1. Competitive Analysis of
IT Service Firms
By Sayan Maiti
DATE : 6th June, 2013

2. Competitive Analysis of IT Service Firms Page 1
IT Services Industry Overview
Source : Gartner IT Spending Forecast Mar’13
Globally IT industry is going to grow steadily
despite a weakening global economy.
 “The Nexus of Forces — social, mobile, cloud
and information — are reshaping spending
patterns across all of the IT sectors” – Gartner.
 Consumers and enterprises will continue to
purchase a mix of IT products and services –
however the mix is going to change radically in
the future e.g. transitions from PC’s to mobile
or licensed software to cloud.
1.50%
4.50%
4.90%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
820
840
860
880
900
920
940
960
980
2012 2013 2014
ValuesinUSBillionDollars
Global IT Services Spend IT Services Spending
Growth %
The top five Indian providers grew 13.3% exceeding the
worldwide IT services industry growth of 2%.
 Revenue contribution from project-based and staff
augmentation deals has continued to decline for the
top five Indian-based providers, and the outsourcing
service line component has steadily increased.
 Cognizant displaced Infosys to become the second-
largest Indian IT services provider in 2012-13.
Source : Gartner IT Spending Forecast May’13
0
2000
4000
6000
8000
10000
12000
14000
TCS Cognizant Infosys Wipro HCL
ValuesinUSMillionDollars
Projected Worldwide revenues- Indian IT
services
2011
2012
2013
20.10%
6.60%
7.60%
Growth Rates
over 2 years
18.10%
15.2%

3. Competitive Analysis of IT Service Firms Page 2
Key Business Drivers and their linkages
Ability to get repeat business
from existing clients
Ability to bid and win
new contracts
Ability to grow
inorganically
REVENUESTotal Hours Billed Billing Rates
No of
Employees
Utilization
Rates
Hours per
employee per year
Onsite/
Offshore mix
Competition
Position in
value chain
No of billable
employees
Total no of
employees
MARGINS
Ability to control
employee costs
Attrition
Rates
CASH FLOWS
Timely management of
receivables and payables
Ability to manage capital
and generate adequate ROI
Ability to control SG&A
Expenses
Client
Targeting
Business
Development
Brand
Building
X X
/
Key Business Drivers
Getting new/renewed projects from clients
Ability to cross sell and up sell

4. IT Service Firms - Worldwide

5. Understand the client’s
problem and suggest
solution
( Business Consulting)
Take over
implementation
and cross sell
services
Sell technology
development for
client as a
proprietary
product
Additional
revenues for
maintenance of
products
Competitive Analysis of IT Service Firms Page 3
Competitive Analysis - IBM
Key Drivers Performance
Repeat Business from customers Presence in IT & ITES, H/W and Software helps them serve the customer in many ways
Inorganic Growth 60+ acquisitions since 2001 and over 2-3 acquisitions in 2012-2013
Bid and win new contracts Presence in all IT segments gives them the flexibility to bid for complete projects starting
from consulting to implementation.
Billing Rates Very high billing rates to the order of $56 per hour
Employee Costs High attrition rates ~15% ( Overall IBM )
SG&A Expenses Around 22-25% of Revenues which is high
REVENUESMARGIN

6. Competitive Analysis of IT Service Firms Page 4
Competitive Analysis - IBM
STRENGTHS
 Technology firm with a century-long
history and operations across the globe.
 Strong presence in high-growth
emerging markets such as BRICs.
 Diversified portfolio of products and
services across computer hardware,
computer software, IT services and IT
consulting.
 Has end-to-end provision capability and
additional strength of higher margin
software and services.
WEAKNESS
 Large number of
employees and high
level of R&D spending
limits flexibility.
 Communication across
different countries is
challenging in view of
the size of the
company.
OPPORTUNITIES
 Possible acquisitions and merger
opportunities that the company can seize
and increase its market share greatly.
 Can benefit from emerging market
demand growth via presence in BRICs
and frontier markets as enterprises
modernize and governments invest in
infrastructure.
 Strong brand aids acquisition and
retention of high-value customers.
 Investments in cloud, big data, security
and analytics offers medium-term growth
prospects in high margin activities.
THREATS
 Increasing competition
in services market
from major players
including Dell,
Accenture, HP and
Oracle.
 Heavy dependence on
Microsoft in computer
services division could
be a weakness should
Microsoft's strategy
change
SWOT
Started with Mainframes and then
into PC’s, Copiers, telephone’s,
satellites and now they are into
mostly software and services. More
than 80% of the companies revenues
comes from software and services
(50% +)
“Technology companies must
pursue constant market
expansion and diversity to stay
alive and relevant” – Steve
Ballmer
THE NEXT-GENERATION IBM
IBM acquired Softlayer Technologies
for around $2 billion. This will make
IBM one of the biggest players in the
cloud computing industry.
The bottom line is that they have
recognized that almost everything
in the future will be delivered
through cloud and they gain early
expertise through this acquisition.

