
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TCS organization restructuring in April 2008 was one of the major moves in last decade to
adapt to external environments. Having an organization structure that would respond to
customer demands is most efficient way to lay down your business strategies. TCS did it
little late but just in time.
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Business Strategy
TCS calls its Business Units as Industry Service Practice. TCS BU wise revenue distribution is as
shown below:
BFSI
Telecom
5.7
5.5
42.8
Retail
Manufacturing
9.8
Hi-Tech
Life Sciences & Healthcare
12
13.1
This clearly shows that TCS has 42.8% of exposure to Banking Financial Services & Insurance sector.
No doubt, TCS has to re look its business strategy as the world financial institutions are in a
tremendous shock of subprime crisis and think of scaling up revenue from other verticals/industries.
Generic Business Strategy:
1. Low cost Global delivery 24X7 model.
2. Focus on customer relationship management, customer retention (for repeat
business revenue which is 95.6%).
3. Timely delivery with the help of proven delivery & quality framework iQMS.
4. Differentiation in low end services in terms of cost, resources.
5. Differentiation in high end services such as consulting in term of niche offerings,
expertise.
6. Protection from currency fluctuations with the help of currency hedging.
7. Due to its strong knowledge management system and resource strength, TCS has
been successful in getting the cost leadership in the industry.
8. Since last decade, TCS has been following a more focused strategy where they are
going as per local needs of customer and their nature of business. E.g. Middle East,
Australia. They are being more focused region wise and customer wise rather than
being generic.
9. Focus on the Centers of Excellence (CoE) to strengthen capability so as to build
state-of-the-art solutions in specific technologies such as service-oriented
architecture, testing, and virtualization. These high-end skills and scale will help TCS
to tackle larger projects aimed at transforming clients IT applications and
infrastructures.
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2.1
11.1
Enterprise Solutions
8.3
48.6
5.8
Assurance Services
Engg. & Industrial Services
3.8
Infrastucture Services
11.8
6.8
Global Consulting
Asset Leverage Solutions
Business Process Outsourcing
This shows that TCS has a heavy exposure to IT Solutions Application Development &
Maintenance 48.6%. TCS has traditionally a low cost outsourcing player which provides application
development and maintenance services, which till date account for almost half of its revenue.
Though TCS has managed to bring down this percentage significantly in last decade by entering into
niche areas like, BPO, infrastructure services, business consulting, IT consulting, asset leveraged
solutions etc. TCS sees a strong growth potential especially into consulting, BPO and infrastructure
services. Thus TCS is investing heavily into these areas to explore new market segments.
HIGH
BPO
Infrastructure Services
Consulting
Packaged Implementation
KPO
Engineering & Industrial Services
None
HIGH
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LOW
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Global Strategy
TCS GNDMTM is at the heart of TCS global strategy.
What is GNDMTM?
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Since last few years TCS is successfully leveraging labor cost in Eastern Europe, South
America and China.
Getting big foreign names on board of directors is also one of the key strategies for
TCS. The current three foreign directors are: Clayton M Christensen (HBS Professor,
joined in 2006), Dr. Ron Sommer (former Chairman of the Board of Management of
Deutsche Telekom AG, joined in 2006) & Laura M Cha (member of the Executive
Council of the Hong Kong Special Administrative Region (SAR) and Non-Executive
Chairman of HSBC Investment Asia Holdings Limited)
Look beyond US and UK for growth and beyond India for skills to emerge as a global
firm. Clearly bullish with successes such as ABN Amro in continental Europe, Qantas
in Australia, and almost 18% to 20% revenue from the Asia Pacific market, TCS wants
to grow its businesses in global markets including India.
Recent acquisitions in Ireland and Latin America demonstrate its ambition to create
delivery centers of respectable size outside of India.
TCS was the first one to set up a delivery centre in China.
Corporate Strategy
TCS is a firm believer in organic growth and acquire only those companies which are in
line with TCS strategic long term goals.
