Business Today

Leading From The Front

N Chandrasekaran has snatched a first mover advantage for TCS in the digital space, but has to contend with competition that is fast getting its act together.
twitter-logoAjita Shashidhar | Print Edition: January 3, 2016
N Chandrasekaran CEO & MD, Tata Consultancy Services Ltd (Photo: Rachit Goswami)

The next five years would come from digital. Barely a year later, the IT service provider's digital revenue is already at $2.2 billion and Chandra is upbeat. "It has been another great year. Our industry is at an inflection point overall because technology, particularly digital, is gaining centre stage and is making a big impact on every other industry," he says.

Today, Chandra has over a dozen anecdotes related to the digital solutions that his company has offered to its various customers. His favourite anecdote is about the solutions that they have provided to a leading European retailer which has enabled it to create a consumer insight based retailing business model as opposed to the traditional supply chain efficiency based retailing.

  • INCOME/ 3-YR CAGR: Rs 78,058 crore/ 24 per cent
  • OP. PROFIT/ 3-YR CAGR: Rs 21,015 crore/ 24 per cent
  • PAT/ 3-YR CAGR: Rs 18,729 crore/ 19  per cent
  • AVG MCAP/ 3-YR CAGR: Rs 4,82,880 crore/ 30 per cent
  • AVG MCAP (APR-SEPT 2015)/YOY GROWTH: 8 per cent
  • ROE/ ROCE: 41.9 per cent/ 54.8 per cent
  • CASH/ DEBT: Rs 16,503 crore/ 273 crore
  • NET PROFIT MARGIN: 26.20 per cent

In fact, the whole of 2013 and the early part of 2014, Chandra invested a lot of time in ensuring that TCS is digitally enabled. TCS would have been the country's leading IT services provider, but a bulk of its employees had traditional skill-sets and were not digitally wired. They had to be made to think and act digital, and for that TCS had created close to 4,000 online communities for its own employees to interact with. They created over 20 internal apps which their employees could access on iOS and Android.

The last 12 months has been all about offering cutting edge digital solutions to its customers and further strengthening its infrastructure. The concept of digital, Chandra had told the magazine in a recent interview, has moved on from people looking at it as a set of technologies which enable access and transactions on the mobile or build analytics around data to a holistic transformation of businesses. "We have made significant investments in digital, across multiple areas; we have built our own digital learning platform in all the relevant technologies. We are investing in digital re-imagination studios and innovation labs for every industry. We have also invested in automation. We are driving digital solution development in agile methods."

Digital has indeed been a game-changer for the $15.5 billion IT service provider, agrees Sanchit Vir Gogia, Chief Analyst and CEO, Greyhound Research. "TCS embraced cloud much ahead of its competitors and it is the only company that is actually generating healthy revenue out of it, which is creditable." Digital and cloud, explains Gogia, are low-margin and high-volume businesses and most companies, even the likes of Microsoft and IBM, that have moved to offering digital and cloud-based solutions are struggling.

With consistent year-on-year growth rates of 20 per cent plus, TCS has successfully held on to its market leadership in the IT services industry for three consecutive years. At Rs 5,01,476 crore, the IT service providers individual market cap is actually higher than that of the Tata Group as a whole.

Devil's Advocate

So, what could be the biggest challenge for a market leader that is getting stronger by the day? Not only has TCS' financial performance been consistent, quarter on quarter, it also has the lowest attrition rates in the industry. "We crossed 100,000 women employees and in terms of our brand positioning we are now the fourth most valuable brand (globally) in our industry," says Chandra.

But when the going is good, the biggest challenge for any market leader is to come up with innovations that would keep it ahead of the pack. Unni Krishnan, former MD of brand valuation company Brand Finance India and the founder of a purpose-led business design advisory Longbrand & LongWealth, is not sure whether TCS has the next big futuristic idea that would ensure its long term sustainability.

It indeed has first mover advantage in digital and cloud, but Krishnan says competition is fast getting its act together. "I don't see what makes TCS any different from any of the world's other leading IT players. I am talking to two other firms and they are also telling me that digital will be a $5 billion play."

Krishnan, who has been advocating the need for organisations to do business with a purpose in order to ensure long term sustainability, says that TCS now needs to do something unique that its competitors can't imagine replicating. This idea, he says, has to be outside TCS' current comfort zone. "Just as auto manufacturer Tesla's mission is to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to the market, TCS can be the bell weather of innovative solutions of how technology can be applied to solve various social and environmental issues."

While Krishnan is referring to long-term sustainability, Gogia of Greyhound says that, even in the short term, the biggest challenge TCS will face is how to re-skill its three lakh plus workforce in order to offer cutting-edge digital and cloud solutions. "They are investing a lot on re-skilling, but re-skilling such a huge workforce that has traditional IT skills is not going to be easy."

Gogia agrees with Krishnan's view that competition is also embracing digital and cloud skills aggressively, and while TCS does have the first mover advantage, sustaining the lead may not be all that easy. "TCS does have a futuristic vision, but they can't be complacent. TCS has to prove its mettle in software, where the likes of Infosys are making consistent investments."

Chandra says he is prepared to accept all kinds of challenges head on. "We believe that there is lot more to do and we are excited about the opportunity to make an impact on all dimensions."

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