BUSINESS STRATEGY

ASSIGNMENT

SUBMITTED TO- SUBMITTED BY-

Prof. A. K. MITRA JATIN

IBS GURGAON 09BS0000950

 TCS
Vision

To create value by leveraging our co-innovation network in a manner that

has an impact on the customer ecosystem.

Mission

“To help customers achieve their business objectives, by providing

innovative, best-in-class consulting, IT solutions and services. To make it a
joy for all stakeholders to work with us”

Introduction:

At TCS, it means achieving real business results that allow you to

transform, and not just maintain, your operations. Our IT services, business
solutions, and outsourcing bring you a level of certainty that no other
competitor can match.
You'll experience requirements that are met on-time, within budget, and
with high quality; greater efficiency and responsiveness to your business;
and the ability to shift investment to strategic initiatives rather than tactical
functions.
TCS' Global Network Delivery Mode is the engine that allows us to provide
reliable, scalable and cost effective delivery of services and solutions. This
time tested model has enabled us to achieve client satisfaction ratings of
89% for meeting quality expectations and an average budget variation on
projects of just 3% -- both figures far better than industry norms.
TCS' Global Network Delivery Mode enables our clients to:
Choose a sourcing strategy best suited to their most important business
considerations, e.g., cost optimization, cultural alignment, location
proximity, language capabilities or risk-mitigation. Be assured of the highest
quality of service delivery regardless of the mix of services, technologies,
and locations.
Lower the Total Cost of Ownership (TCO) of Information Technology by
managing different service streams -- such as Consulting, IT Services, IT
Infrastructure Services, etc. -- through a unified delivery framework. All of
TCS' processes and infrastructure have been developed from the ground
up -- as opposed to being cobbled together over time.
When you become TCS client, here's just a sampling of what TCS do for
you:
• Identify and develop target markets
• Provide professional oversight for sponsorships, product testing and
placement and corporate image maintenance in local markets
• Plan cost-effect strategies for both internal communication and on the
world-wide-web
• Develop all of your printed materials, videos and web sites – including
Intranet capabilities such as on-line databases, business materials and
vendor or third-party communications
• Prepare community-oriented campaigns to identify a wide range of
promotional opportunities for product placement, test marketing or market
introduction
• Coordinate your identity branding to ensure that all materials
communicate the same message and appeal
• Provide effective, attention-getting RFPs (Request for Proposals) and
specific contracting with third-party vendors
• Ensure that you receive our cumulative experience and wide range of
networking opportunities to help you grow and succeed.

History of TCS
Tata Consultancy Services was established in the year 1968. TCS is
considered a pioneer in the Indian IT industry. Despite unfavorable
government regulations, like the License Raj, the company succeeded in
establishing the Indian IT Industry. It began as the "Tata Computer Centre",
a division of the Tata Group, whose main business was to provide
computer services to other group companies. F C Kohli was its first
General Manager. The legendary JRD Tata was its first Chairman and was
followed by luminaries such as Nani Palkhivala. One of TCS' first
assignments was to provide punch card services to a sister concern, Tata
Steel (then TISCO). It later bagged the country's first software project, the
Inter-Branch Reconciliation System (IBRS) for the Central Bank of India. It
also provided bureau services to Unit Trust of India, thus becoming one of
the first companies to offer BPO services. In the early 1970s, Tata
Consultancy Services started exporting its services. TCS's first international
order came from Burroughs, one of the first business computer
manufacturers. TCS was assigned to write code for the Burroughs
machines for several US-based clients

This experience also helped TCS bag its first onsite project - the
Institutional Group & Information Company (IGIC), a data centre for ten
banks, which catered to two million customers in the US, assigned TCS the
task of maintaining and upgrading its computer systems. In 1981, TCS set
up India's first software research and development center, the Tata
Research Development and Design Center (TRDDC). The first client-
dedicated offshore development center was set up for Compaq (then
Tandem) in 1985.

