TCS restructures its business units to focus on long-term strategy

Tata Consultancy Services (TCS) has restructured its industry solutions units (ISUs), giving almost 200 employees control of them and quarterly target goals as it looks to free up senior executives to focus on long-term strategy. TCS first broke up its business into smaller units in 2008, a move that helped power growth, with revenue soaring to over $19 billion in FY18 from $6 billion in FY09.

After the company’s second-quarter earnings were announced on October 11, CEO Rajesh Gopinathan said TCS had worked for two years to return to double-digit growth rates and the management would ‘step back’ to look at crafting a strategy for the medium and long terms.

The second round of restructuring will help the company’s topmost executives — from the CEO to the EVPs – focus on delivering the future plans. “We actually doubled down on our earlier strategy of ISUs and have created sub-ISUs. We pushed it one level down. We now have about 150 sub-P&L (profit & loss) heads who have been set up the same way the old ISUs were set up,” Gopinathan told ET in an interview.

“Now there are about 200 people who have direct line of sight into the business. So here and now can be dealt with by that layer, freeing up more senior level talent to look at the medium to the longer term. So we are moving the horizon out.”

The CEO, presidents and EVPs will focus on creating three- and five-year strategy plans, which could include those for entering new markets and new service areas focused on different customers.

“What I find most intriguing about this new direction is, TCS’ focus in moving beyond the enterprise IT function and looking to serve other stakeholder groups such as the CFO, engineering and marketing. This strategy will take time to unfold but lays a foundation for continued growth well beyond the current scale of TCS,” said Peter Bendor-Samuel, CEO at IT consultancy Everest Research.

In the previous restructuring, TCS created 23 mini-CEOs who each ran a $250-million unit and was given the task of quadrupling their unit revenue to $1 billion. The unit size in the current restructuring varies — larger verticals such as financial services and retail have been split into multiple separate units depending on type of customer and, in some cases, by geography, a source with knowledge of the matter told ET.

The move to sub-divide the business also comes when the company’s revenue is poised to cross $21 billion, which would make it harder for a centralised group to control every aspect of the business.

“The new structure makes a great deal of sense. In that, it pushes responsibility and decision making down to executives who are close to their customers. TCS is a well-run organisation with a deep bench of executives ready and capable of taking on these responsibilities,” Bendor-Samuel said.

In 2016, Infosys, under then CEO Vishal Sikka, moved to divide its business into sub-units to boost growth and avoid the centralisation of decision-making.