​What the TCS and Nielsen $2.5 billion outsourcing deal means for Indian IT

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A handful of months ago, the world IT business was gobsmacked by the announcement that India’s major IT outfit, Tata Consultancy Products and services (TCS) had just landed a whale of a offer, a $2.25 billion outsourcing agreement that is a single of the biggest in the latest background.

The offer, 50 p.c of which consists of a electronic transformation prerogative, is a renewal of TCS’s previously engagement with Nielsen. It initially awarded a $1.2 billion, 10-yr agreement to the Mumbai-centered corporation in 2007, and later on expanded the agreement in 2013 by extending it to 2020 and far more than doubling its authentic worth to $2.5 billion.

Now, having said that, underneath the phrases of the new agreement, TCS will be assured of getting compensated $320 million in business from Nielsen each and every yr, commencing 2017 through 2020, $186 million each and every yr from 2021 through 2024 and $139.5 million in 2025 along with a few a single-yr renewal options granted to Nielsen.

This is practically unreal and crucially major to Indian IT for quite a few motives. The initially is the common impact that Indian IT has been gradual to alter itself in this era of electronic transformation, nonetheless unwilling to wean itself off the teat off infrastructure upkeep and software growth get the job done.

There is no ambiguity about this gradual speed. Concerning twenty to twenty-five p.c of Indian It really is revenues at present appear from electronic, and the traditional business is currently declining at a swift speed.

“At current, electronic accounts for 20 for each cent of our income, and that is generally exactly where our development agenda is. More than time, it will come to be 80 for each cent,” TCS CEO Rajesh Gopinath stated to Small business Today.

As an alternative, rivals like Accenture get 54 p.c of its business from electronic. However, that — or the possible notion that due to the fact of the delay in switching business types Indian firms are not entrance-runners in this new era — has not prevented TCS from becoming go-to fellas for huge promotions.

The truth is that multi-billion-dollar promotions such as this are rarities currently in phrases of both equally dollar measurement and duration. As an alternative, customers feel to want to funnel discounts back again into acquiring operational efficiencies. Mint’s research unearths just a single $1 billion offer a yr due to the fact 2014.

What the Nielsen offer then implies in these tough occasions is that it is Indian corporations who are battling with corporations like Accenture and IBM, in addition to every single other, nonetheless have previous customers who prefer to keep with them. Section of the reason may perhaps be pricing, but aspect of it without doubt has to do with convenience amounts, believe in, and tech ability.

“This is a milestone agreement supplied not only the depth of the agreement but also the breadth of companies,” stated Ray Wang, founder and CEO of consulting outfit Constellation Research in Mint. “TCS did a very good job of controlling for a longer period-time period expenses and gaining some cost efficiencies while renewing a for a longer period agreement. There is also upside in the extended run as this is far more of a strategic partnership than outsourcing agreement.”

Another final result is the tacit endorsement of TCS’s design towards electronic excellence which involves no acquisitions possibly of firms or of expertise. By comparison, Accenture used $1.7 billion for 37 acquisitions around the past handful of several years.

This brings us to expertise. The Nielsen offer may perhaps finally flip out to be an outlier for TCS but a single factor is for certain, there was no way they would have impressed to gain this kind of offer if it was not for the cautious stewardship of their previous CEO Chandrasekaran who is now controlling the even larger Tata mothership and leaving TCS in the arms of his successor Gopinath who just just lately took around.

As Mint notes, it normally takes a yr-and-a-50 percent for these contracts to near which implies that Chandrasekaran initiated the offer and executed its ultra-sleek transition while Gopinath built certain there were being no hiccups when he took around the reins of TCS.

As a comparion, witness the weird, unending, and unseemly fracas dogging Infosys around the past yr many thanks to the internecine war waged amongst its founder Narayana Murthy and his protégé Vishal Sikka dragged in from SAP to rework the corporation. One casualty becoming a disgruntled Sikka, who stop in the summer time of 2017.

No surprise that Infosys is at the base of the heap in rankings for 2017 generated by Everest Team, well under TCS.

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