In 1989, TCS delivered an electronic depository and trading system called

SECOM for SIS SegaInterSettle, Switzerland. It was by far the most
complex project undertaken by an Indian IT company. TCS followed this up
with System X for the Canadian Depository System and also automated the
Johannesburg Stock Exchange (JSE). TCS associated with a Swiss
partner, TKS Teknosoft, which it later acquired. In the early 1990s, the
Indian IT outsourcing industry grew tremendously due to the Y2K bug and
the launch of a unified European currency, Euro. TCS pioneered the factory
model for Y2K conversion and developed software tools which automated
the conversion process and enabled third-party developers and clients to
make use of it. In 1999, TCS saw outsourcing opportunity in E-Commerce
and related solutions and set up its E-Business division with ten people. By
2004, E-Business was contributing half a billion dollars (US) to TCS. On 9th
August 2004, TCS became a publicly listed company, much later than its
rivals, Infosys, Wipro and Satyam. During 2004, TCS ventured into a new
area for an Indian IT services company - Bioinformatics. During the recent
couple of years TCS has been on the growth of progress. Both nationally
and internationally TCS is recognised as the higly respected IT company
and has surely put India on the world’s IT map large and clear.
Heritage and Values:

Established in 1968, Tata Consultancy Services has grown to its current

position as the largest IT services firm in Asia based on its record of
outstanding service, collaborative partnerships, innovation, and corporate
responsibility. TCS is proud of thier heritage as part of the Tata Group,
founded by Jamsetji Tata in 1868 and one of India’s most respected
institutions today. Their mission reflects the Tata Group's longstanding
commitment to providing excellence: To help customers achieve their
business objectives by providing innovative, best-in-class consulting, IT
solutions and services, and to actively engage all stakeholders in a
productive, collaborative, and mutually beneficial relationship. Their vision
is to be one of the top 10 global companies by the year 2010. Their values
– integrity, leading change, excellence, respect for the individual, and
fostering an environment of learning and sharing. TCS' ability to deliver
high-quality services and solutions is unmatched. They are the world’s first
organization to achieve an enterprise-wide Maturity Level 5 on both CMMI®
and P-CMM®, using the most rigorous assessment methodology -
SCAMPISM. Additionally, TCS’ Integrated Quality Management System
(iQMS™) integrates process, people and technology maturity through
various established frameworks and practices including IEEE, ISO
9001:2000, CMMI.

Attribute Value Date

PE ratio 29.00 16/07/10
EPS (Rs) 28.71 Mar, 10
Sales (Rs crores) 6,410.95 Jun, 10
REPORT CARD:- Face Value (Rs) 1  
Net profit margin (%) 24.13 Mar, 10
Last bonus 1:1 20/04/09
Last dividend (%) 200 15/07/10
Return on average equity 37.3 Mar, 10
EXTERNAL ENVIRONMENT - PESTLE ANALYSIS
IT INDUSTRY IN INDIA

The Indian information technology sector has been instrumental in driving

the nation's economy onto the rapid growth curve. According to the
Nasscom-Deloitte study, the IT/ITES industry's contribution to the country's
GDP has increased to a share of 5.2 per cent in 2007, as against 1.2 per
cent in 1998. Further, the IT and BPO industries are poised to clock
revenues worth US$ 64 billion by the end of fiscal year 2008, registering a
growth of 33 per cent with exports expected to cross US$ 40 billion and the
domestic market estimated to clock over US$ 23 billion, according to a
study. Simultaneously, the Indian IT services market is estimated to remain
the fastest growing in the Asia Pacific region with a CAGR of 18.6 per cent,
as per a study by Springboard Research. India's IT growth in the world is
primarily dominated by IT software and services such as Custom
Application Development and Maintenance (CADM), System Integration, IT
Consulting, Application Management, Infrastructure Management Services,
Software testing, Service-oriented architecture and Web services. A report
by the Electronics and Software Export Promotion Council (ESC) estimates
software exports to register a 33 per cent growth in the current financial
year with export figures during FY 2008 expected to reach US$ 45 billion.
The country's IT exports have, in fact, come quite far, starting from a few
million dollars in the early 1990s. The Government expects the exports
turnover to touch US$ 80 billion by 2011, growing at an annual rate of 30
per cent per annum.

