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- Jul 7, 2010 - When will TCS become the next Accenture?
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?
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| 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.
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19 Responses to "When will TCS become the next Accenture?"
Khozema
Jul 9, 2010The Analysis is being done on common frame of refrence of organization revenue and no of employess to compare both the organizations, so it cannot be termed as wrong. In frame of this perspective,Accenture definitely looks better than TCS.
Mukul Bhatia
Jul 8, 2010Revenue segmentation should have been done in the analysis- just not enough to take the total revenues for this sort of an analysis.
Expected better research from Equitymaster!
Tejas
Jul 8, 2010Equity Master needs to do some more research. The comparison is not justified as Accenture's maximum revenue is from Consulting Business.
If people see Accenture operations in India, its just one of the offshore centers (though the biggest one).
TCS may be in line with the Technology business of Accenture but people are missing Consulting which is a big pie and it will take a lot for TCS to build that.
AJ
Jul 8, 2010MarketCap Paradox
1. Inspite of such an inefficient employee utilization and almost quarter of ACN's revenue TCS & Infy has almost same market cap.
2. ACN's pure consulting revenue is US$ 6+bn, which is almost equal the total revenue of TCS/Infy.
3.As of today Infy/TCS does work mostly on the lower end of value chain, their consulting revenue is around only 3-5% of entire US$6 bn.
4. There was an article in TIME magazine sometime back mentioning that "no wonder TCS or Infy can easily take over ACN soon".
5. ACN is truly global and has got balanced split of revenue between NorAm,Europe,Asia,Australia,LatAM etc.
Narayan
Jul 8, 2010Accenture is old wine in new bottle. It is not a young organization or younger than TCS !! It was recast as the earlier AVATAR "Anderson Consulting" and the Acoounting firm Andersons fell into disrepute.
Umang Shah
Jul 8, 2010Hi,
Comparison should be of net profit and market cap. Top line is misleading due to different business model. TCS market cap is 33B$ vs Accenture's 28B$. Thus TCS is already ahead of Accenture.
Thanks,
Avid Reader
Jul 7, 2010Since when has revenue size become the metric for benchamarking efficiency. Very poor analysis, you completely neglected to mention that the lions share of Accenture's revenues come from billing onshore at higher billing rates v/s TCS's more offshore heavy billing. NAturally this will mean in absolute terms Accenture is going to look larger. The question is not when TCS catches up with Accenture on revenues, its whether value delivered to an end client is perceived to be identical.
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Harit Shah
Jul 9, 2010Hi,
I must say I couldn't agree more with the views of Avid Reader, Umang Shah and Narayan. The writer should have done much more in-depth research before writing this article. Obviously, the fact that Accenture has most of its revenues coming from onsite services will lead to higher revenues for the IT major! This is one thing that has not been mentioned, implying lack of adequate research and just "shallow research". The writer should have also mentioned the fact that despite revenues being less than 30% of Accenture, TCS' market cap is STILL higher. In fact, even INFOSYS' market cap is higher than Accenture!!! Thus, the writer has not been able to put the revenue figures of the two IT firms into proper context - revenues cannot be viewed purely on a standalone basis. By that logic, it means that the day TCS reaches the size of Accenture in revenues, its market cap will actually be at lower levels than what it is today! Is that what the writer is attempting to communicate?!? Please do some more in-depth research before writing these articles as they are read by a significant number of people I would imagine!
And of course, the final point - as correctly pointed out by Narayan, Accenture was part of the global accounting firm Arthur Andersen and functioned under the name of "Andersen Consulting" before Arthur Andersen fell into disrepute and was taken over across different geographies by either PwC (which has itself fallen into disrepute post the Satyam scam) or KPMG. Post the break-up of Arthur Andersen, Andersen Consulting was renamed as the present-day Accenture. I would honestly suggest that you should do a lot more in-depth research before printing this in public. Please do not take this feedback in the wrong spirit, I am making these suggestions so that the quality of your research improves. I myself have been a former employee of Equitymaster and having gained experience in the industry, I can safely say that this article was a BIG LET-DOWN!