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TCS plans to remove digital classification from its business

With digital becoming part of most deals, CEO says firm may switch to traditional segmentation of services.

, ET Bureau|
Updated: Oct 31, 2019, 06.21 AM IST
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Analysts have often pointed out that while IT services companies do issue ‘digital’ metrics, they each have different interpretations of what constitutes digital.
Tata Consultancy Services (TCS) plans to remove the digital classification in its business from next fiscal as components of its digital services portfolio are increasingly becoming a part of most deals won recently, top executives said.

Digital services such as artificial intelligence, analytics and blockchain are now integrated into most digital transformation projects for clients, making it harder to draw a distinction between what is purely digital and what is not, TCS chief executive Rajesh Gopinathan and COO NG Subramaniam said. “We are getting to a point where this classification between digital and core is becoming artificial,” Gopinathan had said in a recent interview.

“This is no longer about one technology or aspect, but taking an integrated view and designing a solution that is the best fit for the context. Part of it may be surgery, using new technology, or repurposing existing technology applications.”

From next year, TCS may switch back to a traditional segmentation of its services that will make it easier for stakeholders to track the company’s performance, he said.

TCS’ digital revenue grew 27% in the second quarter, moderating from the 42% growth the company had seen in the first quarter. TCS earns a third of its revenue from digital services.

A note by Motilal Oswal Financial Service said digital growth rate had tapered off due to volatility across markets.

Specifically, weakness in the company’s retail division had impacted growth, according to analysts. Retail clients have traditionally been big adopters of digital technology services, they said.

To a question on digital spending by clients coming under pressure due to macroeconomic uncertainties in a recent analyst call, Gopinathan said weakness impacted legacy services more than digital.

“So, if the volatility translates into large scale weakness, our digital portfolio will give us a lot more resilience than our legacy portfolio,” he said.

The classification was created a few years ago as an indicator for investors that the company was going after new-age deals, but was now no longer required, according to Gopinathan. “If you look at what the intent was behind sharing the digital numbers… there was scepticism in the stakeholder universe on whether we would be able to participate in new technologies strongly. I think we are far beyond that.”

Analysts have often pointed out that while IT services companies do issue ‘digital’ metrics, they each have different interpretations of what constitutes digital.

“Not all providers have the same parameters for what they call digital services,” said Mrinal Rai, principal analyst at global technology research and advisory firm ISG.

While other technology companies like Infosys and Wipro do not explicitly detail the components of their digital services portfolios, cloud, cybersecurity and AI are components that are considered key elements.
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