Management Discussion and Analysis
1. Overview of economy
The revitalisation of global economy continued during the calendar year 2013 and theglobal economy ended the year on a better footing as compared to the start of the year.The growth momentum is expected to be carried forward during the year 2014. TheInternational Monetary Fund forecasts that world output will grow 3.6% in 2014, comparedto 2.9% during 2013.
The US economy grew at an annual rate of 2.6% in the last quarter of 2013 with bettergrowth forecast for 2014. The UK economy strengthened steadily with GDP showing 1.9%growth during 2013 and it is expected to maintain the revival momentum through 2014.Eurozone continued to show mixed signs of recovery and growth concerns. However, policyaction by specific countries is expected to deliver better performance during 2014.
While the global economic recalibration is playing out in a relatively measured way,global business leaders are becoming increasingly confident about the sustained economicand business growth than they were last year. Global corporations' performance andinvestors' confidence were reflected in the sharp movement of world capital markets during2013.
2. Overview of industry
Increased confidence of business leaders in their companies' performance and improvedsentiment of consumers drove spending in technology products. Investment in technology isamong top three priorities of companies across the world. Worldwide interactions withbusiness leaders reveal that role of technology will create biggest impact on theirbusiness. An increasing acceptance of the fact that digital technologies will impactbusiness models, processes, new products and services offerings, access to new markets,new customer base and will open up completely new set of opportunities for theircompanies, is a common feature across industries and markets.
As a result, spending on technology and technology services grew at a faster pace(4.5%) than global economic growth in 2013. World's largest IT market US grew at 5.6%,while continuing to lead investments in digital technologies. The need to find new ways toreach out to consumers prompted the European companies to invest in technology foroptimisation and innovation, which led to 3% growth in IT spending during 2013, ascompared to a decline in the previous year.
While the global IT spend grew at 4.5%, TCS delivered a growth of 16.2% in fiscal 2014.
3. Our business
TCS is an Information Technology (IT) services, consulting and business solutionscompany. The Company provides end-to-end technology and technology related services tocorporations all over the world. TCS' domain knowledge and technology expertise helpsglobal corporations to focus on their core business, while TCS manages their investmentsin technology and helps transform their business processes.
The breadth and depth of TCS' domain and technology expertise has been built over last46 years through a unique combination of long standing customer relationships, investmentsin people and through continuous investments in new technologies.
The Company has been steadily expanding its global customer base, globalinfrastructure, service lines and industries.
The growth momentum of the Company continues to deliver strong financial results,attract top global talent and win new customers and strengthen existing customerrelationships. TCS now is India's most valuable company and among world's most valuable ITservices companies.
TCS has strong domain expertise in banking, financial services & insurance (BFSI),retail & consumer packaged goods, telecom, media & entertainment, manufacturing,life sciences & healthcare, energy resources & utilities, travel transportation& hospitality and hi-tech.
TCS' technology expertise extends across its full services portfolio of applicationdevelopment and maintenance, business process services, enterprise solutions, ITinfrastructure services, assurance services, engineering & industrial services, assetleverage solutions and consulting. TCS has made significant investments in 'Digital FiveForces' - mobility, social computing, big data, cloud and artificialintelligence/robotics. Digital enterprise software and solutions unit of TCS is rapidlygrowing its customer base, products and services portfolio and digital professionals.
The Company's strategy for long-term growth is based on continuing to scale, strengthencore business and grow in new areas of business.
The Company has a matured set of elements of strategy, which have evolved over time.While the core elements of strategy continue to remain same, there is a structured attemptby the Company to look for new dimensions of growth within these elements.
Key elements of the Company's growth strategy are:
full services portfolio
global network delivery model (GNDM)
non linear business models
The Company continues to look for new ways to strengthen customer relationships, expandservices portfolio by continuously introducing new services, expand global infrastructureby opening up new delivery centers in new countries, launching new products and platformsand continuously improving quality processes to raise the delivery promise to customers.The Company believes in strong focus on execution of strategy to deliver long-term growth.
5. Digital Technologies
Adoption of digital technologies is a top priority among all enterprises, acrossindustries and geographies. While individually all of these technologies are influencingthe way business operates and interacts with consumers, but their real power lies in thecombination of digital forces. A real time analysis of consumer behavior, delivered on amobile device through cloud services has the biggest potential towards supporting thebusiness in taking right decision in real-time.
TCS has significantly invested in digital technologies - mobile, cloud, big dataanalytics and social media. TCS' 'Customer Collaboration Center' in Silicon Valley is adigital innovation lab, where customers from retail, telecom, banking, manufacturing andother industries are collaborating to shape the digital future of their business.
