VENDOR PROFILE TCS Digital Software & Solutions Group Philip Carnelley Frank Gens IDC OPINION With its Digital Software & Solutions Group (DS&S), TCS has started a bold new venture to embrace the needs of large enterprises struggling with the new worlds of digital transformation and customer intelligence in the post-pc era. To strengthen its capability to create and market packaged software solutions, TCS has wisely brought in executives with software sales, development, and marketing backgrounds to shape and promote its new solutions, setting up DS&S as an independent division with its own P&L. It will also leverage its brand and presence within Fortune 1000 companies around the world, and its veritable army of consultants with both industry and technical knowledge. Another key factor in DS&S' potential success is that the venture has direct backing from TCS' CEO, N Chandrasekaran. While IDC research shows a vast global opportunity in supplying software to support digital transformation initiatives, to many industries, there is a danger of trying to "boil the ocean" and diluting resources too thinly even for a company of TCS' scale. DS&S is, sensibly, restricting itself in the early days of the venture to three solutions, for three vertical sectors and three geographic markets what it calls its "3x3x3" strategy. IN THIS VENDOR PROFILE This IDC Vendor Profile provides buyers and other interested parties, such as potential partners, with a perspective on TCS' new Digital Software & Solutions Group. It analyzes the reasons why TCS decided to form this group, its corporate and product go-to-market strategies, and its future development. SITUATION OVERVIEW Today, a key priority for any organization around the world is digitalization: transforming products and services, business processes, and relationships with customers, partners, and employees to leverage the new possibilities of modern technology. Major new sources of competitive advantage are being built by creatively leveraging cloud, mobile, social, and Big Data technologies. IDC calls these the "four pillars" of the 3rd Platform of computing (see Figure 1) a once-in-every-20-years paradigm shift which has transformed the IT landscape, and therefore, the business landscape too. April 2014, IDC #LC52W
FIGURE 1 The 3rd Platform of ICT Source: IDC, 2014 Enterprises and organizations alike are grappling with how to address the impact of these technologies not only on their decision-making processes, operations, product rollouts, and promotions but also, most importantly, on how they engage with their customers. In the consumer domain, for example, customers simply expect to be able to engage with their suppliers over multiple channels: for instance, to be able to view a product on their mobile, to check an order on the Internet, and return the delivered goods to their nearest store seamlessly. They also find it increasingly easy to shop around even while in a competitors' store. A recent IDC survey in the U.S. found that one in five shoppers said they had bought goods on a mobile while in a competitor's store. Such trends reduce margins and force firms to compete ever harder for business through better customer service, sales, or marketing. Meanwhile employees expect consumer-grade experience allied to corporate-grade resilience and performance. For example, managers expect that customer reporting and analysis will include data sources from all around the web social, demographic, and the like presented in usable, interactive form on their favored tablet device. 2014 IDC #LC52W 2
To respond to these dynamics, enterprises are undertaking or considering many digital transformation initiatives. This is already happening today and will accelerate over the next three to five years. Organizations' entire futures will depend on their ability to master these 3rd Platform technologies and use them to advantage. Examples of where this is happening right now include: Telecoms service providers analyzing customer usage data to spot likely defectors and reduce customer churn Banks, telcos, and retailers increasing order sizes from online customers by providing intelligent, real-time, and personalized recommendations on offers and product bundling Retailers improving bottom-line performance through smarter, data-driven decisions for inventory and warehouse management, based on faster and better analysis of sales and external data Banks analyzing customer transaction data to detect and prevent payment fraud, reducing costs and business risk And so organizations in these and other industries are looking to their software and services suppliers to assist them in making big, difficult but critically important shifts to leverage 3rd Platform technologies, to transform their business operations and improve their performance. TCS says these are precisely the issues that prompted the foundation of its new Digital Software & Solutions Group, with N Chandrasekaran, TCS CEO, recently saying, "The biggest problem [our] clients face is how to adopt digital... every company has to reimagine the future in the context of all these