Political:
• Political stability: Indian political structure is considered Stable enough
expect the fact that there is a fear of hung Parliament (no clear majority). -
Positive
• U.S. government has declared that U.S companies that Political
outsource IT work to other locations other than
• U.S. will not get tax benefit. - Negative
• Government owned companies and PSUs have decided to Give more IT
projects to Indian IT companies. - Positive
• Terrorist attack or war. – Negative
Economical:
• Global IT spending (demand). (–ve)
• Domestic IT Spending (Demand): Domestic Market grow by 20% & reach
approx USD 20 billion in 2008-09 Nasscom (+VE).
• Currency Fluctuation (-ve)
• Real Estate Prices: Decline in real estate prices has resulted reducing the
rental expenditure (+ve).
• Attrition: Due to recession, the layoffs and job-cuts have resulted in low
attrition rate (+ve).
• Economic attractiveness: Due to cost advantage and other factors (+ve)

Social:
• Language Spoken: English is widely spoken language in India. English
medium is the most accepted medium of education.(+ve)
• Education: Large number of technical institutes and universities over the
countries provide IT education. (+ve)
• Working age population. (+ve)

Technological:
• Telephony (+ve)
 India has the world lowest call rates
 Expected to have total subscribers base of about 500 million by 2010.
 India has the second largest telephone network after china.
 Enterprise telephone services, 3G, Wi-max, VPN, poised to
grow.

• Internet Backbone: Due to IT revolution in 90’s india is well connected

with undersea optical cables. (+ve)
New IT Technologies: Technologies like SOA, web 2.0, High definition
content, grid computing, and innovation in low cost technologies is
presenting new challenges & opportunities for Indian IT industry.(+ve)
PORTER’S FIVE FORCES
Today's business environment is extremely competitive and in economics
parlance where perfect competition exists, the profits of the firms operating
in that industry will become zero.
However, this is not possible because, firstly no company is a price taker
(i.e. no company will operate where profits are zero).
Secondly, they strive to create a competitive advantage to thrive in the
competitive scenario. Michael Porter, considered to be one of the foremost
gurus' of management, developed the famous five-force model, which
influences an industry.

In this REPORT, we apply this model for the Indian IT industry.

In the case of both software outsourcing and BPO, for TCS there are few
important suppliers, because TCS’ inputs are standard commodities and
there is little opportunity for differentiation on the input side.
The four forces that are most problematic are the bargaining power of
customers, the threat of new entrants, the threat of substitutes, and the
competitive rivalry with existing players. We examine each of these four
forces in their turn for both software services outsourcing and BPO.

In the early days of the software exporting business, the software vendor
market was dominated by a few large global suppliers such as IBM. Indian
firms were viewed as too small to matter for obtaining significant business.
In addition, they competed actively with each other at the low-end. The
result was that TCS and its Indian peers chose components of the business
that were relatively low value-added and relatively simple to do.

TCS also faced a client market that was dominated by the large banks and
insurance companies. While it actively sought alliances with larger vendors
as a competitive strategy, its most successful strategy was to directly
approach clients and accept the lower rates that its competitive position
necessitated.

Looking ahead, TCS must continue to work to reduce the bargaining power
of customers by trying to move the purchase decision away from price. This
means that TCS must deliver more than undifferentiated programming by
moving up the value chain. Such a movement is difficult in software
services because the customers have deep domain expertise and almost
invariably wish to retain the tasks grouped under strategic consulting.
Moreover, customers understand that if they outsource the strategic
consulting, then their bargaining power will be reduced. TCS must develop
sufficient expertise so as to make outsourcing these tasks a compelling
value proposition. Of course, it is exactly in these realms that the
multinational outsourcing firms such as IBM, Accenture, and EDS are the
most ferocious competitors.

Forging alliances is often viewed as a good strategy to offset clients’

bargaining power. However, building alliances with firms working in clients’
locations should be discounted as this would further focus TCS in
applications’ development. On the other hand, the acquisition of a medium-
sized American firm with strong client relationships and domain skills could
provide an attractive opportunity. Although costs per employee would rise,
the rise would be small since labor requirements are lower for higher value-
added work.

Meanwhile, the threat of new entrants is declining rapidly as the larger firms
have rapidly increased their size, market share, and credibility with
customers. However, although firms strive to reduce their direct competition
through product differentiation, in each market segment there continue to
be numerous players.

A key concern for TCS is competition from existing players as it has

generated competition for existing business and created significant pricing
pressures. Globally, firms such as EDS have positioned themselves as
capable of undertaking large, “turnkey” projects in order to differentiate
themselves from competitors such as IBM and Accenture that focus on
higher value-added work such as consulting. This suggests an organically-
driven growth strategy for TCS: that TCS continue to do the same kinds of
work that it currently does, but try to capture a greater portion of the value-
addition by undertaking larger projects. Though it has already
demonstrated a capability in remote project management, it would be
required to further increase this capability.