Company's digital innovation lab has built several digital applications and solutionsfor multiple industries, which are being implemented by customers in North America, Europeand Asia-Pacific.
The Company sees tremendous growth potential in digital technologies and is committedto continue investing in this area from the long-term growth perspective. The Company isalso making initial investments in new emerging technologies like production automationand high performance computing, which have the potential to become a trend in the future.
The Company continued to invest in research and innovation that will meet customerrequirements today, in the near term and in the long term. The three segments ofinnovation are:
Derivative innovation: These are innovations that improve the Company's currentservices and offerings and are delivered through tools, automation and processimprovements.
Platform innovation: These are near term innovations. Several solution platformsinvolving social networks, mobility, cloud services, artificial intelligence and big datatechnologies developed by the Company are preparing customers for the future.
Disruptive innovation: These are investments with a long term vision. Work ingenomics and disease markers, drug delivery platforms, software defined networks,integrated computational materials engineering platforms are future focused investmentsthat are likely to have a big impact.
The Company follows a "4E Innovation Framework" that includes Explore,Enable, Evangelize and Exploit teams:
Explore: This team of researchers focus on creating high quality IP for the Company.This is measured by the research papers they produce and the IPR they create. Over 400papers were presented at prestigious conferences. This year the Company filed 443 patentsand was granted 33 patents.
Enable: This is the engineering arm of TCS research and innovation. Apart from creatingapplications based on concepts created by the "Explore" team, this team testsout the concepts in the customer environments. Sixteen new solutions were engineered and14 proofs of concept were initiated.
Evangelise: This is the connecting force between research and business (projects,customers). This team helped in the completion of 11 co-solutions (combined projectsbetween research and customer delivery teams) and initiated 33 new co-solutions. The teamalso conducted several innovation days for TCS customers and sponsored research events tosecure a thought leadership position for TCS. Exploit: The Exploit team scales theinnovation initiatives that are ready for adoption by the customer. One such, the"frugal devices" for infotainment and web access, has been implemented in abudget hotel chain.
The Company actively pursued collaboration with academic research and innovativestart-up companies to help customers solve problems. TCS Co-Innovation Network(COIN) maintains an active portfolio of emerging technology partners and introducedabout 200 companies to TCS business. Ten active alliances were maintained with leadinguniversity research departments for progress in areas such as computational life sciences,computational materials sciences, data sciences, cyberphysical systems, design and more.
7. Human resources strategy
The human resources strategy enabled the Company to attract, integrate, develop andretain the best talent to deliver business growth. The relentless drive to create 'oneTCS'culture across the organisation helped the Company integrate its diverse global talentbase into a high performing cohesive unit. The workforce management strategy was executedoptimally to fulfill business demand, deliver consistently high utilization rates and keepmanpower costs within the desired range as per business plan. The investments in humancapital development helped the Company maintain its benchmark status in the IT industry.
In FY14, the Company hired and integrated 61,200 people into its workforce across theglobe. The Company today employs 300,464 associates representing 118 nationalitiesdeployed across 55 countries.
Mature HR processes enables the Company to be agile, responsive to the dynamic globalenvironment and stay relevant to its customers. The robust HR systems and sound executionof strategy ensure that the Company is able to manage the complexities associated withthis scale and geographic spread, and remain compliant with the regulatory requirements inthe countries where it operates.
The Company has started to re-imagine its HR processes, use digital technologiesnamely, mobile, social, cloud and analytics in an integrated manner to make the internalprocesses simple, efficient and user friendly. Stressing highest priority on personalsafety and security, a new initiative called 'Safety First' has been launched to enhancesafety awareness with special focus on women employees.
The Company has created a performance driven environment where innovation isencouraged, performance is recognised and employees are motivated to realise theirpotential. The Company's relentless pursuit to connect with employees on a regular basis,communicate in an open and transparent manner, provide opportunities to learn and growwithin the organisation are yielding desired results as is evident from the high retentionrate and the motivation and engagement level of the employees.
7.1. Talent acquisition
In FY14, TCS remained the highest recruiter in the industry with a gross addition of61,200 employees out of which 46,880 were in India and the remaining 14,320 were outsideIndia.
TCS continues to remain the employer of choice at the engineering campuses in India.tCs visited 371 campuses in India, and made 24,859 offers to engineering trainees and 575offers to management trainees for FY15. The Company also continued its effort to recruitfrom colleges outside India especially in Latin America, USA, Canada, China and Hungary.
