Global, Indian peers may take a cue from TCS rejig

Mumbai: Tata Consultancy Services’ (TCS) move to restructure its operations eyeing $50 billion in revenue could be replicated by other global and Indian peers in due course, analysts have said.

ET reported last week that TCS – India’s largest software services provider by revenue – was restructuring the company into four new business groups – Acquisition, Relationship Incubation; Enterprise Growth; and Business Transformation — as it eyes the next big milestone of $50 billion in revenues.

This will require a razor-sharp focus on clients, their changing digital needs and faster delivery times.

The decision may be in line with rival Accenture’s focus on ‘Diamond Clients’ but TCS has taken a more nuanced approach to smaller clients, they added.

Currently, Infosys and Wipro offer a consolidated cloud and digital solutions vertical to clients.

Infosys’ Cobalt offers a one-stop enterprise cloud transformation solution.

Similarly, Wipro’s iCore solutions target a large digital, cloud and cybersecurity range.

“TCS is significantly larger than Infosys and Wipro, and as such, faces a more urgent need to structure itself at scale,” said Peter Bendor-Samuel, chief executive of analyst and advisory firm Everest group. “We can see some of the same thinking emerging from both Infosys and Wipro, but they don’t face the same scaling issues that TCS is starting to experience. Hence, they have not moved as aggressively down the same path yet.”

Over the next few years, Bendor-Samuel said both the companies as well as competitors would achieve significant scale, following the example of Accenture and TCS.

As of the third quarter of the current fiscal year, Infosys had 37 clients providing over $100 million in revenue while Wipro had 17 such clients.

As per the new structure, TCS’ existing customer “acquisition” unit will bring in new clients, the new “incubation” business group will handhold clients who are at an early stage of engagement with the company, ideally customers below the $20 million revenue range.

Once they mature to a wider range of requirements, they will be serviced by the existing “growth” unit which comprises 200 ISUs. Finally, the largest customers with long-term engagements – ideally $100 million plus clients – will be moved to the new “transformation” unit.

It is high time IT service providers looked beyond the traditional operating model of business – horizontal, vertical and regional offerings, said Mrinal Rai, principal Analyst, ISG.

Service providers looking to have a stronger consulting play are more likely to adopt similar business models, he added.

“This model focuses on helping clients mature as per their requirements rather than just giving them a fixed set of offerings. It should and will be adopted by other providers in some form or the other as per their individual requirements. For instance, peers like Wipro and Infosys have bagged very large deals during the (Covid-19) pandemic so they can look at similar models to address those clients at the outset,” Rai said.

TCS has clearly borrowed from the Accenture approach, said Bendor-Samuel.

However, its focus on small clients is at variance from Accenture.

“TCS’ approach differs by addressing more of the market than Accenture which focuses more on large firms and big opportunities. This is a logical next step for TCS and lays down a foundation which will allow them to continue to grow and scale,” he said.

Accenture’s 244 ‘Diamond Clients’ reported revenue of $53.7 billion in the last 12 months. Accenture defines Diamond Clients as its largest relationship.

TCS had 58 clients with $100 million-plus revenue by the third quarter of the current fiscal year, with LTM revenue of $25 billion, said Pareekh Jain, CEO, EIIRTrend.

“Though Accenture officially doesn’t specify, it is widely believed that Diamond Clients bring $100 million plus revenue per year. Some are even double diamond clients, which bring over $200 million in revenue in a year,” Jain said.