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When will TCS become the next Accenture? - Views on News from Equitymaster

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When will TCS become the next Accenture?

Jul 7, 2010

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.


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19 Responses to "When will TCS become the next Accenture?"

Syed Hussain

Feb 27, 2013

Being an Indian, i prefer TCS. However, Accenture is a giant and the anticipation is matter of suspicion.

Like 

Allivon

Jan 31, 2013

If you guys will compare only the market value, TCS wins.
Not sure if that would be enough though reason for others though, since most of the guys that previously posted didn't really check the stats.

Like 

Soham mukherjee

Aug 22, 2012

TCS is an Indian Compnay so being an Indian I would prefer that TCs surpasses Accenture in 10 years.TCS rocks.

Like (2)

sourabh

Aug 17, 2012

101 % tcs overcome the acn.

Like (2)

santosh korbu

Jul 24, 2012

surely TCS will overcome Accenture..TCS rokzz always..In tcs..we can see wats huminity..they rspect their employes..they know wat culture is!!they know wat life is..no work pressure in TCS like Accenture..so Accenture has to shut thier mouth eventhough they are at the top..TCS ROCZZZZZZZZZZZZZZZZ!!!!!!!!!

Like (5)

saranya

Jun 13, 2012

TCS will never meet Accenture

Like (7)

vasanth

Nov 23, 2010

tcs can never over take accenture, you can see the growth of accenture in a shorter period... and we are not fools to let our company down,,, because they respect peoples first,,,, accenture always rockzzzzzz.

Like (6)

sammy

Oct 18, 2010

LOL...ok..we are assuming TCS will roar and ACN will see & wait till they take over them....Holy carp...

of course, ACN will also change with revenue , stratgey and size.

call a TCS guy he will close his eyes and move to accenture.

Like (5)

Shiban

Jul 15, 2010

I agree with the guys who posted here. Accenture is a non-Asian company. The major portion of it's revenues come from billing people in Non Asian locations(what we call onsite here). Obviously the revenues are higher. That being said I think revenues are a just comparision for 2 companies. I personally think TCS and Infy would do well to spread out their wings geographically. That way more business(through more exposure), more onsite billing and both will contribute to an increase in revenues.
Also, when it comes to consulting, the strenght of an IT company's R&D division plays a vital role in growth. Hence, a reasearch on that helps in predicing growth in future. Without that any prediction will be incomplete.
Also, the strenght of a company lies in it's non linear growth of revenues vs employees. The more linear your growth is the more trouble you are going to face down the line. Thus a historical graph of people vs revenues would help in predicting ,analysing and comparing growth of 2 companies.

Like (1)

Devanshu

Jul 12, 2010

I would have liked to say much more - but in light of the arguments and data presented, let's just settle for this: "You've gotta be kidding me!"

Like (1)
Equitymaster requests your view! Post a comment on "When will TCS become the next Accenture?". Click here!

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