This year the talent acquisition process was revamped to make it more efficient, simpleand green. The Company has been using social networking sites to attract lateral talent.
7.2 Academic interface programme (AIP)
The Company continues to invest on AIP initiatives for developing faculty for academicinstitutes, improving employability of students and developing curricula as per industryrequirements.
A total of 626 institutes in India and 301 institutes overseas benefitted through theCompany's AIP activities like workshops for students, faculty development programmes,research scholarships, research alliances, project opportunities to students and studentawards.
The Company supports 134 research scholars pursuing their PhD in 31 institutes acrossIndia, through TCS Research Scholarship Programme.
The Company has been partnering with the central government and five state governmentsin establishing Indian Institute of Information Technology (IIITs). 'Sangam' is an annualevent where TCS's top management engages in cross-pollination of ideas and discussionswith academicians from premier technical and management institutes. It is a part of theTCS' long-standing relationship with academia. In FY14, 15th edition of theevent was held at Hyderabad with 71 academicians participating from India and abroad.
7.3 Learning and development
The Company continued to invest in enhancing its human capital by providingopportunities to its employees to develop their skills and competencies relevant to themarket requirements. The focus during this year has been to strengthen 'Anytime, AnywhereLearning' by investing in the development of appropriate content and infrastructurerequired to support interactive class rooms and social learning platforms. The processeshave been simplified so that content could be consumed based on business requirements.
Globalisation and personalisation of learning received further impetus throughstate-of-the-art intercultural awareness tools for cross-cultural training andmultilanguage frameworks. The 'Initial Learning Programme' (ILP) is now offered in anumber of countries outside India.
A state of the art learning center will be established in Thiruvananthapuram with acapacity to train 15,000 associates at a time and 50,000 annually. The foundation stone ofthe facility was laid by the Hon'ble Prime Minister of India during this year.
7.4 Talent management, leadership development and talent retention
The Company's efforts in the past year have been to enhance and simplify its'Performance & Career Management' processes. All activities impacting an employee'scareer (career aspirations, mentoring and development interventions) are now on a single'CareerHub' platform.
The 'Inspire' programme continues to identify and develop high-potential employees forleadership roles. Potential leaders are nurtured through training and coaching and givenchallenging roles to build leadership capability.
TCS fosters a culture of open communication that empowers employees to articulate theirthoughts and feelings freely, exchange ideas and contribute to organisational growth.Regular HR connect sessions helps the Company understand the pulse on the ground and takenecessary steps to keep the workforce engaged and motivated. A number of initiatives havebeen taken up that serve as effective platforms for associates to connect and interactwith key stakeholders and share their goals and aspirations. Employees also receivecontinuous feedback on technical, behavioral, other professional and personal areas duringmentoring sessions.
TCS has an employee engagement platform namely Maitree where like-minded people cometogether and engage in a plethora of activities as part of various interest groups such asmusic club, environment club, reading club etc. These non-work related activities help inimproving employee bonding within the organisation, developing personalities throughvolunteering and managing stress at work. Employees are also encouraged to involve theirfamilies in these activities.
TCS is committed to provide a healthy and safe work environment free from accidents,injuries and occupational health hazards. It extends to the general well-being, physicaland emotional health of associates. Fit4Life, health awareness sessions, periodic medicalcheck-ups, gymnasiums in offices, yoga sessions, and 24 X 7 'Employee AssistanceProgramme' to provide confidential counselling are some of the initiatives undertaken bythe Company for employees to de-stress and adopt a healthy lifestyle. A number ofcampaigns are run throughout the year to increase awareness among employees on safety inand outside office.
The employee engagement initiatives and various HR interventions have helped theCompany increase employee retention. TCS remains the industry benchmark for talentretention. The Company's attrition rate including BPS was 11.3% in FY 2014. The annualemployee satisfaction survey showed an increase in employee satisfaction index.
7.5 Talent diversity
The Company has in its roll, persons of 118 different nationalities deployed in 55countries. Women constitute 32.7% of the Company's workforce as on March 31, 2014,compared to 32.4% as on March 31, 2013. Generation Y (Gen Y) employees constitute 80% ofthe workforce compared to 73% in FY13. The average age of TCS employee is 29 years.
Among the top employers of women, TCS has created an environment of inclusion to retainwomen through its progressive policies and practices. Innovative benefits, includingextended leave options and re-orientation programmes have assisted employees at crucialstages and have helped them integrate seamlessly into the workforce on their return.iExcel, a specialised executive education programme for women in mid-management, developedin-house, has assisted in grooming women managers for leadership roles. Interactiveforums, mentors and women discussion circles address the aspirations and needs of thewomen employees.
