Strategic Management TTA-62036

Exercise 3 in Strategic Management

Abstract
A short introduction of Tata Consultancy Services (TCS) is provided. The introduction
comprises the industry sector of operation and the services which the company offers.
The second section talks about the key components which provide TCS the cost/price
advantage. These key components are human resource and the various company systems,
processes and business model. The role of each of these component is discussed and how
these factors together provide TCS with the cost advantage.
In the next section the major threats to TCS which can undermine its cost advantage are
discussed. These threats include the increasing labour costs, development of similar product
and knowledge systems by the competitors.
The final section provides some possible solutions to counter these threats and maintain long
term cost advantage. These solutions include looking and switching to new low cost
locations, creating more proprietary solutions and filling more patents. Finally, engaging with
the concerned governments to avoid ultra-restrictive laws

Contents
Abstract................................................................................................................. 1
Question 1............................................................................................................. 3
Question 3............................................................................................................. 5
Question 4............................................................................................................. 7
Question 5............................................................................................................. 8
References............................................................................................................. 9

Question 1
1. Choose a company which, in your opinion, follows a cost/price leadership strategy (either
in general or with regard to some business unit or product line) and introduce the company
(and business unit/product line, if applicable) briefly.
Tata Consultancy Services (TCS) is a multinational company headquartered at Mumbai, India
with operations in 50 countries around the globe .TCS is a subsidiary of TATA group (an
Indian Conglomerate which owns over 100 independent companies operating across six
continents and having a market capitalisation of over 100 billion USD). [1]
TCS is a multinational information technology company providing IT services ,business and
consulting solutions [2].It is the only company from the IT Consulting sector to feature on
The Worlds Most Innovative Companies 2014 by the Forbes Magazine [3].TCS is the 10th
largest IT services company in terms of revenue [4].It is placed on 6th position just below
Facebook in Computer Services Sector and on 121 position overall, in terms of market value
in the Forbes list of the Worlds Biggest Public Company ,2014 [5].
TCS provides IT services and solution for a large range of industries which include [6]:

Banking & Financial Services

Energy, Resources & Utilities
Government
Life Sciences & Healthcare
High Tech
Insurance
Manufacturing
Media & Information Services
Retail & Consumer Products
Telecom
Travel, Transportation & Hospitality

Its services include:

Assurance Services
BI & Performance Management
Business Process Services
Consulting
Digital Enterprise
Eco-sustainability Services
Engineering & Industrial Services
Enterprise Security & Risk Management
Enterprise Solutions
iON - Small & Medium Business
IT Infrastructure Services

IT Services
Platform Solutions
Supply Chain Management

Along with services TCS also has a range of software which can be broadly categorised as
follows:

Digital Software and Solutions

TCS BaNCS
TCS MasterCraft
TCS Technology Products

TCS reported revenue of 13 billion USD for financial year 2013-14.It also reported a net
profit of 3 billion USD which was almost double of the profit reported by its nearest
competitor Infosys. TCS also recorded a net profit growth of 37.7% YOY (year on year) [7]
which are far higher than the current industry standards.

Question 3
3. Evaluate and discuss what are the key resources of the company that enable this cost/price
advantage.
According to [7] for a company to adopt a cost leadership strategy, the following conditions
should be present:

If high transaction costs or differentials in the cost of producing inputs exist, and
these can be overcome through vertical integration or some other means of achieving
preferential access
and/or If the state of development of the process technologies employed in the value
chain indicates that significant innovations can still be realized
and/or If the process technologies employed in the value chain are sufficiently
complex to permit significant cost improvements to be realized from learning effects
and/or If the optimal scale for some significant part of the value chain exceeds onehalf of the size of the market.

In case of TCS the key resources which enable it to maintain cost advantage is its highly
skilled human resource, organisational practises, processes and systems like Knowledge
Management Systems, GNDM (Global Network Delivery Model), Innovation Labs and
Co-Innovation Network (COIN) [8] [9]. And its market position as one of the most
innovative company in its industry segment. The size and product offerings of the company
also helps it in maintaining this.
Below I will try to analyse each of the key factors individually .However, it might not be
possible to explain each factor in isolation as its the mutual synergies of all these factors that
provide or result in the cost advantage for TCS.
The first key resource is the skilled IT human resource which the company employs .TCS has
one of the largest workforce in the IT services sector in the world ,with an employee base of
over 300,000 [10].Such a large experienced ,competent and diverse resource pool enables the
company to save on costs as a result of the learning effects. This can be explained with a
simple example which might look trivial at first glance. In case a project needs some help in
terms of advice and training for a new problem or technology which is not being used at that
location /business field. In smaller companies, this would result in the project hiring external
consultant or technology specialist to look into the problem and provide insights. Thus adding
the additional cost to the project. However, in case of TCS such a situation is very rare, as
there is a very high probability that there will be some TCS employee/employees who have
worked on a similar problem or technology. The project can utilise the help of such TCS
employees to solve the issue, thus saving on costs of additional salary cost of external
consultant which other smaller competitors dont have access to .When this effect is
multiplied with large scale operation of TCS, it results in significant savings for the
company .This enables the company to have better cost advantage over its competitor.

The second key factor is the different organisational practises, processes and business models
which TCS follows. Over, the years the company has built large, exhaustive and efficient
internal knowledge management systems .This has resulted in the creation of large
organisational memory which enables it to many times provide new IT solutions which are
actually a combination of earlier implemented technology solutions. This results in cost
saving for TCS and adds to its cost advantage.
GNDM (Global Network Delivery Model) .This business model created by TCS enables it
to leverage its operation across different locations and helps in providing 24x7 operations
[8].By having such a model the company is able to reduce the overall cost of operation .This
is done by having the high cost operations of customer being carried out at low cost locations
of TCS. This results in overall cost benefit for the company.