7. IT Service Firms - India

8.  Focused on volume growth using cost as a leverage and has the
largest workforce among IT service companies.
 TCS has adopted a model of going into new geographies and new
service lines. ( Risk appetite is high )
 In the year 2008 it made big acquisition to the tune of $512 million all
by cash to buy out Citi Global Services. This helped TCS to become
number 1 in BPO service. Recently TCS acquired CRL which would
allow it to offer more differentiated services to its global clients.
 Growth was led by markets like the UK and Europe, growth markets
like India, Asia-Pacific, Latin America and the Middle East performed
well.
 While financial services vertical’s relative performance is not as
expected, retail, manufacturing and telecom have performed well.
Competitive Analysis of IT Service Firms Page 5
Competitive Analysis - TCS
Key Drivers Performance
Repeat Business from customers More than 95% of TCS revenues comes from repeat business
Inorganic Growth 16 Acquisitions since 2001 and 2 recent acquisitions
Bid and win new contracts $200 M contract from India Posts ( Automation ) , $43 M from Norway Posts, 350 M
Pound Network Rail Contract ( IT Transformation ) – Have won big contracts recently
Billing Rates $33 per hour ( FY 2012) on the lower side
Employee Costs 11.4% Attrition Rate, Employee cost as a % of Revenue is 38% and among the lowest
among peers
SG&A Expenses SG&A cost is 18.7% and is on the higher side among peers
REVENUESMARGIN
43%
13%
14%
16%
4%
5% 5%
TCS Verticals Breakdown
BFSI
Telecom
Manufacturing
Retail
Utilities
Healthcare
Others

9. Strategy for long term growth
Customer Centricity – For repeat business
Full Service Capability – Present in all
segments and geographies
Global Network Delivery Model – Facilitate
cost arbitrage across geographies
Strategic Acquisitions – For quick growth
across segments and geographies
Non Linear Business Models – Strategies to
ensure growth without increasing the head
count.
Competitive Analysis of IT Service Firms Page 6
Competitive Analysis - TCS
STRENGTHS
 One of the world's largest IT
services companies.
Increasingly viewed by
customers in the same league
as IBM and HP.
 Large international workforce.
 Driving BPO services in India.
 Diversified revenues across
regions, services and verticals.
WEAKNESS
 Derives large proportion of
revenues from developed
markets, especially the US,
that are facing economic
difficulties.
 Lags some peers and
multinational rivals in high-
end consulting offerings.
• Heavy exposure to banking,
financial services and
insurance vertical.
OPPORTUNITIES
 Product portfolio expansion
enables TCS to move into end-
to-end services market,
benefiting revenues and
margins.
 Positioned among all Indian
vendors to disrupt the global
league of IBM-HP-Accenture.
 Geographical expansion into
relatively untapped regions.
 Potential for strong revenue
growth from home market in
India.
THREATS
 Lower outsourcing costs in
neighboring South Asian
markets could see contracts
move away from TCS.
 People-led linear growth
means Cognizant can beat it.
 There are no visible leaders
beyond N Chandrasekaran
 Vulnerable to global economic
climate, with demand from
developed market financial
institutions still a key part of
its revenue mix.
SWOT

10.  Growth Strategy followed by Cognizant is as follows
1. Gets into new areas, and putting the full force of
organization behind it.
2. Acquisitions in key spaces to achieve scale or to access
customers faster.
3. Aggressive strategy for acquiring market share.
 Cognizant has been constantly adding more businesses to its
portfolio – in terms of new industry verticals, in terms of new
solutions and new markets, and has been pulling all punches to
scale them up fast.
 Cognizant has promised the market a lower margin compared
to its peers, in return for higher growth.
Competitive Analysis of IT Service Firms Page 7
Competitive Analysis - Cognizant
Key Drivers Performance
Repeat Business from customers 90% of business comes from existing clients
Inorganic Growth 17 Acquisitions since 2002 and 1 in 2012. Cognizant is aggressive in inorganic growth.
Bid and win new contracts $330 M ING US, Network Rail $350 M ( shared among 5 companies), Philips ( Business
Transformation )
Billing Rates Around $35 an hour
Employee Costs Attrition rate of 11% and lowest among peers
SG&A Expenses SG&A expense of 21% is highest among peers
REVENUESMARGIN
42%
20%
25%
13%
Cognizant Verticals
Breakdown
BFSI
Manufacturing,
Logistics and Retail
Healthcare
Media,
Entertainment and
Technology