However, there are some risks to this strategy. TCS’ large size suggests
that it may have already maximized economies to scale in applications
development. Adding scope, however, offers the potential for large gains
since it necessarily involves higher value-added activities. In the early days,
this was difficult, partly due to the technical difficulty in de-integrating the
value-chain beyond the modularization of applications programming. Over
the past few years, however, engineering services, systems design, and
systems integration work have increasingly been outsourced (within the
U.S.), suggesting that, if the skills are at hand, such work could be done in
India.

Most of the American providers of such services offer domain and software
skills. TCS already has the software skills to move into these areas. But
domain skills are a challenge. This reflects a general lack of domain
expertise outside the financial services sector in India. Put differently, India
does not have global-class, nontechnical knowledge in various other
industries. As a result it is difficult to offer the full panoply of services a firm
would want when it considers outsourcing a software development activity.
This may be being rectified as the liberalization of the Indian economy
since 1991 has led to the development of a host of new industry
capabilities, such as in insurance. This promises an expansion of domain-
specific skills in fields outside the traditional industries – but these will
develop only gradually.

These facts indicate that it will be difficult for TCS as an organization based
and staffed primarily in India to change its revenue mix through organic
growth. Acquiring Indian firms doing higher value-added business is a
possibility, but there are few such firms in the Indian business environment.
Essentially, the constraint that TCS faces is environmental rather than firm
specific. In most sectors, Indian business conditions are sufficiently
dissimilar to overseas client conditions that local domain expertise is of low
relevance.

The threat of substitutes in software services does exist as technology tools

to speed coding etc.

However, at this time the threat of substitutes seems rather remote.

SWOT Analysis of Industry
STRENGTHS:

• Leadership in sophisticated solutions that enable clients to optimize the

efficiency of their business.
• Proven “Global delivery model”
• Commitment to superior quality and process execution
• Strong Brand and Long-Standing Client Relationships
• Ability to scale Innovation and leadership.

WEAKNESSES:

• Excessive dependence on US for revenues, 67% of revenues from USA.

• Weak player in domestic market. Only 1% of revenues from India- low as
compared to peers.
• Low R & D spending as compared to global IT companies – only 1.3% of
total revenues.
• Low expertise in high end services like Consultancy and KPO.

OPPORTUNITIES:

• Domestic market set to grow by 20%.

• Expanding into new geographies – Europe, Middle East etc.
• TCS is cash rich (Around US $ 1 Billion).
• Acquiring companies to increase expertise in Consultancy, KPO and
package implementation capabilities
• Opening offices and development centers in cost advantage countries
such as those in Latin America and Eastern Europe.

THREATS:

• Global economic slowdown may continue for several years – hence low IT
spending globally.
• US Govt. against outsourcing.
• Shrinking margins due to rising wage inflation, Rupee-dollar movement
affects revenue and hence margins.
• Increased competition from foreign firms like Accenture, IBM etc.
• Increased competition from low-wage countries like China, Indonesia etc.
SWOT Analysis of TCS
Strength:

• It's highly professionally managed IT consulting and services company

under the belt of TATA.
• Company has performed consistent year on year with weak economy
conditions of world.
• Company has capabilities to deliver new as well as legacy application. It
is in space of services as well as products and high value chain consulting.
• It has fragmented IT services and SDLC cycle into minute grains such as
S/w testing and grown that business to more than 250million USD. This is
the testimonial of efficient management.
• It is the only company initiating Earned value based profit center for
evaluating their performance. HLL is the first company to do so.
• IT is the only company that has survived and surprised investors with its
fixed cost Project delivery model and still making phenomenal profit despite
overloading the project with 10 t o15 % in terms of resources.
• Part of the Tata group, which helps it gets more international business.
Cases in point: the $1.2-billion Nielsen deal, Ferrari, and now Jaguar-Land
Rover (bought over by the Tata group)

Weakness:

• Lack of scale compared to global competitors like IBM, HP (which bought

EDS), and Accenture.
• Needs to establish a track record when it comes to large deals Consulting
accounts for less than 4 per cent of global revenues; IBM, Accenture score
on this count.
• Needs to strengthen other service lines besides application, development
and maintenance (ADM) that accounts for nearly 48 per cent of its
revenues.
• Man power strength is more than 10,000 employees and thus, it is
challenging to get personalized career development.
• Bad real estate
• Limited Product Line
Opportunities:

• Change in consumer lifestyles

• Acquisitions
• Available Governmental support
• Available technological innovations
• Growth of the industry of operations
• Decrease in taxation
• Entering niche markets
• Merger or takeover
• Strategic alliances & joint ventures

Threats:

• Financial slowdown, slowing US economy.