technologies." (See Tremendous Opportunities Ahead for TCS: Chandrasekaran, moneycontrol.com, November 25, 2013.) Group Overview TCS' Digital Software & Solutions Group is a "strategic growth business" of Tata Consultancy. It is headed by Seeta Hariharan, previously a senior executive at IBM's software operation. DS&S has its own P&L, and its own product engineering, sales and marketing, consulting and backoffice (HR, finance, legal) teams. TCS, itself a subsidiary of the vast Tata Group, has over $13 billion in revenues and some 300,000 staff and grew 16% last year. Yet CEO Chandrasekaran wishes to see the company grow considerably further, and his view is that future growth must be, to some extent, "non-linear" i.e., not dependent on hiring ever more staff. DS&S is a part of that strategy. The group launched in 1Q14 with two initial solution sets, addressing customer insights and intelligence and digital commerce, and more are to follow. TABLE 1 TCS Digital Software & Solutions Group at a Glance Group Head Seeta Hariharan Group announced January 2014 Number of employees Website 500 (*IDC estimate subject to change) http://www.tcs.com/digital-software-solutions/pages/default.aspx Source: IDC, 2014 2014 IDC #LC52W 3
Group Strategy TCS Digital Software & Solutions Group's overall strategy is based on the belief that organizations trying to digitalize their businesses are looking for real and complete solutions to their industry-specific business issues. These include customer churn for telcos, payment fraud for financial services companies, and intelligent inventory prediction and optimization for retailers. They want more than toolkits based on generic scenarios. DS&S views that today's software product vendors either offer broad-based platforms for digitalization, or niche and disparate point solutions. Either way, considerable customization, integration, and extension is required to produce a complete solution. DS&S believes that in certain, specific cases it can produce something much closer to a turnkey solution, to give its customers faster time to market and reduced costs of deployment thus faster time to value. Its core strategy is to identify the most promising scenarios and build out suitable solutions. There is an irony here, of course that a considerable chunk of services revenue from DS&S' parent, TCS, comes from performing precisely those services of customization, integration, and extension on existing product lines from third parties to match customers' needs. In IDC's view, DS&S' customer profile will be similar to that of its services business primarily Fortune 1000 companies in the developed world and indeed we expect that most DS&S customers will already be TCS services customers at least for the coming several years. Nonetheless, DS&S is also looking to sell solutions both through its existing resources and through new sales teams and reseller channels which are being recruited right now in other words, direct sales, consulting sales, and channel sales will all form part of the picture. Product Strategy Three by Three by Three Recognizing that it is starting from scratch in a potentially very large market, DS&S has chosen to focus its efforts according to what it refers to as its "3x3x3" strategy: three solution sets, for three vertical industry sectors, in three (geographic) markets. These are: Three solution sets: Customer Intelligence and Insights, Digital Commerce, and Intelligent Infrastructure Three vertical industries: telecoms, retail, and banking and financial services Three geographies: North America, the U.K., and the Nordics At the time of compiling this profile, the Intelligent Infrastructure solution is not yet complete and IDC expects it to be launched sometime in mid-2014. In this profile we focus on the other two suites. 2014 IDC #LC52W 4
FIGURE 2 Overview of DS&S' Customer Intelligence and Insights Solution Suite Solution CII for for Communications, Retail & BFS Actions Delivery Recommendation Personalization SEO/SEM Campaign Personalized Search Loyalty Workflow Content Gamification Modules Insights Reporting Ad-hoc Reporting Process Customer Social Lead Scoring / Segmentation Network Content Risk Analysis Portfolio Operational Web Demand Forecasting Retail Analysis Data Analysis / Data Discovery Data Mining Statistical Modeling Big Data Real-time Data Processing Platform Collection Data Induction Platform Source: TCS DS&S The Customer Intelligence and Insight (CII) solutions are based on TCS' Data Induction Platform which offers predictive analytics and recommendations. The suite comes in different instantiations made specific for the three different target industries for example the financial services version "understands" entities like mortgages, loans, and credit cards. But the overall aims are the same: the suite is designed to help companies attract new customers, reduce churn, increase cross- and up-sell, and generally maximize customer value, through the analysis, prediction, and recommendation engines aligned around a 360-degree view of the customer. Industry-specific features include network analysis for telcos. 2014 IDC #LC52W 5