Diversification Strategy
In February 2008, TCS restructured its global operations to adopt an integrated, customer-centric
approach, which is expected to helpful in eliminating the risk factors arising from the U.S. economic
collapse. The companys operations are now divided into five units: Industry Solutions (for verticalspecific services), Major Markets (North America, Western Europe and the U.K), New Growth
Markets (Latin America, Eastern Europe, Middle East & Africa and India), Strategic Growth Business
(TCS Financial Solutions, SMB and Platform-based BPO) and Organizational Infrastructure.
TCSs diversification plan seems to have worked since the company has been gaining momentum in
Europe and other emerging markets, which is evident in the companys marked growth rate of 40%
year to year in its FY08s European operations. The firms operations in Latin America and Middle
East have also seen considerable expansion. In order to deepen its penetration, TCS has established
delivery and offshore centers in countries like Brazil, Uruguay and Mexico.
The weakening European economy and its GDP decline of 0.2% in the second quarter (April, May,
June) might hinder TCSs diversification plans, as it is bound to have a direct impact on BFSIs
outsourcing services. TCS, which draws 44% of its global revenue from the BFSI sector, is likely to be
affected. Also, the Indian market is becoming difficult to afford, leading to a wider gap between the
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demand and supply of IT consultants. This can be traced to the fact that hired employees lack
required skills or fail to deliver their expertise, but still seem to be demanding higher wages.
Strategic Alliances
TCS has strategic relationships with various global technology vendors. These relationships are in
various dimensions such as Customer, Service Provider, Supplier, and Alliance Partner. Extending
collaborative research to several global technology vendors has made relationships with them more
holistic. TCS and these technology vendors collaborate on joint research leveraging each others
strengths to research and to the development of best-of-breed offerings. The intent is to define and
develop solutions with associated services and offer the same as an integrated business model to
customers. Some of the strategic alliances are listed below.
Intel: Intel and TCS provide information technology products and services that complement each
other. The companies are engaging in a technology alliance model in which the two organizations
collaborate on research and develop solution offerings to deliver customer-specific solutions to the
marketplace.
This alliance has matured over the last two years of collaborative work, with the companies
implementing a well-defined model for collaboration using a three-stage approach:
The companies have completed two significant virtualization and balanced compute research
projects with these objectives:
SAP: SAP as a leading technology and product vendor is one of the key partners of TCS. The
partnership with SAP has been a long-standing one and multi-dimensional. Leveraging and extending
this existing partnership to collaborate for joint research and innovation was a logical next step for
both SAP and TCS.
Senior Research Scientists of SAP and TCS initiated this collaboration setting the objectives and
defining the modus operandi for carrying out research in a collaborative manner. And they
committed to cause by undertaking the responsibility to be Executive Sponsors in the respective
organizations.
Collaboration with SAP Research was initiated after detailed discussions and exchange of research
interests from both SAP and TCS. Identified areas include Model-driven Architecture and Integration
of Enterprise-Data, Web 2.0, Internet of Services, and Internet of Things.
Hewlett-Packard: HP and TCS have initiated discussions for joint research in the areas of SaaS,
Power Management & Cooling, Utility/Grid Computing, Cloud Computing, Green IT and Next
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Generation Data Center. Some of the potential research initiatives could also involve development
of market-specific offerings based on value-added services, using products and solutions from HP.
EMC2: With TCS being an IT solutions and services provider, EMC2 and TCS have conceptualized IT
solution architectures for specific industry-domains integrating products from EMC2 and software
platforms from TCS.
Acquisition Strategy
TCS is looking at growth from two ways first through organic means and second through the
inorganic way. The inorganic way of growth is through acquisitions of those companies that make
business sense to TCS. The companies should add great value to TCS. Like for instance TCS
acquisition of CMC is helping it taking a sharper look at the domestic IT business. Both the
companies have synergies in the government sector, since both the companies are well known for
doing work for the government.
TCS as part of its strategy to look at growth options has set up an internal team which will focus only
on acquisition strategies .Below are some of the acquisitions of TCS in the recent past:
Nov 2008: TCS Acquisition of Citigroup Services. TCS gains a range of new capabilities, with
end-to-end banking BPO service offerings, and an opportunity to provide integrated IT and
BPO services to the banking market, as well as the significant contracted revenue
commitment. Over 12,000 staff has transferred with the deal. From the Citigroup side, they
get a cash payment, and an external partner committed to deliver (and probably to improve)
the services they have monetized their investment in setting up CGS (Citigroup Services).
