Professional Documents
Culture Documents
IT Service Firms
By Sayan Maiti
DATE : 6th June, 2013
IT Services Industry Overview
Global IT Services Spend IT Services Spending Projected Worldwide revenues- Indian IT
Growth % services
980 6.00% 14000 Growth Rates
15.2%
4.90% over 2 years
Values in US Billion Dollars
960
Source : Gartner IT Spending Forecast Mar’13 Source : Gartner IT Spending Forecast May’13
Globally IT industry is going to grow steadily The top five Indian providers grew 13.3% exceeding the
despite a weakening global economy. worldwide IT services industry growth of 2%.
“The Nexus of Forces — social, mobile, cloud Revenue contribution from project-based and staff
and information — are reshaping spending augmentation deals has continued to decline for the
patterns across all of the IT sectors” – Gartner. top five Indian-based providers, and the outsourcing
Consumers and enterprises will continue to service line component has steadily increased.
purchase a mix of IT products and services – Cognizant displaced Infosys to become the second-
however the mix is going to change radically in largest Indian IT services provider in 2012-13.
the future e.g. transitions from PC’s to mobile
or licensed software to cloud.
No of billable Total no of
employees / employees Client Business
Targeting Development
Brand
Building
Inorganic Growth 60+ acquisitions since 2001 and over 2-3 acquisitions in 2012-2013
Bid and win new contracts Presence in all IT segments gives them the flexibility to bid for complete projects starting
from consulting to implementation.
Billing Rates Very high billing rates to the order of $56 per hour
MARGIN
Sell technology
Understand the client’s Take over Additional
development for
problem and suggest implementation revenues for
client as a
solution and cross sell maintenance of
proprietary
( Business Consulting) services products
product
Employee Costs 11.4% Attrition Rate, Employee cost as a % of Revenue is 38% and among the lowest
among peers
SG&A Expenses SG&A cost is 18.7% and is on the higher side among peers
TCS Verticals Breakdown Focused on volume growth using cost as a leverage and has the
largest workforce among IT service companies.
BFSI TCS has adopted a model of going into new geographies and new
service lines. ( Risk appetite is high )
Telecom
5% 5%
4% In the year 2008 it made big acquisition to the tune of $512 million all
Manufacturing by cash to buy out Citi Global Services. This helped TCS to become
43%
16%
Retail number 1 in BPO service. Recently TCS acquired CRL which would
14%
13%
allow it to offer more differentiated services to its global clients.
Utilities
Growth was led by markets like the UK and Europe, growth markets
Healthcare like India, Asia-Pacific, Latin America and the Middle East performed
well.
Others
While financial services vertical’s relative performance is not as
expected, retail, manufacturing and telecom have performed well.
Competitive Analysis of IT Service Firms Page 5
Competitive Analysis - TCS
WEAKNESS
STRENGTHS Derives large proportion of
One of the world's largest IT revenues from developed
services companies. markets, especially the US,
Increasingly viewed by that are facing economic
customers in the same league difficulties.
as IBM and HP. Lags some peers and
Large international workforce. multinational rivals in high-
Driving BPO services in India. end consulting offerings.
Diversified revenues across • Heavy exposure to banking,
regions, services and verticals. financial services and
insurance vertical.
SWOT
OPPORTUNITIES THREATS
Product portfolio expansion Lower outsourcing costs in Strategy for long term growth
enables TCS to move into end- neighboring South Asian
to-end services market, markets could see contracts Customer Centricity – For repeat business
benefiting revenues and move away from TCS.
Full Service Capability – Present in all
margins. People-led linear growth
Positioned among all Indian means Cognizant can beat it. segments and geographies
vendors to disrupt the global There are no visible leaders Global Network Delivery Model – Facilitate
league of IBM-HP-Accenture. beyond N Chandrasekaran
cost arbitrage across geographies
Geographical expansion into Vulnerable to global economic
relatively untapped regions. climate, with demand from Strategic Acquisitions – For quick growth
Potential for strong revenue developed market financial across segments and geographies
growth from home market in institutions still a key part of
India. its revenue mix. Non Linear Business Models – Strategies to
ensure growth without increasing the head
count.