Efforts have also been made to integrate differently-abled individuals into theworkforce. A 'Center of Excellence' (CoE) on accessibility has been established to developIT solutions addressing this issue.
The Company ensures compliance of employment, immigration and labour laws in thecountries of operation. Changes in the applicable regulations are tracked on a globalbasis. Policy and procedural changes are introduced where required. A robust internalcheck process is deployed to prevent and limit risk of non compliance.
8. Risk management
The increasing global trends in digitisation driven by the forces of social, mobility,analytics and cloud coupled with the large size of the addressable global market and therelatively low current levels of penetration of the target markets suggest significantheadroom for future growth. The Company has positioned itself well for the growth inbusiness with an aligned strategy, structure and capabilities.
An 'Enterprise-wide Risk Management' (ERM) programme based on the recommendations ofthe 'Committee of Sponsoring Organisations' (COSO) formed by the Treadway Commission hasbeen deployed by the Company. The risk reports prepared by the Chief Risk Officer arereviewed by the board of directors at regular intervals. The risk management process isreviewed periodically in order to keep it aligned with the emerging risks across theglobe.
TCS' ERM programme involves risk identification, assessment and risk mitigationplanning for strategic, operational, financial and compliance related risks across variouslevels of the organisation. The process is completely digitised, which facilitatesmonitoring risks and its mitigation across the globe, using dashboards, heat maps andcharts. The Company level as well as unit level deployment of the ERM process is reviewedby the corporate risk office on quarterly basis.
The following table lists some of the key risks faced by the Company.
|Key risk ||Impact on TCS ||Mitigation |
|Global economic situation ||Good part of the global economy has been showing signs of growth. For the IT service industry, the demand momentum is looking healthy in the major markets. Discretionary spend is increasing. However, there are pockets of global markets where there are still some uncertainties. IT service industry is closely linked with the global economic situation. || Helping existing customers drive efficiencies, demonstrate value addition, thereby assisting in their business goals |
| || || Aggressively focusing on new market segments; faster growth in geographies other than US and UK/Europe. |
| || || Continue all round growth across all industry verticals with larger portfolio of offerings and full service play. |
|Restrictive cross border mobility legislations ||Non-tariff trade barriers proposed by some countries may lead to multitude of challenges. Mobility of resources across the globe will be impacted, leading to increased costs and margin pressures. || Increased rigor in terms of manpower planning and deployment |
| || || Leverage collaboration technologies like video conferencing to reduce need for cross border travel. |
| || || Increase outreach to legislative and trade bodies to address regressive and restrictive nature of proposed legislations. |
|Business model redundancy ||The new disruptive technologies, such as cloud, big data, mobile smart devices and social media are impacting the behavior of the consumers, posing business challenges to the traditional customers. || Continuous scanning of environment for early detection of emerging trends |
| || || Investing in new technologies to address demands of the emerging business models of the customers |
| || || Increase investment in innovation and automation to provide value to customers. |
|Integration risks in M&A ||The Company's post-acquistion challenges include cultural, financial and technology integration risks which if not addressed adequately could result in failure to achieve the strategic objectives of the acquisition and the resultant synergy expectations. || Well laid out integration plans and close monitoring of the same |
| || || Close monitoring and review of acquired entities and taking timely actions as required |
| || || Focus on processes for integrating the global workforce through various HR initiatives, cultural awareness / sensitisation. |
|Supply-side risks ||Non-availability of resources with right skill at the right time may pose risk to TCS. Ability of the Company to attract and retain talent are critical. || Identification of competency and skill gaps on a continuous basis and aligning with market needs |
| || || Strong process for lateral hiring across the globe |
| || || Process for identification of career aspiration of professionals and helping them reach their goals |
| || || Making TCS a 'caring organisation' by offering opportunities for good health, involvment with communities and self development |
| || || Focus on career aspiration planning for high performers and incentivise them with learning, growth and leadership opportunities. |
|Currency volatility ||Volatility in currency exchange movements resulting in transaction and translation exposure || Currency hedging policies and practices in place. |
| || || Hedging strategy monitored by risk management committee through regular reviews. |
|Cost pressures ||Increasing employee costs and escalating operation expenses may create pressure on margin || Well monitored framework for cost management |
| || || Focus on improving productivity |
| || || Leveraging offshoring to the maximum extent possible |
|Anti bribery and compliance (ABC) ||ABC laws getting more stringent worldwide, including the UK Anti Bribery law, FCPA being monitored closely by some of the geographies. Non-compliance can lead to reputation loss in addition to penal action. || Strong anti-bribery checks and controls have been put in place and are being monitored closely |
| || || Tata Code of Conduct is binding on all employees |
VALUE CREATION SINCE FISCAL 2005
TCS is a leading global IT services company, operating across the globe, offering fullarray of capabilities that its customers require for pursuing growth opportunities andfacing business challenges. TCS has been demonstrating agility and adaptability inproviding innovative customer specific solutions, powered by best-in-class processes andengaged workforce. Disciplined execution of complex projects and customer centricity arethe hallmarks of the Company's success story.
