posted on Nov 29, 2018 by Rachael Stormonth
A year ago, following a TCS analyst event in Boston, the theme of which was Business 4.0: Intelligent, Agile, Automated, and on the Cloud, we wrote about how TCS’ new service line structure has been designed to support the company’s emphasis and positioning around Business 4.0 (see the blog here)
Underpinning its positioning around Business 4.0, over the past year TCS has been emphasizing two key capabilities:
- Location-independent agile
- Machine first delivery model (MFDM).
These two provided the core themes at the company’s recent analyst event in London. In our discussions with TCS execs, we were impressed by the speed and determination with which the company is moving to achieve the bold ambition it shared in 2017 to become 100% “enterprise agile” by 2020, also by its consciousness of how the nature of software engineering services will transform in the longer term.
Location-independent agile
With its stated target to be “enterprise agile” by 2020, TCS firmly placed a stake in the ground: to the best of our knowledge, no other IT services vendor has made a similar claim. TCS seems to be well on the way to achieving this objective with an estimated 250k of its 410k+ strong workforce already ‘agile ready’.
So, what is TCS doing to make this happen?
Unsurprisingly, there has been a massive retraining drive, accompanied by various efforts to nurture a culture where employees expect to continually learn (“making learning addictive”), something that becomes increasingly important as more roles become inter-disciplinary. A key asset underpinning its micro-learning platforms is its Karma gamification framework which has analytics and event-driven digital ‘nudging’ capability, used when an employee has been inactive.
Another core belief is that an employee’s contextual knowledge is more important than any specific technology skills – the aim is to train employees to become generalists rather specialists, particularly from roles that are next to be automated, by broadening the bar in their T-shaped skills profile to a V-shaped profile, e.g. training database managers on Hadoop, machine learning, and/or cloud systems administration. TCS estimates that its associates have on average four skills.
In line with this, performance management has moved from yearly assessments to micro targets.
Enabling tools that TCS has developed include:
- Jile, a cloud-based agile DevOps framework-agnostic product designed to help scale agile at the enterprise level. TCS launched Jile as a commercial product back in January (priced at $9 PU/PM)
- An Agile maturity model, an ‘agility debt’ framework with 27 characteristics codified from its experience with 300 clients, which it is now using to assess an organization’s agile readiness levels across the dimensions of structure, workforce, technology, and culture.
But enterprise agile also demands a transformation of the workplace: Krishnan Ramanujam told us that TCS is indeed transforming some of its larger delivery centers in India, including consolidating six campuses in Mumbai; removing cubicles in existing centers and installing large screens for interacting with team members based in other locations. We were assured that there is a “significant” investment in thus workspace transformation, but that there is no pressure on margins.
TCS’ emphasis on its capabilities in location independent agile is unsurprising: distributed agile is obviously important for large enterprises, and for many, their agile teams remain pockets of excellence. But getting distributed agile to work effectively is absolutely critical for those application services providers (by far the majority) that have an off/nearshore-centric global delivery model. Offshore delivery is not going away.
Machine first delivery model (MFDM)
As we have noted before in our Quarterly Updates on TCS, MFDM is not (just) using automation and AI for operations optimization. It is about giving technology the “first right of refusal” to sense, understand, decide, and act within a networked environment equipped with analytics and AI. The human interface is used for exception handling, training the machine to reduce exceptions, and for the application of contextual (often industry) knowledge.
The emphasis in the ‘Machine-first’ philosophy in the interplay between people and technology is how augmenting human capability can help unlock exponential value. The positioning is that MFDM can enable transformation in the client’s businesses (and, thereby, growth) for example through STP, new business models, increased speed to market, transformed CX, etc.
MFDM is thus a key element in TCS’ efforts to gain mindshare with stakeholders outside the CIO. We think there is more to be done in the articulation of the philosophy, as some clients (and, we noted, analysts) are honing on the automation aspect rather than the more disruptive business transformation play.
Ignio: in or out of TCS?