11. BIG 5 STRATEGIES
Closer to the clients – Spends heavily on
sales and marketing which has helped
win more deals.
Lobbying – Spent 1.95 M USD last year
the highest and more than the sum total
spent by all IT companies. ( Wipro - $.29
M, Nasscom - $ .115 M, Infosys < $5000 )
Two in a box Strategy – A relationship
management team and deep industry
expertise are assigned to every client.
Consulting Practice - CBC, the consulting
practice, has over 3,300 consultants
responsible for business, strategy and
operations consulting. This investment
has helped increase its mindshare with
clients, thereby driving market share,
and also win and execute large-scale
transformation deals.
Investment in SMAC (Social, mobile,
analytics and cloud) - Delivering SMAC
stack related work for over 60 per cent
of the top 100 customers.
Competitive Analysis of IT Service Firms Page 8
Competitive Analysis - Cognizant
STRENGTHS
 One of the fastest growing
companies in the business of
outsourcing.
 Concentration in 4 key verticals
helps focus investments.
 Price competitiveness
 US-centric model helps in
positioning.
 High wallet share of fewer large
customers ensures growth even
during crisis.
 Blends IBM's depth with
Accenture's front-ending
capabilities in its model.
WEAKNESS
 Nearly 75% of business from
the US could turn risky.
 A laggard in BPO business
 Lags peers in infrastructure
management business.
OPPORTUNITIES
 Has beaten Wipro and more
recently Infosys to be the second
biggest player in IT Services
Industry in India. TCS could be
next.
 Growing Europe business to
mitigate US risks.
 Geographical expansion into
relatively untapped regions.
THREATS
 Profit Margins among the
lowest in the top 5 players.
Shows that they have
sacrificed their margins for
growth.
 Pace of growth could cause
fatigue among leaders.
 Will make for a good
acquisition target for an IBM
or Accenture in future.
 Over-dependency on US could
affect prospects during
recession.
SWOT

12. Competitive Analysis of IT Service Firms Page 9
Competitive Analysis - Infosys
Key Drivers Performance
Repeat Business from customers Repeat business percentage dropped from 98% in 2012 to 95% in Q4’13
Inorganic Growth 3 Acquisitions since 2000. Acquisition of Lodestone Management Consulting in
September’12
Bid and win new contracts BMW Infrastructure Management, India posts rural integration ($20 M), Rwest ( IT
Transformation )
Billing Rates $43 per hour ( FY 2012 ), On the higher side
Employee Costs 15-16% Attrition Rate, Among the highest as compared to peers, Employee cost as % of
revenue is 49% and highest among its peers
SG&A Expenses SG&A expenses is 11.6% and lowest among its peers
REVENUESMARGIN
35%
10%
21%
18%
6%
6% 4%
Infosys Verticals Breakdown
BFSI
Telecom
Manufacturing
Retail
Utilities
Healthcare
Others
 Infosys' strategy of charging a premium for its services (as
compared to its peers) is putting strain on its clients who are
pressured to cut costs in the backdrop of a slowdown. ( e.g. Infosys
doesn’t favor reverse auction processes )
 Infosys has always focused on the high margin business. For this, it
has concentrated on the business from the developed markets such
as the North America and the Europe. However it has ended up
ignoring emerging markets like India and its revenue % from the
domestic markets ( 2.1 % from India in 2012) is among the lowest.
 Infosys also gets a higher share of revenues from Consulting which
has helped it maintain its margins.
 Infosys has better distribution of verticals and it has started
focusing on healthcare which is an emerging sector.