• Labour challenges, globally.
• Competition from foreign markets
• Innovative products/services of competitors
• Changing technology
• New competitors entering the market
ANALYSIS OF IT SECTOR IN CURRENT SCENARIO

Investors are once again flocking to IT counters after shunning the sector
for an entire year. The rebound in investor sentiment is evident from the
fact that though IT indices have failed to provide returns over a 12-month
horizon, they have by and large outperformed the broader market over one-
month and three-month periods.

The renewed interest of investors despite not-so-encouraging results can

be attributed to the weakening of the rupee against the dollar. Post the
March quarter results and favourable trend in currency fluctuations, the
time is right to take a look at the prospects of the IT sector. So far, over 100
large and small software and BPO companies have declared results for the
March ''09 quarter and the picture at the aggregate level is not too
encouraging.

The performance of the IT sector is even bleaker on the profit and

profitability fronts. Growth in net profit for the sector during the March ''09
quarter was the slowest in the past several quarters. This is also true in
case of profitability of the IT sector. The sombre performance has come on
the back of an appreciating rupee and slower growth in the BFSI segment.
For FY10, though IT companies have maintained their ''cautiously
optimistic'' stand, the guidance given by large and mid-sized companies
reflects their confidence in maintaining growth.During the June ''09quarter,
depreciation in the rupee against the dollar may help companies post better
margins. As per industry experts, every 1% fall in the rupee will improve
companies'' operating profitability by over 30-35 bps.

Most IT companies have hedged their future earnings in the currency

forwards market. Companies typically hedge 30-75% of their future
earnings. This reduces the impact of currency fluctuations on their
revenues and profitability when the rupee is appreciating. But this will result
in erosion of profitability when the rupee stars depreciating. Though a
depreciating rupee will increase hedging losses, this may be more-than-
compensated by gains on the operational front as companies have
flexibility to rework their hedging strategies, depending upon the rupee's
fluctuation.

Over the long term, the IT sector is set to see moderate growth, given
fattening revenue base of the sector and slowing US economy. This may
be reflected in companies' current valuations. IT exporters with a strong
business model and ability to take advantage of global sourcing
opportunities by relocating their delivery base can tide through the bad
patch. Also, companies that have India-centric strategies woven through
niche market offerings look promising. Investors with a horizon of 2-3 years
can accumulate scripts of top-tier companies, like TCS and Infosys, as well
as niche players in the mid-tier space, such as Rolta, Mastek and Tulip
Telecom.
Conclusions:
Predicting what will come in an industry that evolves on an almost daily
basis is a thankless and almost futile task. Things change at such a rapid
rate, and many of the technologies are so fluid, that a shift in direction can
occur in weeks rather than months. If we think that today's Internet and e-
commerce opportunities are technically advanced, we have not seen
anything yet. Not only will the existing uses of the Internet get more and
more advanced, but new ways will be found to exploit the opportunities it
provides. The delivery of these services will not just be dependant on new
formats and programming, but also on the mediums that deliver them. For
this to happen, certain changes will need to take place, not just
technological, but legal as well. Protection of consumers needs to be
examined, as well as considerations such as copyright protection and
piracy prevention. As well as using conventional methods to connect to the
Internet, wireless access will also become a common approach. Although
we already have wireless data devices, the wireless computing industry is
still in its relative infancy. With wireless transmission speed developing at a
rapid rate, coupled with the availability of wireless data services, this is one
area of technology that is sure to become a big mover. Even now, hand-
held computers or Personal Digital Assistants are becoming commonplace.

Technology continues to advance, constantly changing how we work,

where we work, and the skills we need to work. What the future holds for IT
is impossible to predict, but it's guaranteed to be a wild ride.