When will TCS become the next Accenture?

TCS is the 9th largest software services company in the world in terms of revenues. This ranking is based on Forbes Global Rankings of software services majors in 2010. TCS currently has the No. 1 spot in India in terms of revenues. But, for it to catch up to a global major such as Accenture (4th largest after IBM, Microsoft and Oracle) it will take years of sustained growth. We chose to compare TCS with Accenture, as the both companies work mainly on the outsourcing model. Accenture reported LTM (last 12 months) revenues of US$ 22.8 bn, compared to TCS' US$ 6.3 bn. Accenture's revenues are around 3.4 times that of TCS. With an almost similar employee base. This shows the global major's efficient employee utilization. Accenture has around 190,000 employees, across the globe, compared to TCS' 160,429. Plus TCS plans to hire 30,000 more in FY11, almost double the staff added in 4QFY10.

Now for another interesting fact: Accenture was founded in 1989, almost 21 years after TCS, which was founded in 1968! Thus, the global giant has grown tremendously to reach its current levels.

How many years do you think the relatively older TCS will take to overtake Accenture in revenues?

Source: Equitymaster Research, Google Finance, Company reports

In the past five years TCS has grown at an average annual rate of 23%, while Accenture has grown at 8%. Assuming that TCS will grow at a more conservative 18% per annum, while Accenture will grow at 5% over the period, it will take around twelve years for TCS to overtake Accenture in revenues. It needs to be noted that Accenture's revenues dropped by 8% YoY in FY09. Also the company is expected to clock lower growth due to cutback in IT spending in the developed markets.

If our analysis works out, in the coming decade, TCS could be one of the top few global software services companies. But, there is a catch to it.

TCS would require more than 3.4 times its current employee base to do so. Assuming it gives them an average wage hike of 5% every year, based on FY10 employee costs. Imagine having more than 500,000 employees in one firm! This will prove to be an almost impossible task. A business model which is so people intensive is not sustainable. So then how will TCS achieve its task of moving up the global rankings?

Moving up the value chain

TCS will need to climb up the value chain. It will need to provide services that will differentiate itself from competition. It also needs to focus more on newer geographies, software products, consulting and other value added services. Only such an effort can help it reach a higher global ranking in the near future. Only then can it achieve scale without having the employee population of a small city.