)
Many would argue that Tata Consultancy Services (TCS) CEO N Chandrasekaran inherited a strong company when he was appointed CEO and MD in late 2009. TCS, India's largest IT services provider, already had revenues of $6.4 billion. What many forget is the critical juncture at which this marathon-runner took over.
By October 2009 the world global economy was heading down the slope. Though the industry grew 17 per cent in FY2009, in FY2010 growth dropped to 5 per cent. Yet, Chandra (as he is known among colleagues) maintained the growth momentum and TCS crossed the revenue mark of $10 billion in FY2012.
This translates into a compounded annual growth rate of 21 per cent in topline and 26 per cent in profits over the past three years. Besides, TCS' market value has more than doubled over this period. Despite a difficult environment and pricing pressure, the company continued to improve its margin or EBIDTA (earnings before interest, depreciation, tax and amortisation), which was 29.5 per cent.
To be able to maintain this growth, Chandra restructured the company into 23 business units - each having their own profit and loss, CEO, HR department and business goals. Only eight senior executives report to him directly. This has made TCS, which has 263,000 employees and a presence in over 90 countries, nimble-footed.
TCS' success also stems from the risks that it took ahead of time. And insiders point out that several of these have been the brainchild of Chandra. The first was the acquisition of Citigroup's captive BPO, Citi Global Services, for $505 million in 2008. This not only made TCS the second largest BPO player in India; it also was the first step towards the company's roadmap of offering platform-based BPO services.
The other early investment that the company made was the acquisition of UK-based Pearl Group in 2005. This allowed TCS to make inroads into the insurance segment in the UK (traditionally the sweet-spot for players like Capita), as well as create platform-based insurance offerings in the BPO segment. Along with the acquisition, TCS also entered into a 12-year, £486-million BPO deal. Since then it has added more clients and its subsidiary, Diligenta, also became profitable.
The company took the depreciation of the rupee as an opportunity to gain new deals and structures that may not meet current profitability criteria. This was a bold step in an industry where holding on to higher margins has been the tradition. Some of the large deals that the company has signed are in both mature markets (US and Europe) and emerging destinations (India). Last year, TCS signed a 15-year deal with UK-based Friends Life - a provider of pension, investments and insurance - worth $2.2 billion. Similarly, it won the 10-year, £600-million contract from the Personal Accounts Delivery Authority (PADA) to administer the NEST scheme.
Though TCS' fast growth has come from the traditional business of application development and maintenance, the company has not missed the opportunity that new technologies like cloud, mobile and analytics is bringing. This is where Chandra formed the non-linear strategy of the company.
This includes cloud-based offerings targeted at SMEs and priced on a subscription-based model, which provides hardware, networks and software and services; a BPO platform, vertically-focused, with standardised processes; and 'Bank in a box', based on the company's banking product, BaNCS. As of now, the biggest chunk of this growth is coming from its BPO platforms. Revenues from TCS's non-linear initiative are now 10 per cent of total revenues, which means that it is already a $1-billion unit.
Chandra and TCS have learnt to grow in the new normal, where the global economy is still grappling with growth issues. And Chandra does not seem to want to slow down, considering that TCS is aiming to add another $10 billion to its turnover in the next five years.
