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HCL Technologies Limited

Strategy Management II

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This industry has grown from USD 4 billion in revenues in1998 to a USD 52 billion giant today, employing over 2

million people, and has had an unparalleled impact on the

Indian economy. - NASSCOM

Indian IT:Current State

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Since FY1998 IT-ITES sector has increased its contribution to Indias GDP from 1.2% to 7.5% in FY2012.

IT-ITES industry is primarily dominated due to its Export capabilities, and constitutes about 77% of totalindustry revenue.

The industrys share of total Indian exports increase from less than 4% in FY1998 to about 25% inFY2002.

It has led to massive employment generation and expected to add 230,000 jobs in FY2012, thusproviding direct employment to about 2.8 million (70% of this workforce is in the age group of 26 to 35

years)

The industry is also front-runner in diversity at the workplace (over 30% of employees are women,maximum in any industry).

Generating immense savings for customers (savings from global sourcing for customers amounted toan estimated USD 20 billion to USD 25 billion in 2008 alone)

Focus is on quality (65% of CMM, Level 5 firms are based in India).

Health Indicator

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Major Players

24.9% market share)

(18.3% market share)

(15.7% market share)

(13.8% market share)

(10.5% market share)

-- Source: Gartner

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IT-ITES grew by 19% in FY2011 (USD 76 billion)

Export revenue generated USD 59 billion and contributed 26% its share in Indian

exports

Market Size & Growth

Sub-prime banking crisis

Other low cost alternative destinations e.g. China, Malaysia and PhilippinesGlobal Forces

90% concentrated in Metropolitan cities

Labor unrest in Maruti Plant and recent violence in Assam

Social Forces

Ever increasing relevance, along with its diminishing cost

Buyers Focus shift on as a service vs. staff augmentation/T&MTechnological Factors

Impact on Tax relation policies by US and UK govts to curb offshoring in wake

of economic downturnHigh rejection of H1/L1 Visas in recent past

Political / Legal /

Regulatory

Economic Factors

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5 Force Model

Domestic market leader has share less than 25% of market share .Overall 80% IT Exportsdepend on US and UK so price war is evident

Presence of global MNCs e.g. Accenture, EDS, IBM in India

IndustryRivalry

(High)

Cloud computing and Social Media changing way of IT procedures

Focus on total product experience for customers on mobile devices and OSSubstitutes

(High)

Setting up of infrastructure and engage in lateral recruitment to compete at this levelis tough.

Buyer demand is US and UK likely to low due to recession

NewEntrants

(Low)

Less product oriented so majorly revenue generated from repeated business

US and UK customers use leverage and demand price reduction to put pressure onmargins

Buyer (High)

Top 20% of the buyers account for 40% of the revenue of sellers and hence carry a large

revenue on price.Graduate employees readily available in Indian market with lower cost

Supplier

(Low)

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HCL Technologies

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HCL Technologies Limited Professionals : 90000+ Equity : $ 6.2 Billion Services : Technology (IT) services and Domain : software services,

infrastructure, processoutsourcing.

Sister concerns :HCL Technologies & HCL Infosystems Established : 12th Nov, 1991. Operation on : 26 countries. Services : IT and engineering services , financial

services, manufacturing, healthcare,media & entertainment, public servicesand energy &utilities.

Company Background& History

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Resources &Competitive Position

Revenue Growth Indian IT &

HCLRevenue

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Revenue

EBIT Grown 3.1 times from

2007-08 to 2011-12Profit Margins

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Sustainability andpredictable cost

From existing customers: cross-sell, BAIT, Cloud computing, BPO and RIM

From new customers: vendor consolidation, new verticals, newgeographies, and new propositions

Competition

EFCS, Value Centricity and Trust, Transparency and Flexibility

TechnologicalInnovation and

Planning

Quality group, Tools group, Chief Delivery Organization (CDO)

C S Factors

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Compliance&

Regulatory

Regulatory compliance framework, checklists

Specialized legal groups

Businesscontinuation

and

InformationSecurity

Comprehensive Business continuity program

Disaster Recovery programs

Information security team

ExchangeRate

Hedging

Increased focus on Europe, Asia pacific and Rest of the world

C S Factors

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Major Indian IT companies e.g. TCS, Infosys, Wipro, CTS, IBM

Impact of disruptive technologies, legacy systems are going out and systems

migrating to cloud based solutionsMany MNCs has setup their offices in India to gain low cost advantage

Competitors

Positive attitude of customers due to English speaking people in country incomparison to other South East Asian countries, China or Middle East

Quality servicesComplementors

Operations span across 31 countries.Quality driven services to G1000 companies

Economic outlook in US and UK lead to focus on other geographiesCustomers

Gap between skills required and current skilled graduates available.