13. Competitive Analysis of IT Service Firms Page 10
Competitive Analysis - Infosys
STRENGTHS
 One of the world's renowned
IT services companies.
 Early positioning as a high end
differentiated player.
 Diversified revenues across
regions, services and verticals.
WEAKNESS
 Large proportion of revenues
from developed markets,
especially the US, that are facing
economic difficulties.
 Lagging peers in making
strategic, 'game-changing'
acquisitions
 Consulting business has not
delivered the results as
expected.
OPPORTUNITIES
 Best positioned to replicate
the Accenture model from
offshore
 A game-changing acquisition
in a new geography could help
the company raise its profile.
 Profit Margins among the
best in the industry which
offers cushion for further
growth.
 Geographical expansion into
relatively untapped regions.
 Potential for strong revenue
growth from home market in
India.
THREATS
 Ongoing visa abuse case and
federal investigations in the US
could affect brand and
business.
 Management transition from
founders to professionals will
bring uncertainty.
 Vulnerable to global economic
climate, with demand from
developed market financial
institutions still a key part of its
revenue mix.
SWOT
Infosys 3.0 Strategy
1. Identification of seven game-
changing trends that form the
innovation framework.
1. Digital Consumers
2. Emerging Economies
3. Healthcare Economy
4. New Commerce
5. Pervasive Computing
6. Smarter Organizations
7. Sustainable Tomorrow
2. Products, platforms and
solutions was set up as a
dedicated organization to focus
on innovation-led business
growth for our clients.
3. Infosys manages the portfolio of
software assets and creates
offerings around them
A very futuristic looking strategy but
Infosys needs to make sure that it
implements it faithfully.

14. 0
5
10
15
20
25
30
35
40
45
2009 2010 2011 2012 2013
ROEValues
Comparison of ROE for 5 years
Infosys
TCS
Wipro
HCL
Competitive Analysis of IT Service Firms Page 11
Indian IT Services Industry Ratio’s Comparison
0
5
10
15
20
25
30
2009 2010 2011 2012 2013
P/ERatios
Comparison of P/E Ratio for 5 years
Infosys
TCS
Wipro
HCL
0
5
10
15
20
25
30
2009 2010 2011 2012 2013
ProfitMargins
Comparison of Profit Margins across 5 years
Infosys
TCS
Wipro
HCL
0
10
20
30
40
50
60
70
80
2009 2010 2011 2012 2013
NWV/Salesin%
Comparison of Net Working Capital as % of Sales
Infosys
TCS
Wipro
HCL

15. Competitive Analysis of IT Service Firms Page 12
Indian IT Services Industry Overview
Market Penetration Product Development
Market Development Diversification
Old PRODUCT New
OldMARKETSNew
Despite the global downturn most the Indian IT service
companies have continues to register good growth.
 Companies like HCL and Cognizant are able to grow
faster because of their aggressive diversification
strategies along with acquisitions. In this process they
have sacrificed their profit margins for growth.
 Companies like Infosys have focused on growing
around core areas through an inorganic route.
 Companies like TCS and Wipro have taken the inorganic
route for growth through mergers and acquisitions
looking to expand their customer base.
0%
5%
10%
15%
20%
25%
30%
35%
40%
2010 2011 2012 2013
GrowthRatein%
Revenue Growth for IT Service Firms
Infosys
TCS
Wipro
HCL
-10%
0%
10%
20%
30%
40%
50%
2010 2011 2012 2013
PATGrowthin%
PAT Growth for IT Service Firms
Infosys
TCS
Wipro
HCL

16. Competitive Analysis of IT Service Firms Page 13
Future Growth Engines for IT Service Companies
Ability to manage the 6 key risks will be important for growth
1. Exchange Rate Risk – Using Derivatives and other hedging instruments
2. Political Risk – Increase use of lobbying as an instrument to prevent such risks
3. Geographical Risk - Pushing for growth in new geographies like Japan, Australia & Middle East
4. Competition – Acquisition of companies in competing countries like Philippines and China
5. Vertical – Increase presence in verticals with expectations of high growth e.g. healthcare
6. Service Line Risk – Have a presence in both high margin areas like consulting and package
implementation as well as low margin areas such as custom application development
Improvement in utilization rates from current levels of 70% to 80% or more by pooling of employee base
for different tasks. However to do this two things need to be done –
 Training in diverse skills for the high performers i.e. consulting + programming and will necessitate
higher training costs.
 Prevention of attrition among this group of high performers ( and or middle management ) and
utilizing them to maximum effect.
Inorganic growth through M&A needs to be done both for gaining expertise and gaining entry into the
European and Emerging Markets. However proper diligence needs to be done to prevent integration
issues as seen in most cases.
Combination of fixed price contracts and time and material contracts is needed to grow revenues by
attracting customers.

17. THANK YOU
Sayan Maiti
Mail : sayan.comc@gmail.com
Phone : +91 - 7389464800