Innovation in Emerging Markets – The case of Tata Consultancy Services (TCS)

1. Innovation in Emerging Markets – The case of Tata Consultancy Services (TCS) D. Prasad Raju Vice President & Head of US Midwest Operations Indiana University – Kelley School of Business

2. The Tata Group Pioneering Indian Industries since 1868 US$ 17.8+ Billion; 250,000 employees, 80+ companies, committed to society Consumer Goods & Retail Steel Telecom Vehicles and Engineering Energy IT Services and Consulting Hotels India’s Largest India’s Largest India’s Largest Pvt Sector Player Asia’s Largest & Global No. 12 Top 3 in India India’s Largest Luxury Chain World’s No 1 Tea Producer

3. Over 62000 ConsultantsOver 150 OfficesAcross 34 + Countries Business Partners to Fortune 100 Companies (6 in top 10) TCS-Asia’s Largest Global Software & Services Company Established in India in 1968 US Presence since 1976 2005-06 RevenueUSD 2.97 Billion Chinese Presence since 2002 Flag bearer of Indian IT Industry Commitment to Community Vision: Global Top 10 by 2010 First & Largest:- S/W R&D Center in India - S/W Exporter in India- Indian S/W company to cross the USD 2 Billion mark in revenue Pioneer of Onsite /Offshore Model First Company to get Integrated CMMi & PCMM Level 5 Certification Strategic Alliances with leading product Vendors Strong Domain Focus Beyond the obviousTM

4. Developing Solutions & Delivering Value “TCS brings deep experience to its offering, since it has been supplying remote operations in India for many years.” AMR Research – November 30, 2004

5. Tata Information Technology (Shanghai) Co. Ltd 塔塔信息技术（上海）有限公司 （中国第一家通过CMMi和PCMM五级的公司） • Vision : Establish World Class Solution Delivery capability – we already have a superb infrastructure • Current Strength: 415+ Consultants • 90% Local Recruits • First & Only Company in China to have 5 certifications: CMMI & PCMM level 5, ISO, BS7799 & BS15000 • First Indian IT company to set up its operations – set-up in June 2002 • Registered Office at Shanghai • Shanghai – SAP & Oracle CoEs • Shanghai & Hangzhou – Delivery Centres • Beijing – JV • Academic Interaction Programs with leading Universities in China

6. Future trends in Global Service Delivery

7. Context Increasing Instability Increasing Competition Acceleration of Globalization Decreasing Competitive Advantage Demanding Customers Potential Benefits Business Flexibility Cost and Process Efficiency Speed Focus Improved Competitiveness Stakeholder Value The Need for Global Sourcing – point of view Outsourcing

8. Current Outsourcing Models • “Transfer” Deals such as Traditional IT Outsourcing and Business Process Outsourcing – this, can be of three types • Selective – typically a single function is outsourced with objectives of reduced cost and additional capability • Strategic – major process or functions are outsourced with additional objective of implementing a different management approach: Focus on core competencies, variable cost structure, etc. • Value Based – typically large unique Strategic deals that significantly increase the suppliers and clients market value. Also enables Clients to leverage stranded assets and share in the value created • The Emerging Model – “Transformational” Deals • A relationship that is designed to put the client and service provider “in the same boat” to create value for the client’s business through • Outsourcing non-core activities • Focusing on strategic capabilities • Collaborating across the enterprise • These deals are structured to deliver defined business outcomes, as expressed by clients’ business – the service provider takes some risks associated with delivering against these business outcomes

9. Global Sourcing - Collaboration on the rise • ‘Coopetition’ gaining acceptance in this space • India based outsourcing companies are building closer ties with Western outsourcing and consulting companies • BTO providers, BPO providers, and ITO providers are also collaborating • Products and Services companies are collaborating • Benefits include • Pooling of resources and Joint Go to Market Strategies • Enhanced offering portfolio and Brand Equity • Increased reach in newer markets

10. Growth in Services Outsourcing – Takeaways • The stage is now global • Ignore the rest of the world at your own risk! • To grow, outsourcing firms must collaborate • The best opportunities demand diverse talents and shared risk • Growth will come from multiple fronts • Both organic and inorganic opportunities will play an important role • Managing growth is as difficult as achieving growth • We should not lose sight of where we came from, who got us there, and who we are accountable to for our past accomplishments and future success • Our Customers shall continue to be our most important stakeholders

11. Innovation in TCS

12. We established… • A Vision for Innovation Initiative • An Innovation Architecture across the organization elements • A distinction between sustaining and disruptive innovation • An Innovation Process • An Innovation Network across key stakeholders Background and Motivation – Innovation in TCS We will.. • Create measurable competitive advantage and business impact • Create a Technology Brand that is visible to our stakeholders • Leverage the Technology Ecosystem around us • Attract, build and Retain great Technology People • Position Technology Innovation with a ‘vertical’ focus Key learning Stretch Goals We need to Institutionalize and Scale up Innovation in TCS

13. Scope of Innovation Extends across the Enterprise

14. Sample: Establish the Innovation Network Members of bodies Students Industry Bodies Startup Companies Academic Institutions Venture Capitalists TCS Governments Partner’s Partners Alliance Partners Corporate Customers Research Institutions Customer’s Customers TCS is establishing an Innovation Network – and we believe that this ecosystem will be of great benefit to TCS and to all the participants