TCS describes its intelligent automation platform ignio as “the intelligent machine” behind MFDM. As with last year, most activity to date has been around IT operations (we estimate around 75%) though there is beginning to be increasing use of ignio to support applications development activities. The application of ignio in TCS’ Cognitive Business Operations business is in its infancy: obvious use cases include working on increasing the level of STP in activities such as finance, and accounting, supply chain, claims or mortgage processing. So, there are still considerable opportunities to leverage ignio across the portfolio.
At the same time, there is increasing traction for ignio as a commercial product, sold at times by other systems integrators. TCS highlighted that in FY18, its third year of operation as a commercial product, ignio achieved revenues of $31m, substantially more than many other SaaS enterprise products and also commented that it is looking to achieve >$100m in annual revenues in the next two years.
There is some tension between these priorities, and in discussions with execs, we noted some uncertainty as to the optimum model for ignio: as one of several product units within TCS, a separate subsidiary, or a standalone ISV which can sell more easily to other IT services providers.
The service portfolio revamp is helping drive digital; work to be done on full stakeholder play
In the last 12 months, TCS’ revenues from ‘digital’ services and solutions have increased by 49% to nearly $5bn. And the rate of growth has been accelerating: in Q2 FY19 revenue from digital services and solutions was up nearly 60% and accounted for >28% of the quarter’s total revenues (see TCS Quarterly Updates for more information). Moreover, this is organic growth. There is, of course, the caveat that there is neither commonality nor clarity as to different vendors’ determinations as to what classifies as digital, and in TCS case it has won some very large platform-based outsourcing wins that it would classify as digital. Notwithstanding, we are not aware of any other IT services vendor enjoying this level of organic growth at this scale, in what is primarily a services, rather than solutions, business. All IT services providers are undergoing a process of reinvention. Among the larger players, TCS is unusual in succeeding so far in achieving this through internal transformation.
Among the new standalone practices within the Digital Transformation Services (DTS) group, IoT and the larger Analytics & Insights unit are enjoying very strong growth. Taking longer to take off is Blockchain, with most activity still at PoC stage, a reflection of where the market is currently, but the pipeline is building up.
Among other things, the new service delivery structure has worked in helping advance TCS’ full services play and support its ambitions for its offerings to be more business outcome focused, and “to address issues of board-level significance”. However, this is not quite the same as having direct access to CxOs. While we appreciate that TCS does have direct access in some service areas and in some clients to stakeholders such as the CFO, we think there is more work to be done around the full stakeholder play and in elevating the TCS brand from technology to business partner, both in increasing thought leadership and also in the portfolio.
What next at TCS?
We have been aware that TCS’ messaging around Business 4.0 is resonating well with clients, but, as noted above, feel that the business transformation potential of the MFDM philosophy is less well understood. Expect to see more messaging in 2019 which provides specific client examples demonstrating the benefits realized from MFDM, and how the value proposition coming from the MFDM approach supports the delivery of specific services.
While TCS has focused on organic growth in recent years, we were keen to know whether there might be any tuck-in acquisitions to augment, for example, the design capabilities of TCS Interactive (and increase TCS’ access to client’s marketing budget stakeholders), or perhaps its managed security services capabilities. In short, we think that there is a possibility of both, that the recent acquisition of a design studio in the U.K. will be followed by other tuck-ins in other geographies, also that a cyber specialist asset, perhaps in the U.S. is attractive.
In terms of target markets, also expect to see an increasing focus on the U.S. public sector, for example, that builds on its experience in state Unemployment Insurance platform modernization.
Summary
A major focus of the event was to show why and how TCS has been redesigning and adapting organizational structures, facilities, processes and policies, and also its workforce culture to align with location-independent agile and with the MFDM. In our discussions with execs, we also picked up that the thinking is looking further ahead, to a time when there is virtually no coding and computer science skills become less relevant, and a primary key skill is data science.
One presentation referred to the great Wayne Gretzky's (dad Walter’s) advice to “skate to where the puck is going” (rather than where it is). This may have become an over-used aphorism in the corporate world, but, like all good aphorisms, is effective in neatly capturing a concept or principle. In our discussions with execs, we were convinced that TCS has a clear vision of the future of information technology, and it is investing to make sure that it will remain relevant even when the nature of IT services has changed dramatically from what it is today.