NelsonHall recently attended a TCS analyst event in Boston, the theme of which was Business 4.0: Intelligent, Agile, Automated, and on the Cloud. A few months ago, soon after Rajesh Gopinathan took over as CEO, TCS undertook its first major service line revamp for many years (we provided details of this in our Quarterly Update on TCS – see here). As such we were keen to learn more about how the reorganization is progressing and what this means in terms of investment priorities and any changes in market proposition. While the rationale for the new service line structure is convincing, we were left with some questions about whether TCS is in danger of creating new silos, silos moreover which have the potential to leave its large Cognitive Business Operations unit looking like a legacy business.

The opening keynote focused on what Business 4.0 enables, namely the ability to:

• Achieve mass customization (availability of data to target every interaction within a segment of one)
• Create exponential (business) value
• Leverage ecosystems (an increasing differentiator)
• Embrace risk.

As a generic positioning statement, this is an attractive cross-industry proposition by TCS, one that is a business-centric evolution from the notion that TCS has been promoting over the last year or two of the Digital Enterprise. It is positive in tone: the ‘disruption’ word doesn’t appear; also, one messaging statement is about ‘harnessing abundance’.

Major regroup and revamp of service portfolio

The importance of the new service line structure should not be underestimated: we were reminded that this is the first time TCS has undertaken such a restructure for 15 years.

The ambitions behind the revamp, as described, include wanting, inter alia:

• For all service lines to be business outcome focused, and their offerings to address issues of board-level significance
• To be able to deliver seamless service integration (full services play)
• For the new set of offerings to address CXO priorities (full stakeholder)
• To be able to offer new engagement types and non-linear pricing models (new models)
• To go to market offering a combination of domain and digital capabilities (contextual thought leadership).

The overall emphasis is on evolving from an old model of 'Consult/ Build/Operate' to a ‘Broker/Integrate/Orchestrate’ model.

To summarize, TCS’ new Business and Technology Services (BTS) organization comprises three groups:

• Digital Transformation Services (DTS), which has new standalone practices for areas such as IoT, Cyber, Analytics & Insights. Applications services are now broken down into smaller units such as EAS, Cloud Applications, Micro-services and APIfication
• Cognitive Business Operations (CBO), which includes BPS, infrastructure services, applications support services, former ‘run the business’ services
• Consulting and Systems Integration (C&SI).

Simultaneously, other established service practices that have reached scale (including some industry-specific BPS businesses and the Engineering Services unit) have been carved out and merged into the Industry Solution unit structure, enabling these vertical units to have a more integrated portfolio.

When TCS makes a big play in a new area, it invariably succeeds: its BPS and IT infrastructure services businesses, for example, have grown in not that many years to contribute nearly 28% ($5bn) of TCS’ total revenues in FY17 – and this has been achieved through organic growth.

The priorities now are clearly with:

• The new digital practices. The importance being attached to these is reflected in the appointments of some very experienced execs to lead these; for example, Dinanth Kholkar, formerly head of TCS’ large BPS business, is now heading the much smaller Analytics & Insight practice. Investments will focus on these new practices (this is unlikely to include any significant M&A activity: unlike most of its peers, TCS has succeeded very well so far on essentially organic growth, and the messaging is that this will not change)
• The ignio subsidiary. What will happen to ignio ultimately is not yet clear: one ambition is that ignio will be used by third parties – indeed, in discussions with ignio head Harrick Vin we heard of an organization that has asked two other systems integrators to deploy ignio. There is, of course, the possibility that ignio might eventually be spun off, though we do not see this as likely in the foreseeable future.

TCS has, to date, been highly successful in cross- and up-selling into major accounts: its ability to ‘penetrate and radiate’ is reflected in the ongoing expansion in the number of high-value accounts. And the company has been promoting its full services play for many years now.

Nevertheless, following discussions with several execs, we are left with some questions as to the potential effectiveness of the new service line structure in facilitating the development of new digital-led offerings, and this is why...

• A new Enterprise Intelligent Automation (EAI) unit, sitting within C&SI, offers deployment of third party RPA and AI tools, as well, of course, as ignio. These are customized solutions for client-specific environments
• Meanwhile, ignio, a standalone company, is essentially going alone to develop new use cases for ignio, for example in working out new process models within supply chain management
• And then there is the Cognitive Business Operations unit. While the focus is on enriching the offerings with Intelligent, Agile, Automation, and Cloud, it does not appear to be spearheading TCS’ development of the kinds of new digital process models that are the hallmark of next generation managed services.   

A key challenge for TCS is harnessing both EAI and ignio to be able to develop and go to market with innovative and replicable new digital process models that will be delivered by CBO. This means a level of collaboration that is difficult to achieve across organizational boundaries. The risks include duplication of efforts and tardiness of innovation. I must emphasize at this point that this is not a challenge that is unique to TCS; we see it also in some other very large IT services/BPS providers that, like TCS have an extensive portfolio of service offerings and their own cognitive platforms. Finding ways to enable collaboration across organizational boundaries in the development of new cognitve-based offerings that benefit managed services businesses will be critical to future differentiation.

Two postscripts

• Marketing: TCS has a new group CMO, and we were told that marketing will get a big boost in terms of promoting TCS’ services strategy
• Innovation: one highlight of the event was CTO Ananth Krishnan providing an update on Research & Innovation at TCS. This merits a separate blog.