Indian IT giant TCS sees IBM and Accenture as nearest rivals

Rapidly-growing Tata Consultancy Services has its eyes on the US IT giants, with customer service key if it is to overtake them

India has created the fastest-growing IT services firms on the planet, but one stands out from the pack.

Tata Consultancy Services (TCS) has about 400,000 employees and made sales worth more than $19bn last year. Part of the Tata conglomerate, it grew on the back of huge demand for low-cost offshore IT services from businesses largely in the US and the UK, but today it rubs shoulders with the global elite.

It all began when lower-cost labour, abundant IT skills and widely spoken English language made India the place for UK and US businesses to send their IT work, completed at a fraction of the cost in their own countries.

But today, the likes of TCS, Infosys, Wipro, Cognizant and HCL, known as the Indian heritage service providers, are far more than a source of cheap labour. They are technology suppliers with operations across the globe.

TCS is the biggest of them all. In fact, Shankar Narayanan, head of TCS in the UK, says IBM and Accenture are now TCS’s biggest rivals for contracts. All three have large India-based workforces, delivery hubs around the globe, the world’s biggest companies as customers, and their own technology.

And now TCS has its eyes on the US giants, with customer service key if it is to usurp them.

“IBM and Accenture are the biggest IT services providers and then we come a bit behind,” says Narayanan. “But TCS is now in a similar bucket in terms of size, scale, reach and then types of services offered.”

But the difference comes in the way the services are delivered to customers, says Narayanan. “We want customers to think it is easy for them to navigate TCS compared to Accenture and IBM.”

Making the company easy to deal with in Europe is achieved partly through how it sets up its operations.

Europe model

In Europe, where the company’s revenues exceeded $5bn last year, TCS is split into separate regions with separate leadership, in what Narayanan describes as logical clusters. “Each of these markets has scale, a lot of existing customers and a lot of market to go after,” he says.

“For example, Benelux and the Nordics are big markets for us, with each accounting for sales of over $500m, Germany is about $470m for us and France is about $235m,” says Narayanan. In the UK, TCS made sales worth $2.6bn last year.

In the UK, TCS recently announced deals with Prudential, Scottish Widows, Rolls Royce and Marks and Spencer (M&S). All but M&S were new customers and the M&S deal was a significant expansion on its existing contract. TCS’s biggest customers in the UK are Lloyds Banking Group, Aviva and Jaguar Land Rover.

Where is the growth?

The company is involved in significant new work with existing customers because these customers are evolving how they contract TCS. In the past, contracts might have focused on access to skilled labour at lower costs, or a business process outsourcing (BPO) deal with offshore resources, but today customers want much more from service providers.

Narayanan said that although each sector is different, it is possible to broadly divide customers into two groups in terms of the service they want. “One group is asking: what can be done to make the organisation lean and agile?” he says. “They want to know how they can simplify the process, the technology and everything that they have today. They are asking whether we can help them create new products and services within three months.”

Narayanan said this is easier said than done because when you create something new, it has to work with whatever is underneath, which is often very complex. “You have to go underneath and find out where the complexities are,” he says.

“The second group is thinking about how they build a business using technology. They want to establish what their ideal world will look like and establish a path to get from where they are to that point.”

So the first group is about becoming lean and agile and the second is about launching new capabilities as quickly as possible.

Read more about outsourcing

TCS’s recent deal with Rolls-Royce is a good example of the changing ways IT service providers are engaging with customers. Using internet of things (IoT) technologies, TCS is enabling Rolls-Royce to monitor the performance of its aircraft engines while they are being used. This makes maintenance more efficient and improves safety.

“We are creating data and analytics models so we can understand what needs to be done to reduce aircraft downtime,” says Narayanan. “Before the aircraft even land, Rolls-Royce will understand what needs to be done rather than going in and physically inspecting.”

At the core of this is a changing business model at Rolls-Royce. It is currently changing its model to enable airlines to pay for engines via a subscription model rather than a large upfront payment. This puts digital technology at the core of the business model.

It is this type of broad reach and business understanding, combined with its scale, that is enabling TCS to challenge the US giants.

Peter Schumacher, CEO at the Value Leadership Group, which carries out CIO research about use of IT services, says customers believe the Indian firms are catching up in terms of capability and overall performance.

He says European CIOs also have negative views of US firms about issues besides price, whch is normally higher than the Indian heritage firms charge. “One CIO said that a customer needs to have a good legal team if it wants to engage with Accenture and that IBM is even more legalistic,” says Schumacher.

This illustrates why TCS sees making itself easy to deal with for customers as a potential differentiator.

“While IBM executives have changed their business mix, they haven’t changed their attitude,” says Schumacher. “They are complicated to deal with and in the second meeting they bring a lawyer along. Given these deeply entrenched perceptions about the Western market leaders, it is not hard to understand why the India-based firms have been gaining so much ground in Europe.”

TCS in the UK

In the UK, TCS is growing – it added 5,000 staff last year.

Many of these additions are in service delivery to support the increasingly diverse range of technologies adopted by customers. “Every one of the emerging technologies has a shortage of skills in the UK,” says Narayanan, adding that TCS could not support UK customers with UK-only skills.

To remedy this, TCS will continue to hire staff in the UK and plan for the future. Recruits will include 250-500 graduates from colleges and universities each year. “In two to three years’ time, this is the talent we will be able to redeploy,” says Narayanan.

But perhaps TCS won’t need as many people in the UK in two or three years’ time because of one factor that is out of TCS’s control – Brexit, which is creating uncertainty for all businesses that work with the UK. TCS might not be directly affected as an organisation, but the impact on its customers will have knock-in effects.

Narayanan says of Brexit: “Our operations won’t come to a standstill because of it. We are all over Europe anyway and don’t use the UK to serve Europe. There will, of course, be a need to move people over borders, but there are visas, and we have to use visas to bring people from outside Europe anyway.”

But he says Brexit could have a negative impact on TCS’s business. “The real issue is what happens to the businesses, the FTSE-100 multinationals,” he says. “Will they curtail their investments in Britain because it is too difficult to do business, and invest elsewhere? If they reduce investment, there will be an indirect impact on TCS in the UK because we are a technology supplier to business.

“There is a hope that the UK will redefine its future and that the transitional period will be the problem that we will emerge from. But we don’t know whether this will be two years, 20 years or 50 years.”

But there have been stark warnings, Narayanan added. “Some of our customers have said a no-deal Brexit will bring their businesses to their knees.”

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