Sacrificing profitability is not enough to drive growth: TCS
MUMBAI/BENGALURU: Tata Consultancy Services Ltd (TCS) believes that its half-a-century experience has made the management realize that sacrificing profitability is not enough to drive growth and contrary to popular belief, following this model can be counterproductive, as both margins and growth are intertwined.
Rather, India’s largest information technology (IT) services firm believes superior growth and profitability can be managed by having a stable senior management team, and managing operating costs deftly, which should more than offset expenses to build intellectual property (IP) software and tools needed by an IT firm’s customers.
“From our mentors, from Kohli (Faqir Chand Kohli) to Ramadorai (Subramanian Ramadorai) and to Chandra (Natarajan Chandrasekaran), we have learnt that if we compromise margin to funnel growth, neither will happen,” chief operating officer, N Ganapathy Subramaniam said in an interview last week.
TCS’S comment is significant because it brings back to focus the current conundrum of balancing growth and profitability faced by India’s $167 billion information technology outsourcing industry, especially after the country’s second largest IT firm, Infosys Ltd, lowered its profitability outlook in the current financial year, as it hopes to improve growth.
“If you say, we drop margins because we want to invest in growth, our experience is that growth does not happen. Our experience is that you don’t compromise on either (margins or growth). We have a remarkable senior management team, and our ability to reskill our people on the agile framework, makes us confident that our Business 4.0 approach will help us set for the right growth and profitability,” said Subramaniam.
Earlier this month, Infosys said it expects operating margin to be between 22% and 24% and expects to grow its dollar revenue between 7-9% in 2018-19.
Infosys reported a 7.2% growth and an operating margin of 24.3% to end last year with $10.94 billion in revenue.
TCS reported an 8.6% dollar revenue growth at an operating margin of 24.8% to end with $19.1 billion in revenue.