Customer Intelligence & Insights Reporting FIGURE 3 Overview of DS&S' Digital Commerce Solution Suite Solution Digital Commerce for Communications, Retail & BFS Regulatory Fraud & Risk Monitoring Credit Evaluation Buy (Purchase) Supply Chain & Visibility Warehouse & Transportation Collaboration Networking & Modules Market Loan/Product Recommendation Inventory/Facility Customer Incentives & Loyalty Search Optimization Personalization & Segmentation Cross Channel Sell & Service Distributed Order Application Customer Service Other Third Party Advanced Web Content Social Media Driven Advertising Platform ecommerce (Market & Sell) Source: TCS DS&S The Digital Commerce Suite is based on DS&S' own ecommerce engine. Atop this, the suite encompasses, in one integrated suite, the functionality found in the various CRM sales, service, and marketing products on the market. Additionally it covers industry-specific functions like fraud and risk management for financial services, and for retail and telcos, procurement-related functions including supply chain management and optimization, warehousing, and transportation management. Three Sales Channels DS&S is bringing its solutions to market through three sales channels: direct, channel sales, and consulting sales. It is hiring fast in sales and marketing staff and actively recruiting channel partners for its chosen countries of operation. FUTURE OUTLOOK DS&S has ambitious plans which include: Bringing the third product set Intelligent Infrastructure to market later in 2014 Targeting new geographic markets and industries Inorganic growth through M&As the group has already appointed staff to look at M&A opportunities and strategy 2014 IDC #LC52W 6
ESSENTIAL GUIDANCE Advice for TCS DS&S Group TCS DS&S must very clearly articulate how it seeks to add value and differentiate from traditional enterprise software companies operating in similar markets. Companies like Adobe, Oracle, IBM, and SAP are powerful both in their marketing and in their current installed base, to which they are keen to upsell broader and deeper solutions. They are aided in that by their services partners including, of course, TCS itself. In that regard, the "whole solution" sale is absolutely key to DS&S' positioning and care should be taken not to dilute that message with the sale of individual modules. One of the selling points of the DS&S solutions in IDC's view will be their potential to reduce integration costs. The power of this argument is lost when selling individual modules. TCS has been wise to recruit experienced software industry executives to head up the DS&S operation and this must continue. In IDC's experience, IT services companies, no matter how successful, just do not have a software products DNA, and struggle to create successful and scalable businesses from software products. (The opposite is also true few software companies have successfully acquired or run large services businesses, and nor, in the main, should they attempt to.) To build successful software product marketing, support, and channel sales operations is something that few services execs have deep experience of. And looking at the nature of DS&S' potential competition, these aspects of its operation will need to be world class if it is to make a significant impact on the market. TCS must also be careful to manage its relationships with those vendors whose products DS&S is now seeking to compete against. While in the IT world "co-opetition" is now the accepted norm, nonetheless if the DS&S initiative leads to less services work for its parent in integrating and supporting those partners' application solutions, then it stands to lose as much as it gains through the putative success of DS&S. DS&S has also been wise in restricting European operations to the U.K. and selected Nordic countries. However, there is no doubt that the messages and potential usages of the DS&S solutions will resonate in other countries. Indeed the DS&S solutions could be a door-opener for the group in other European countries for instance, France, Germany, Switzerland, and the Benelux countries. However, the choice of channel partners will be absolutely key, alongside attention to detail in producing localized versions. In many European countries, local sales and support channels are vital to success in software sales. LEARN MORE Related Research The 3rd Platform: Enabling Digital Transformation (IDC #244515, November 2013) TCS Grows Healthily Again in Europe in 2013 (IDC #lcuk24669114, February 2014) The New World of Digital Marketing : How Outsourcers and Other Service Providers Threaten the Realm Once Owned by Agencies (IDC #WC20140218, February 2014) Worldwide Digital Commerce Applications 2013 2017 Forecast and 2012 Vendor Shares (IDC #245069, December 2013) Worldwide and U.S. Systems Integration 2012 Vendor Shares: IDC's Top 10 Vendors for 2012 (IDC #242430, July 2013) IDC's Worldwide Sales, Marketing, and Market Intelligence Taxonomy, 2013: Guidelines for Cost Control and Resource Allocation (IDC #241863, June 2013) 2014 IDC #LC52W 7
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