TCS story

The TCS story

At a time when the disappointing performance of most Indian IT companies has led
some to predict the end of the heady high-growth days, Tata Consultancy Services (TCS) is bucking the trend, posting heady growth in profits.

This high growth trajectory comes in gloomy times and without gloomy forecasts; if anything, the company is asking investors to gear up for another round of near-vertical growth.

The company’s success is evident in its quarterly results, the latest of which showed a whopping 44 per cent year-on-year increase in net profit to Rs 3,512 crore. Largely helped by new deals, the company predicts 2013 to be an even better year than the last quarter, which saw it pull in revenues of close to $2.85 billion.

“We see a lot of possibility for good growth. Companies are taking decisions and we see existing deals being ramped up and costs remaining stable,” N Chandra­sekaran, CEO and MD, told reporters in November on the sidelines of the World Economic Forum.

The company’s journey – the beginning was with an investment of Rs 50 lakh by Tata Sons to being briefly the most valued firm on the stock market, beating even Mukesh Ambani’s Reliance — mirrors India’s own economic transition from a heavy industries dominated to a software and services based economy.

TCS’s origins lie in 1968 – in the humble need to manage the data requirements of various Tata group companies, which included the likes of Tata Engineering and Locomotive Company (Telco, now called Tata Motors) and Tata Iron and Steel Company (Tisco, now Tata Steel).

The company’s struggle to the top, as witnessed by early employee turned chief executive officer S Ramadorai is also instructive of the challenges that early startups in India, before the word was coined or heard, faced from the pernicious licence raj, import control regimes and extreme fiscal conservatism.

That a startup eventually rose to the top and remains there is a pointer to the uniquely Indian method of management of making do with as little resources as possible. Ramadorai’s book, “The TCS Story,” is replete with instances of how engineers had to repair computer equipment worth millions of dollars with nothing more than tape.

Ramadorai feels that an entrepreneurial spirit and drive are differentiators for TCS. “This is an industry where entrepreneurial energy drives capabilities. Those who are at the company’s helm today have risen through the ranks and I am sure this entrepreneurial spirit will be protected,” he told Financial Chronicle.

TCS’s early successes in the banking and finance industries came at a time when it clearly had no capacity to build systems in that space. Dedication and passion to the cause saw it win a number of seminal contracts such as the Swiss National Bank and other clearing houses.

In its struggles to win contracts, take on projects where it had little or no expertise and identify new opportunities, there are lessons for today’s startups. The company’s projects for digitising the National Stock Exchange or National Securities Depository — implemented in record time in an age when most harboured a Luddite-like revulsion to computers — is a testament to its eagerness to put itself out of the comfort zone. In so doing, it learnt new techniques and capabilities that helped it win more contracts, thus setting off a virtuous cycle.

In implementing its contracts, TCS was practising outsourcing, offshoring and other verticals that later came to be synonymous with the Indian IT industry. It was evident in the advertising campaign the company ran in the run- up to its initial public offering.

Highlighting the global delivery model (teams in different time zones working round the clock), its strengths in the banking and financial services vertical, research and development focus and as a pioneer of the IT services industry, TCS’s listing on the BSE raised over Rs 5,400 crore ($1.2 billion), one of corporate India’s largest ever.

The company has only gone from strength to strength since then. From corporate India’s then largest IPO in 2004, it became the country’s first IT company to cross a billion dollars in revenue in 2005 and by 2009, it had reached revenues of $6 billion, becoming a Top 10 IT player and achieving its target ahead of time.

Ramadorai feels that TCS’s size is not a limiting factor in remaining competitive. “Management styles will evolve with the needs of the company. TCS today is a large company with its own buildup. It is driven by a culture that encourages collaboration,” he said.

This “jewel in the Tata group’s crown” now contributes close to 16 per cent of Tata group’s revenues (March 2012). This is a remarkable journey over four decades. In reading about its struggle, one gets the feeling that building the company was akin to building a plane while it flies. That the company could take roots and flourish in the supposedly staid and conservative environs of the Tata group is testament to the Tatas’ willingness to nurture world-beaters.