Need to focus on basic education. (Shiv Nadar education institute)Suppliers

PARTS Analysis

Players

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PARTS Analysis Added Values

Dividend payment Net worth

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Mantra to maintain Profit Margins by delivering predictable services at predictable price

to large set of customersNo single business unit contributes 30% of revenue else restructure the organizationRules

Investments in Software engineering processes

Establishing onshore offices in foreign locations

Hedge foreign exchange currency

For the existing and new customers HCLT sees growing opportunities in

For existing customers: HCLT focuses in cross-sell, up-sell and new propositions such asbusiness-aligned IT, cloud computing, platform based BPO and Green IT.

For new customers: Focus is on vendor consolidation, new verticals, new geographiesand new propositions.

Tacit

Focus those customers aligned with its strategy

Allure of uncontested market Blue Ocean Strategy, where margins are very high

Avoid head on collision with high players like IBM, Accenture and EDS to maintain brand

image

Scope

PARTS Analysis

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Low Cost

Structure

Economies

of Scale

Learning /Experience

curve

Labor SavingOperation

Model

Skill Mix

Business Strategy

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SCOPE

IT-ITES domain (Technology partner with choice as stated in mission statement)

FocusLarge global accounts

Offering solution across multiple functions and assets

IT back operations e.g. BPO and Remote Infrastructure Management Services

ORGANIZATIONAL DESIGN

Custom Application Services 31.7% revenue (ADM, Support, reengineering, migration and IV&V)

Engineering and R&D Services 18.1 % revenue (Eng. services, H/W, Mechanical and S/W product engg)Enterprise Application Services 21.3% revenue (Consulting, hosting and BPO)

Enterprise Transformation Services (Middleware & SOA, BI, Business and Consulting)

Infrastructure Services Division 23.3% (End user computing, Data center & Mainframe services, Securityand Cloud computing, Integrated Operations Management)

Business Process Outsourcing (BPO)

OWNERSHIP

Ownership of all the verticals governed by respective SBUs

Corporate Strategy

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Collaborative

Strategies

ProductPartnership

Joint

Ventures

Merger &Acquisition

Strategic

Alliances

Other CorporateStrategies

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We will be the employer of choiceand the partner of choice by focusingon our stated values of EmployeesFirst, Trust, Transparency, Flexibilityand Value Centricity.

MissionStatement

To be the technology partner ofchoice for forward lookingcustomers by collaborativelytransforming technology into

business advantage.

VisionStatement

Balanced Score Card

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Category Objectives Measures Targets Initiatives

Financials Maximum returnon stock price

Sales Achieved growthof 34% in FY2012;plan to cross thatnext year

Diversification innew geographies

Maintain ProfitMargin

ROE 30% Low costleadership

Customer CustomerSatisfaction

CSAT score (7point scale) doneannually on the

Within scoringrange of 4.5 to 6.7

Gold andPlatinumaccounts

Business Strategic partnerwith bigger brands

Acquisition andpartnerships

To become $10billion by 2014

HCL Axon toupgrade SAPcapabilities

Learning &Growth Talent acquisitionand drive HR Scorecard Develop projectswith minimal cost CertificationsTech Trainings

Score cardperspectives

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Diversify and target domestic outsourced deals

Create new business model: - End-to-end service offerings

Specialized offerings for domestic market

Alternative value based pricing

DomesticOutsourcing

Focus on lower part of G1000 companies (Blue Ocean Strategy)

Remote Infrastructure ManagementOffensiveStrategy

Observations andRecommendations

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Spend on Data Centre Management and sourcing of RIM likely to remain healthy.

Investment in development of cloud competency is must to capitalize on firstmover advantage in future.

Opportunity to develop alliances with Big Players like Amazon / Microsoft forcloud implementation of packaged ERP solution offerings.

TechnologicalInnovation

Change in focus from short term goal of profit margin to long-term goalsStrategic

Investment

Total Solutioning (End-to-end solutions)

Focus on emerging sectors e.g. Health sector, Energy & Utilities

Focus on emerging economies e.g. BRIC

RebalanceCustomer profile

Observations andRecommendations

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Gartner Inc. (www.gartner.com)

HCL Technologies (www.hcltech.com) NASSCOM (www.nasscom.org)

Mckinsey & Company

NASSCOM Mckinsey Report 2005

ICICIDIRECT Wikipedia

Competitive Strategy Michael Porter

References