Competitive Analysis of IT Service Firms Page 6
Competitive Analysis - Cognizant
Key Drivers Performance
Repeat Business from customers 90% of business comes from existing clients
REVENUES
Inorganic Growth 17 Acquisitions since 2002 and 1 in 2012. Cognizant is aggressive in inorganic growth.
Bid and win new contracts $330 M ING US, Network Rail $350 M ( shared among 5 companies), Philips ( Business
Transformation )
Billing Rates Around $35 an hour
MARGIN
September’12
Bid and win new contracts BMW Infrastructure Management, India posts rural integration ($20 M), Rwest ( IT
Transformation )
Billing Rates $43 per hour ( FY 2012 ), On the higher side
Employee Costs 15-16% Attrition Rate, Among the highest as compared to peers, Employee cost as % of
MARGIN
Infosys Verticals Breakdown Infosys' strategy of charging a premium for its services (as
compared to its peers) is putting strain on its clients who are
BFSI pressured to cut costs in the backdrop of a slowdown. ( e.g. Infosys
doesn’t favor reverse auction processes )
6% 4% Telecom
6%
Infosys has always focused on the high margin business. For this, it
35%
18% Manufacturing has concentrated on the business from the developed markets such
as the North America and the Europe. However it has ended up
21% Retail ignoring emerging markets like India and its revenue % from the
10% domestic markets ( 2.1 % from India in 2012) is among the lowest.
Utilities
Infosys also gets a higher share of revenues from Consulting which
Healthcare has helped it maintain its margins.
Others Infosys has better distribution of verticals and it has started
focusing on healthcare which is an emerging sector.
Competitive Analysis of IT Service Firms Page 9
Competitive Analysis - Infosys
WEAKNESS Infosys 3.0 Strategy
Large proportion of revenues
STRENGTHS from developed markets, 1. Identification of seven game-
One of the world's renowned especially the US, that are facing changing trends that form the
IT services companies. economic difficulties. innovation framework.
Early positioning as a high end Lagging peers in making 1. Digital Consumers
differentiated player. strategic, 'game-changing'
2. Emerging Economies
Diversified revenues across acquisitions
regions, services and verticals. Consulting business has not 3. Healthcare Economy
delivered the results as 4. New Commerce
expected. 5. Pervasive Computing
SWOT 6. Smarter Organizations
7. Sustainable Tomorrow
OPPORTUNITIES
Best positioned to replicate THREATS
the Accenture model from 2. Products, platforms and
Ongoing visa abuse case and solutions was set up as a
offshore federal investigations in the US
A game-changing acquisition dedicated organization to focus
could affect brand and
in a new geography could help on innovation-led business
business.
the company raise its profile. growth for our clients.
Management transition from
Profit Margins among the founders to professionals will
best in the industry which bring uncertainty. 3. Infosys manages the portfolio of
offers cushion for further Vulnerable to global economic software assets and creates
growth. climate, with demand from
Geographical expansion into developed market financial
offerings around them
relatively untapped regions. institutions still a key part of its
Potential for strong revenue A very futuristic looking strategy but
revenue mix.
growth from home market in
Infosys needs to make sure that it
India.
implements it faithfully.
25 25
Profit Margins
20 Infosys 20 Infosys
P/E Ratios
15 TCS 15 TCS
Wipro Wipro
10 10
HCL HCL
5 5
0 0
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
50
25
TCS 40 TCS
20
Wipro 30 Wipro
15
HCL 20 HCL
10
5 10
0 0
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
PAT Growth in %
25% Infosys 30% Infosys
20% TCS TCS
20%
15% Wipro Wipro
5%
0%
0% 2010 2011 2012 2013
2010 2011 2012 2013 -10%
Old PRODUCT New Despite the global downturn most the Indian IT service
companies have continues to register good growth.
Companies like HCL and Cognizant are able to grow
Old
Improvement in utilization rates from current levels of 70% to 80% or more by pooling of employee base
for different tasks. However to do this two things need to be done –
Training in diverse skills for the high performers i.e. consulting + programming and will necessitate
higher training costs.
Prevention of attrition among this group of high performers ( and or middle management ) and
utilizing them to maximum effect.
Combination of fixed price contracts and time and material contracts is needed to grow revenues by
attracting customers.
Sayan Maiti
Mail : sayan.comc@gmail.com
Phone : +91 - 7389464800