GNDM (Global Network Delivery Model) in a nutshell [11]

Another process followed by TCS is Innovation Labs and Co-Innovation Network

(COIN).This is a TCS collaboration of its own innovation labs with various research
institutes and universities like Stanford, MIT, IIT(Indian Institute of Technology) for solving
existing problems and also creating new products and services [9].This has enabled TCS to
come up with more cost effective solutions. This again adds to the price /cost advantage of
TCS.
Finally, TCS in most cases offers end to end technology solutions for its customers. This
enables the company to add more value to its customer .At the same time since TCS can
leverage its global workforce at various locations, it enables TCS to reduce its operation cost
and results in additional savings for TCS. This results in TCS being able to offer its product
and services at a lower cost in comparison to its competitors. Hence, enabling TCS to have a
cost advantage.

Question 4
4. Evaluate and discuss the main threats that could potentially undermine this cost/price-based
competitive advantage in the foreseeable future.

In my opinion TCS faces threats at many fronts which might undermine its cost/price based
competitive advantage.
Firstly, the TCS business leverages the use of low cost labour force to carry out the most
complex business operations at its low cost development centre. However, as the cost of
labour rises in these low cost locations it will become difficult for TCS to use this as key
driving force to maintain cost based competitive advantage.
Secondly, competitors of TCS might also build knowledge management systems which are as
robust and efficient as that of TCS .This might undermine the TCSs ability to use its own
knowledge management systems as a leverage for cost advantage.
Another factor which might be threat to TCS,s price based advantage is the building of
similar end to end IT solutions by its competitors like Accenture, Infosys, IBM and CTS. This
will no longer allow TCS to utilise cost savings for its end to end IT solutions offering.
Finally, the restrictive cross border mobility legislations which are being proposed
/implemented can lead to lower resource mobility and in increased pressure on cost and profit
margin for TCS. Directly, affecting its GNDM (Global Network Delivery Model) .Hence,
affecting the cost based advantage of TCS.
Thus, the above mentioned factors are the main threats which might impact the cost/pricebased competitive advantage of TCS in the foreseeable future.

Question 5
5. Provide a summary discussion in which you discuss how sustainable (possible to maintain
in long term) the above-mentioned competitive advantage seems for the focal company.
I think that its possible to maintain or sustain the competitive advantage for TCS, if its able
to tackle the possible threats. Some of the possible solutions which TCS might engage is
mentioned below.
Firstly, TCS can consistently be on a look out for new low cost locations. For example, it can
create new development centres in ultra-low cost locations like Philippines and not just south
East Asian countries like India and China. This will help TCS to maintain its cost advantage
for a long period.
TCS can tackle the problems of similar knowledge management systems and similar end to
end product solutions which its competitor might offer. TCS should use its innovation labs
and academic research tie ups to come up with proprietary solutions .TCS should also
concentrate on filling more patents for its products and increasing its IPR (Intellectual
Property Rights) portfolio. In this manner TCS can stop its competitors from offering similar
end to end solutions and can sustain its cost advantage.
TCS can engage in negotiations with the concerned government to explain its role in creating
more value for the country of operation. It can also setup lobbying groups along with its
competitor in order to avoid very restrictive laws from being enforced. By engaging in these
kind of activities TCS can avoid being subjected to ultra-restrictive laws. Thus, continue to
maintain its competitive price advantage.
All the above mentioned steps /plausible solutions if looked into by TCS can help it maintain
its competitive advantage over a long term.

References
[1] TATA, "Leadership with trust," 5 October 2014. [Online]. Available:
http://www.tata.co.in/aboutus/sub_index/Leadership-with-trust.
[2] TCS, "About Us," 5 October 2014. [Online]. Available:
http://www.tcs.com/about/Pages/default.aspx.
[3] Forbes, "The Worlds Most Innovative Companies," 22 September 2014.
[Online]. Available: http://www.forbes.com/innovative-companies/list/.
[4] Times Of India, "TCS joins top 10 global IT services companies club," 22
September 2014. [Online]. Available:
http://timesofindia.indiatimes.com/tech/tech-news/TCS-joins-top-10-global-ITservices-companies-club/articleshow/34067479.cms .
[5] Forbes, "The Worlds Biggest Public Companies," 5 October 2014. [Online].
Available: http://www.forbes.com/global2000/list .
[6] TCS, "TCS," 5 October 2014. [Online]. Available: http://www.tcs.com .
[7] A. I. Murray, "A Contingency View of Porter's "Generic Strategies"," The
Academy of Management Review, pp. 390-400, 1988.
[8] TCS, "Global Network Delivery Model," TCS, 5 October 2014. [Online].
Available:
http://www.tcs.com/about/tcs_difference/global_delivery/Pages/default.aspx.
[9] "The TCS Co-Innovation Network," 5 October 2014. [Online]. Available:
http://www.tcs.com/about/tcs_difference/innovation/network/Pages/default.as
px. [Accessed 5 October 2014].
[10 TCS, "TCS Annual Report 2013-14," 5 October 2014. [Online]. Available:
]
http://www.tcs.com/investors/Documents/Annual
%20Reports/TCS_Annual_Report_2013-2014.pdf.
[11 sdhamangaonkar7264, "Business Strategy-IT Industry-Tata Consultancy
]
Services," 5 October 2014. [Online]. Available:
https://www.scribd.com/doc/22283990/Business-Strategy-IT-Industry-TataConsultancy-Services.