Tata Consultancy Services is an Indian multinational information technology (IT) services and consulting company headquartered in Mumbai. The company was established in 1968, and it is part of the diversified Tata Group, which Jamsetji Tata founded in 1868, is one of India’s most respected institutions today (TCS, 2021). It operates through the following segments: Banking, Financial Services, & Insurance; Manufacturing; Retail & Consumer Business; Communication, Media, & Technology; and Others.
TCS operates globally, with a diverse talent base of over 488,649 associates (including subsidiaries) representing 154 nationalities across 46 countries as of 2021. It is one of the largest employers of women, with 36.5% of women employees (TCS, 2021). Porter’s five forces model is a helpful tool to identify threats and opportunities faced by TCS in the consultancy industry.
TCS – Competitive Rivalry in The Market
TCS is part of the top 10 consultancies based on revenue (Statista, 2020). TCS is known for its IT consultancy and innovation. Its primary rival is Deloitte, Tata Consultancy Services (TCS), and McKinsey and Company. McKinsey and company posted annual revenue of $10 B in 2019 (Fortune, 2020). Deloitte’s consultancy wing posted a yearly revenue of $19.8 in 2020, which was around 50% of its total revenue (Statista, 2021). Accenture posted annual revenue of $45.6 B in the financial year 2020.
The yearly revenue of TCS has seen rapid growth in the last seven years: the FY2020 revenue more than doubled that from the FY2013, TCS posted the annual revenue of $22 B in the financial year of 2020 (Statista, 2021). It has the edge over its rival due to its massive foothold and diversified clientele base. There is intense competition in the market to capture maximum business share.
TCS – Threat of Substitutes
The products offered in the industry are evolving with time. Technology is the driving force behind the latest revolution all over the industries. The dawn of the 21st century brings the IT revolution. The industry is heading for the next revolution; the next step after digitalization is AI Transformation. Elite consultancy companies like TCS have seen many disruptions, but AI can change the industry’s future. Companies are developing AI tools to analyze the business model and strategies better. The tool powered by AI is developed to act as the financial adviser (Dagher, 2017).
TCS is known for using AI and other digital tools to helps clients. According to Everest Group (2020), TCS is the industry leader because TCS has made credible investments in building a comprehensive portfolio of Al services, underpinned by strategic investments in developing domain-specific platforms and solutions such as Optumera and OmniStore. The company is moving with the need of time. The threat of substitution is at a medium level.
TCS – The Threat of New Entrants
The possibility of new entrants had a significant part in developing and changing the competitive dynamics of any industry. Some significant barriers to entry into any industry are the scale of the economy’s product differentiations, high capital cost, distribution channel, and legal and government regulatory barriers (Luenendonk, 2019). The scale of economies and high capital cost isn’t a major hindrance in consulting industry. The real challenge is to offer better products and brand identity.
This focuses on fostering the brand name and creating an identity in the industry, which will entail great costs for the new entrant. Brand Identity is what most consultancies thrive on. A good brand name is essential for their credibility and their business. To gain new customers is not cheap, and consultancies work very hard at keeping a good reputation around their name. Considering the facts mentioned earlier, the threat of new entrants remains low.
TCS – Bargaining Power of Buyers
The buyers of the consultancy services are the clients; these clients are usually companies and the government. The buyers, in this case, are multidimensional, and they tend to acquire services for a longer time. These services act as a significant part of business strategies and policy-making worldwide. Buyers can significantly impact a company’s product and selling decisions. It depends on buyers’ buying capacity, the importance of the services, availability of alternative options, and quality of the services.
Strong buyers can be the reason for the price war and competition within the industry. The most substantial power buyers can exert lower prices, affecting the profit potential (Luenendonk, 2019). The strategic management business is an essential part of businesses nowadays. Buyers need it to formulate plans and business strategies. Buyers’ power is low in this case.
TCS – Bargaining Power of Suppliers
The companies can offer nothing, whether it is a product or service, without suppliers. The suppliers are one major part of their value chain that needs focus. The quality of suppliers’ products is important for business and quality of services. The suppliers are usually the raw material and human resources providers. According to Porter (1979), in industries where the quality of the products is very much affected by the suppliers’ product, suppliers are usually substantial. In consultancy, the major suppliers’ powers are the power of the workforce or suppliers of labor. The whole consultancy services depend on the consultants, and the pool of talented consultants is limited.
The consultant can set up their firm (Forward integration) and take away clients. Quality of service is dependent on those suppliers, which provides the edge in bargaining better deals. Companies need a consultant to stay in business. Suppliers hold major power in this case.
References
Luenendonk. M. (2019). Bargaining Power Of Buyers – Porter’s Five Forces Model. Available at: https://www.cleverism.com/bargaining-power-of-buyers-porters-five-forces-model/
Porter., E. M (1979). How Competitive Forces Shape Strategy. Available at: https://hbr.org/1979/03/how-competitive-forces-shape-strategy
Luenendonk. M. (2019). Threat Of New Entrants – Porter’s Five Forces Model. Available at: https://www.cleverism.com/threat-of-new-entrants-porters-five-forces-model/
Statista. (2020) Leading consulting firms worldwide by revenue in 2018. Available at: https://www.statista.com/statistics/273001/top-10-consulting-firms-worldwide-by-revenue/
Fortune. (2020) McKinsey & Company. Available at: https://fortune.com/company/mckinsey/
Statista. (2021) Revenue of Deloitte worldwide from 2006 to 2020, by service line. Available at: https://www.statista.com/statistics/188987/revenue-of-deloitte-since-2010-by-function/
Statista. (2021) Annual revenue of Tata Consultancy Services (TCS) worldwide from FY 2013 to FY 2021. Available at: https://www.statista.com/statistics/759883/india-tcs-annual-revenue/
Dagher. V. (2017) Alexa’s New Avatar: Financial Adviser. Available at: https://www.wsj.com/articles/alexas-new-avatar-financial-adviser-1495550410?mg=prod/accounts-wsj
Everest Group. (2020) Artificial Intelligence (AI) Services PEAK Matrix® Assessment 2021. Available at: https://www2.everestgrp.com/reportaction/EGR-2020-33-R-4058/Marketing?SearchTerms=artificial%20intelligence
TCS. (2021) Our Heritage and Values. Available at: https://www.tcs.com/about-us#type=overlay&page=/discover-tcs/about-us/overlays/heritage-values-overlay
TCS. (2021) Our Talent. Available at: https://www.tcs.com/about-us#type=overlay&page=/discover-tcs/about-us/overlays/our-talent-overlay