TCS plans consolidation of business units to boost revenue growth

The IT firm is planning to raise the size of the business units with own profit and loss accounts to around $400 - $500 million from $100 - $150 million at present

In a bid to boost its revenue growth, IT services major Tata Consultancy Services (TCS) is revisiting its strategy by raising the size of its business units, apart from identifying the next billion dollar bets in the digital services space.

People aware of the development said the IT firm is planning to raise the size of the business units with own profit and loss (P&L) accounts to around $400 - $500 million from $100 - $150 million at present. These business units, which have end-to-end responsibilities with lot of operational and financial autonomy, are being reorganised to weed out duplication.

"With a $21 billion revenue base, the company needs to consolidate a lot of its business units to match its scale. This is also required to find out the big bets for driving its next phase of growth," said a persons familiar with the development.

An e-mail sent to TCS remained unanswered at the time of going to press.

Carving of business units with own P&L responsibilities has long been considered as one of the factors behind TCS's successful emergence as the market leader in the Indian IT industry. The Tata group company first adopted the strategy under the leadership of then chief executive officer (CEO)of the IT firm N Chandrasekaran in 2010-11 when the firm was divided into 60 small units, each of which had around 3,000-5,000 people and revenue of $100 million to $150 million each. The company had a revenue base of around $9 billion at that point of time.

"Many TCSs within TCS' as a strategy has for long been followed by the company. However, it required fine-tuning for attaining its next phase of growth," said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting.  

In an earlier interview, TCS’s CEO Rajesh Gopinathan had said the IT firm is rightsizing its offering in digital services from current 800-900 to around 500 in order to avoid duplication.

"The company is also focusing on the next billion dollar opportunities in the digital services segment for faster growth," said another person familiar with the development. From third quarter onwards, the Mumbai-headquartered firm stopped giving separate revenues from digital services, saying that lines between traditional and digital revenues were blurred.

During the quarter ended December 2019, the company posted its slowest revenue growth in last eight quarters when its revenues in constant currency term grew 0.3 per cent sequentially to $5.586 billion. Weakness in key verticals such as banking, financial services and insurance (BFSI) and retail were the major reasons for the subdued growth.

The company, which grew its revenues by 11.4 per cent in constant currency term in FY19, is unlikely to end this fiscal with double digit growth figures. "Given the headwinds, TCS is constantly looking at ways to come back to its earlier growth path. So, cost control through consolidation is being pursued very actively by the IT firm," said another person familiar with the development.

Highlight points:

- Minimum threshold revenue for a business unit with own P&L to be raised to $500 mn from $150 mn

-The company plans to weed out duplication by merging many sub segments within a unit

- It is also looking at next billion dollar bets within digital offerings

- After posting weak revenue growth in last two quarters, TCS is fine-tuning strategy for faster growth