15. Products, tools and assets Released commercial products MasterCraft – Model based software development Assent – Code inspection and standards checker Consult – Experiential knowledge management Infrex – Business rules management Proven tools and assets Testify – Test automation Revine – Reverse engineering KDD Toolkit – Library of data mining / statistical processing In Design / Pilot Stages Terese – Intelligent text search Inx – Information extractor TCS’ Focus on Software Research and Development

16. Decision Support Systems Knowledge discovery Business analytics Decision Systems Initiative Analysis Modeling Prediction / Forecasting Knowledge management Case-based reasoning Rule based reasoning Natural language processing Information extraction Information retrieval Decision tree induction Statistical classifiers Support vector machines Sequence mining Clustering TCS’ Innovative Research on Decision Support Systems

17. TCS’ – Tool Based Methodology for Legacy Reengineering Current Business and Technology Drivers Desired Business and Technology Requirements TCS’ Forward Engineering Tools (MasterCraft, Infrex, @Test)* System Assessment Legacy System Architecture Definition (Business and Technical) Forward Engineering Reverse Engineering Current System Documentation TCS’ Data Migration Tool (DMT) Implementation TCS’ Reverse Engineering Tools (CasePac & Revine) Reengineered System Stand-alone Projects for Legacy Systems Documentation carried out Some Applications may not be simple conversion, may require reengineering – new functionalities can be added in the process

18. Case: Tool Based Re-engineering of a large system Fortune 200 Insurance Company. Multi-site (108) implementation. Phased Rollout. 600 PY effort over multiple releases Business Issue TCS Solution Customer Benefits • 6 million lines of legacy code in a 30 year old core system with very little system documentation and few subject matter experts with knowledge of the existing business functionality • System inflexible to introduce new insurance products and regulatory changes • High operational cost. Several manual interventions in overall business processes leading to complicated implementations • Non availability of skills to support legacy systems and several failures to re-create a new application in-house • 50% reduction in maintenance effort – flexible, modular system with externalization of rules from application code (INFREX) • About 10% efficiency gain for service representatives in completing business transactions, leading to reduced operational costs • Rated as “Better than the best” in customer satisfaction by J D Edwards • Detailed system and operations documentation delivered to aid ongoing support • Reverse engineering using TCS Tools – CasePac and Revine to document as is business processes • TCS business experts helped in the optimization of the business processes. Joint workshops to define requirements for target application • Web-based 3 Tier Architecture adopted. Business components developed using TCS Modelling and Code Generation Tool – MasterCraft • Program executed in a phased manner and solution rolled out in 108 locations. Technology – Java, DB2, CICS Legacy Application Size 6 Million LOC, Reengineered Application Size - 120 Use Cases, 17 Business Components, 2.7 MLOC of Master Craft generated Code

19. Sustaining Innovations or ‘Incremental’ innovations owned and executed by current organization elements Use standard measures – immediate impact on Balanced Scorecard Parameters This runs in ‘Horizon 1’ Today's’ business Focus on efficiency, scale, costs Zero or Low tolerance of failure ‘Horizon 2’ is the bridge between disruptive or longer-term innovation and the core business Some failure is expected Disruptive Innovations – targeting markets and concepts which do not exist today. These are ‘Horizon 3’ Define the Current or Anticipated Market Need being addressed Identify target customers who will ‘mentor’ the innovation Fund innovation engines inside and outside to fill the gap High degree of risk and higher failure rates Execute, measure effectiveness, scale up, cannibalize for the next cycle Sample: Organization Models for Sustaining Vs Disruptive Innovation Two distinct Organization Models and Structures are needed – and it is hard to overlay one on the other. The Planning and Execution processes need to be different – but running in parallel.

20. Sample: Use the Innovation Register as the baseline • Next Generation Development, Maintenance, Product Deployment processes e.g. Model Driven Development, Collaboration and Distributed Development • Service Oriented Architectures • Open Source Computing Models • Wireless, hand-held, mobile technologies • Grid Computing, Utility Computing and Infrastructure Management • Next Generation Security and Privacy • Next Generation Reuse - Mighty Sustaining Innovation - Derivative • Improvements to our current offerings and processes • Targeted at our current customers • Across all our current businesses (‘six bubbles’), executed by Practices Sustaining Innovation - Platform • Next generation offerings and processes • Targeted at our current markets • Across all our current businesses (‘six bubbles’) – Practices and R&D, with the new Ecosystem initiative • Next Generation Internet and Collaboration Technologies including Web 2.0, SaaS models • Next Generation Domain Technologies – telecom, life sciences, media / entertainment • Next Generation Embedded Technologies • Next Generation Interfaces including Voice, Human-Computer Interfaces, Personalization Disruptive /Breakthrough Innovation • Radical, breakthrough offerings • Targeted at new markets • Competes against non-consumption • Could create new businesses • R&D and the Ecosystem drive this The Innovation Register is used for resource allocation for innovation. The current business will continue to own the ‘Derivative’ innovation category. The Corporate Technology Office, governs innovation across the ‘platform’ and ‘disruptive’ categories.

21. Summary • We have a a framework for innovation and it can help in creating value for an organizations' ecosystem including clients, partners, employees and shareholders. • The framework has two distinct aspects relating to an organization's business model, processes and market offerings • Innovation which results in incremental and evolutionary changes - sometimes called 'sustaining innovation', • Innovation which results in potentially radical changes - sometimes called 'disruptive' innovation' • The framework has a lifecycle - enabling innovation, evaluating the early results, scaling up and 'productionizing' and finally retiring and replacing. • Organizational mindsets need to be receptive, and necessary support structures are needed - although innovation and process seem like antitheses, one cannot live without the other

22. Q&A... Thank You