MUMBAI: Tata Consultancy Services is ready to show off its 'non-linear' revenues for the first time next month, setting a benchmark for India's information technology (IT) services industry with a metric that is being closely watched as a sign of companies' maturity and competitiveness.
A measure of revenue productivity, 'non-linear' growth has been on the lips of every Indian software company which thinks it is vital to break the stubborn link between sales growth and headcount addition. By deciding to make 'non-linear' revenue data public every quarter, India's largest software exporter could be challenging its rivals to do likewise and set off a revenue productivity race.
Nearly two years ago, TCS chief executive officer N Chandrasekaran made a bold promise that his company would earn at least 10% of incremental revenues from 'non-linear' initiatives that do not require additional manpower to be allocated.
The deadline he set for himself - March 2012 - is almost up. For TCS, the main pillars of nonlinearity would be TCS Bancs, its core banking software; Diligenta, its insurance services platform that is gaining traction in Europe; and iON, the cloud-based IT-as-aservice offering for small and medium businesses. It already has a £600-million (Rs 4,700 crore) contract from UK state pension authority as well as another $2.2-billion (Rs 10,800 crore) deal with UK insurer Friends Life. TCS declined to comment for this story. Analysts said such disclosure will be seen as a sign of evolution for Indian outsourcing firms, which not so long ago were looked down upon as coding sweatshops where revenues were directly linked to the number of employees because billing was based on the number of hours an employee spent on a project.
"TCS and other Indian providers are evolving beyond their legacy in application development, and attempting to develop automated and repeatable assets much like their global competitors have done for years," said John Madden, research director at UK-based technology advisory at Ovum. Typically, for every $1 billion in revenue, IT services companies have added 20,000-25,000 employees. More than others, TCS, India's largest private sector employer that added 60,000 people in FY 2011-12, needs to learn to grow without hiring as much as it does.
TCS is expected to close the fiscal with about a quarter of a million staff and estimated revenues of around $10 billion. Over time, the non-linear revenue disclosure metric could also help listed IT firms earn valuation premium on the bourses. "TCS will need to prove that its non-linear services are providing internal gains (lower costs and better performance) that are then being passed onto customers, before a so-called 'market premium' is established," Madden said.
The market is patient and even if there a 4-5% of total revenues start coming from non-linear work, companies will be rewarded, said a Mumbai-based equities analyst with foreign brokerage. "But then, it will be meaningless if firms start clubbing consulting revenues as non-linear."
A measure of revenue productivity, 'non-linear' growth has been on the lips of every Indian software company which thinks it is vital to break the stubborn link between sales growth and headcount addition. By deciding to make 'non-linear' revenue data public every quarter, India's largest software exporter could be challenging its rivals to do likewise and set off a revenue productivity race.
Nearly two years ago, TCS chief executive officer N Chandrasekaran made a bold promise that his company would earn at least 10% of incremental revenues from 'non-linear' initiatives that do not require additional manpower to be allocated.
The deadline he set for himself - March 2012 - is almost up. For TCS, the main pillars of nonlinearity would be TCS Bancs, its core banking software; Diligenta, its insurance services platform that is gaining traction in Europe; and iON, the cloud-based IT-as-aservice offering for small and medium businesses. It already has a £600-million (Rs 4,700 crore) contract from UK state pension authority as well as another $2.2-billion (Rs 10,800 crore) deal with UK insurer Friends Life. TCS declined to comment for this story. Analysts said such disclosure will be seen as a sign of evolution for Indian outsourcing firms, which not so long ago were looked down upon as coding sweatshops where revenues were directly linked to the number of employees because billing was based on the number of hours an employee spent on a project.
"TCS and other Indian providers are evolving beyond their legacy in application development, and attempting to develop automated and repeatable assets much like their global competitors have done for years," said John Madden, research director at UK-based technology advisory at Ovum. Typically, for every $1 billion in revenue, IT services companies have added 20,000-25,000 employees. More than others, TCS, India's largest private sector employer that added 60,000 people in FY 2011-12, needs to learn to grow without hiring as much as it does.
TCS is expected to close the fiscal with about a quarter of a million staff and estimated revenues of around $10 billion. Over time, the non-linear revenue disclosure metric could also help listed IT firms earn valuation premium on the bourses. "TCS will need to prove that its non-linear services are providing internal gains (lower costs and better performance) that are then being passed onto customers, before a so-called 'market premium' is established," Madden said.
The market is patient and even if there a 4-5% of total revenues start coming from non-linear work, companies will be rewarded, said a Mumbai-based equities analyst with foreign brokerage. "But then, it will be meaningless if firms start clubbing consulting revenues as non-linear."
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