They no longer have direct responsibility for managing an offshore delivery centre in a
market becoming increasingly competitive, and they have significantly reduced their overall
headcount.
Feb 2006: Tata InfoTech (TIL) Limited was merged into TCS Limited. TIL was a software
services company like TCS with operations in the UK, U.S, and Australia among others. The
merger gave TCS a broader customer base and deeper penetration into key geographies. The
acquisition was touted as providing TCS more ability to provide full-service to customers in
affected markets.
March 2006: TCS, through its subsidiary, Diligenta, acquired a basis in part of UKs Pearl
Group. Pearl is the 2nd largest player in the UKs life insurance and pension BPO industry,
giving TCS a new stake in BPO work for the UK market.
Right after Pearl, TCS picked up Comicron in Latin America to offer banking solutions in both
IT and BPO services in that market, and now Spanish language capability. Experience gained
here will again allow TCS to expand further into new markets with BPO offerings, especially
in the rather large and under-addressed Spanish-speaking world.
Oct. 31, 2006: Similar to the financial stakes made above, TCS again expanded its banking
products and consolidated its European operations after acquiring a 75% equity stake in its
Switzerland-based partner, TKS-Teknosoft. TKS was the marketing agent for TCS in Europe.
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is widely expected to enable TCS to finally break into the $30-billion domestic Chinese IT market, a
market that has in the past proved elusive for Indian IT companies.
Another JV is between TCS and SBI (State Bank of India) in Nov 2005 to cater advanced technology
solutions and domain consulting for the banking and financial services sector. The joint venture is
called C-Edge Technologies Ltd. and has an authorized capital of Rs. 40 crore.
TCS holds 51 per cent of the equity in C-Edge and SBI the balance with no asset transfer. The joint
venture was to offer transformational capabilities to banks and financial institutions in India and
other markets by helping them to use technology as a competitive tool in the market place using
bureau services and service platforms. "In three to five years, we hope the company creates niche
services in the national and international stage,'' said Mr. Ramadorai.
Expect to see the landscape continue to consolidate. Clients will seek to cut costs and focus
on fewer provider relationships as the economy worsens. TCS should take this opportunity
to improve your market positioning.
Ensure marketing articulates your value proposition to all stakeholders concerned. In a
recession, marketing can work as a differentiator.
Service providers like TCS need to create specific value propositions aimed directly at the
relevant stakeholders and in the new tech ecosystem, these relevant stakeholders must
include business executives, not just IT personnel
Dont be influenced solely by short-term shareholder pressure. The recession is at the top of
everyones agenda right now, but those providers that take a long-term view will use this
time to prepare for the fundamental changes in industry dynamics that will emerge. Those
providers prepared for the new ecosystem will be the ones to flourish once the dark clouds
of economic turmoil have lifted.
Do not put all eggs in one basket TCS must provide diverse services to refrain from being
over-dependent and increasing exposure to the vulnerabilities of few sectors (BFSI)
/geographies (USA).
Provide more high-end services in value chain (3rd Wave in IT)
There is a move required from ADM (Application Development and maintenance) to value
added services, BPO to Consulting and Package Implementation, etc.
TCS should shift focus from Low cost advantage to high quality services commanding a
premium being the pioneer in the industry
Consolidation and strategic acquisitions are essential for future growth of revenues. We feel
that a big wave of consolidation in IT industry has just started. The HP-EDS merger (one of
the biggest ever merger in this industry) is testimony to this. TCS should gear up for such
opportunities which are strategic fit for them be prepared.
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Quickly adapt and gain customer confidence in high growth markets. In FY2009, Indian
domestic market grew by more than 20%, but TCS revenue from India increased only by
6.46%. TCS should leverage its success stories (IRCTC success done by its subsidiary CMC,
Passport project etc.) to drive the growth in this market.
TCS has rightly placed SMB (Small and Medium Businesses) as a separate strategic unit,
which should be focused aggressively. They should also focus consulting practice on the
same radar.
TCS (rather all Indian IT players) should focus more on increasing their IP (Intellectual
Property) assets.
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REFER EN CES
1.
2.
3.
4.
5.
6.
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