While relentlessly pursuing holistic excellence, TCS has generated significant wealthfor all its stakeholders. The wealth so created has been judiciously allocated and sharedwith all its stakeholders during the decade of its existence as a listed company. Theperformance over the last decade brings out the story of TCS creating its own highstandard of value creation and beating the same over and over again.
The success in creation of wealth at an impressive pace is attributable to theCompany's well crafted strategy and zealous drive for superlative operating parameters.
CREATION OF WEALTH
Revenue in fiscal 2014 grew to Rs. 81,809 crores ($ 13.44 billion) - an impressive8-fold increase in ten years with a compounded annual growth rate (CAGR) of 26.66%.
Growth in industry verticals
Over the last ten years all industry verticals grew at double digit CAGR demonstratingthe Company's phenomenal efforts in understanding the key trends driving industryverticals.
Growth in geographic revenue
Over the last ten years, the Company had impressive CAGR in Europe (34%), UnitedKingdom (28%) and North America (25%). CAGR in new growth markets which comprise LatinAmerica, Asia-Pacific and Middle East & Africa has been more than 35% validating ourstrategy to diversify geographically.
Strategic focus on geographical diversity
TCS continued its strategy to focus on Asia-Pacific, Latin America and Middle East& Africa in order to de-risk geographical concentration and create a significantpresence in these growth markets. Contribution of these new growth markets to the totalrevenue almost doubled in the last decade.
Strategic focus on new growth markets has paid off well over the past decade, resultingin a 16 fold increase in revenue from these markets.
Overseas delivery centers -'One Global Service Standard'
TCS has continued to invest in delivery centers across the globe and ensured the samedelivery and service standards everywhere. The Company has set up 40 delivery centers in22 countries outside India. Over the last ten years the number of delivery centers hasincreased more than four times. 18 delivery centers (included in the 40 delivery centersmentioned above) have been set up in new growth markets comprising Asia-Pacific, LatinAmerica and Middle East & Africa. The geographical spread of delivery centers acrossthe globe has enabled TCS to leverage skills and local business knowledge in order todeliver high quality solutions.
Strategic focus on new services
We ensure that our service offerings are geared for meeting our customers' continuallyevolving requirements. Our strategy to strengthen new services in the portfolio of serviceofferings has been extremely successful. Revenues from new services have recordedimpressive 37 fold growth since fiscal 2006.
The Company's organisational structure and processes are engineered to relentlesslydrive customer centricity. Our strategy to understand customers' needs and offer relevantsolutions has resulted in significant growth in the number of customers and upwardmovement in revenue band.
|Last twelve months revenue buckets || |
Number of customers
| ||Fiscal 2014 ||Fiscal 2005 |
|$100mn + ||24 ||- |
|$50mn + ||53 ||5 |
|$20mn + ||136 ||25 |
|$10mn + ||231 ||42 |
|$5mn + ||354 ||76 |
|$1mn + ||714 ||214 |
Management of costs
The employee base had more than 6 fold increase from 45,714 in fiscal 2005 to 3,00,464in fiscal 2014. However, our efforts to continuously strengthen our cost managementprocesses have ensured that employee expenses in relation to revenue have remained steady.Our sustained productivity drive is also reflected in steady decrease in non-employeecosts as percentage of revenue.
The success in productivity drive culminated into impressive growth in profitability -profit before tax (PBT) as percentage of revenue has improved by 410 basis points in thelast decade. In absolute terms, PBT has grown almost 10 times during the period.
Earnings per share
TCS has delivered consistent growth in earnings per share (EPS) - the growth in thelast five years has been remarkable. The EPS, after adjusting for two 1:1 bonus issues,went up 8 fold, from Rs. 11.84 in fiscal 2005 to Rs. 97.67 in fiscal 2014.
Increase in net worth
The net worth has increased consistently, more than 14 times in the last decade.
SHARING OF WEALTH
Sharing of cash generated since fiscal 2005
The wealth created by TCS has been judiciously shared with st