Lessons for Indian IT from TCS and Infosys

Tata Consultancy Services (TCS), the biggest Indian IT company and Infosys, once the bellwether of IT industry, have both announced their financial numbers for the first quarter of the new year. The results give hope that the sector, which has been waiting for a turnaround, might be out of the woods. However, the confirmation would only come after other companies in the sector announce their results

The market and the analysts had different reactions for both the companies. While results of TCS beat the market expectations; analysts were a bit disappointed by Infosys numbers, and were expecting it to at least perform well in all the three areas of retail, BFSI and communication. While TCS scored better on all, Infosys beat expectations in retail.

For the moment, analysts and management experts point to some lessons that many of the IT sector players, could pick up from the results of these two important Indian IT companies.

A common thread or shall we say, the link node running across the strategy of both TCS and Infosys, is the focus on business transformation, both within and also for their clients. Secondly, both the companies are focused on newer technologies - digital, cloud, data analytics, cyber security, Internet of Things (IoT) and end-user experience. Both are also focused on large deals and winning them.

Here are some takeaways that IT companies can take from TCS and Infosys.

• Firstly, more of a message than a lesson is the improved outlook on banking, financial services and Insurance (BFSI) sector, the biggest vertical for most Indian IT companies. TCS showed a robust growth of 4.1 per cent but Infosys de-growth. However, analysts say this space needs to be looked beyond the quarter performance and therefore Infosys' outlook for this space seems good as it has a good order book.   
• At a very broad level, there are some no-brainer management lessons that were reaffirmed. First, a stable leadership helps. Very important lesson for the leading Indian IT players, where in most cases, about 19 to 20 per cent of revenues come from top 10 players. Turbulence at the top (CEOs and key vertical heads) is not good news in such cases, especially in a services industry.
• It always makes sense to have a portfolio that is well spread out geographically. It is good to have a high share of US but it is important to expand in other regions, too, as TCS shows. Being nimble and quick to grab new opportunities helps - be it IMS (infrastructure management services) and BPO earlier and now digital. Both the companies have grabbed these opportunities; but TCS was a bit ahead of the curve.
• Pick the stars of tomorrow and invest into them (digital, for instance) but do not lose focus of the bread and butter sectors (sectors such as BFSI, retail, communication).
• Start investing more in the support infrastructure for digital.
• There will no more premiums on the brand; you have to compete on quality and cost. Therefore, even with same or lower margins, there could be higher volumes.
• The market is looking slightly better for offshore than last year. Energy, healthcare and retail expected to do better, so staying focused on these will help.
• Business from existing clients needs to go up. Clients are shifting to the new reality and the growth depends on how quickly the companies are able to transform themselves.
• There is perhaps also some learning from the efforts taken in recent years in the two companies. Over the last three years, Infosys has been transforming itself gradually and trying to align more to the client requirements. For instance, it has changed its delivery structure with increased investments in near shore and onshore, and increased the number of experts present onsite. TCS, which has also been transforming itself, has focused on changing itself to suit customer requirement. TCS has revamped marketing and sales function to articulate the strengths better.
• Both TCS and Infosys have their work cut out. Infosys, analysts feel, will do well if it were to invest more on sales and marketing, apart from maintaining the leadership stability in the company. TCS has a bigger challenge of ensuring that momentum is maintained, without losing sight of doing more on high-end business process transformation.