One of the major trends in outsourcing over the last five years or so has been for smaller and shorter deals.
This is chiefly because buyers are looking for best-in-class solutions across the various towers of work (application development, application maintenance, infrastructure, business processes, etc.) rather than simply economies of scale, and they are wary about committing long-term to a provider that may get left behind technologically, as well as keeping their options as open as possible when it comes to those more frequent renewal points.
But for every rule there is an exception. And the exception in this case is the mega-deal that was announced at the very end of last year between Tata Consultancy Services (TCS) and Nielsen, the television ratings measurement company. The headline numbers are certainly impressive – the deal is worth $2.25 billion to TCS, which makes it the largest that has ever been won by an Indian IT firm (the previous record holder was Volvo’s $1.8 billion deal with HCL). The numbers behind the headlines are a little more nuanced, but they are still undeniably big, and, more importantly, still demonstrate that the mega-deal is still very much alive.
This report continues after the following message from HG Insights:
HG Insights – Sourcing Intelligence Redefined
HG Insights provides deep sourcing intelligence and diagnostic tools on and for the IT industry, analyzing the sector’s supply and purchasing activities to identify points of significant business value for enterprise companies and the vendors that serve them.
If you would like to get more insight into the agreement between TCS and Nielsen, gain unique account-level intelligence on these organisations or identify opportunities across the wider IT market – Contact us now.
Nielsen originally signed a 10-year contract with TCS in 2007 which was worth $1.2 billion. This was expanded in 2013 to $2.5 billion and extended out to 2020. This latest extension takes the contract to 2025 and guarantees $320m in revenue for the first four years, $186m from 2021 to 2024 and then $139.5m in the final year. It’s not clear from the available information how this adds up to $2.25 billion, but I am assuming there are additional non-guaranteed revenues available, or they are re-purposing some of the revenues from the previous deal. Nielsen also have the option for three one-year renewals beyond 2025.
All of this means that the initial uptick in guaranteed revenues equates to a delta of $70m per annum for TCS. This represents growth just from that deal of 0.4%, based on TCS’s last reported revenue figures of $17.6 billion. All of which must be great news for TCS’s relatively new CEO, Rajesh Gopinathan, although the bulk of the deal was probably set up during Chandrasekaran’s reign, which shows how a handover can be done smoothly (cf. Infosys’s leadership woes).
As well as this being a big-ticket deal, the services that are being delivered are wide-ranging, including application development and maintenance, BPO, client service knowledge process outsourcing, management sciences, analytics, and financial planning. There is a big element of digital transformation amongst all of that which is a strong endorsement of TCS’s capability in this space, something that is not normally associated with the big Indian IT providers.
Of course, just because Nielsen have bought these services in this way it doesn’t necessarily mean that it is the right thing to do. The decision might have been influenced by lots of other things that are not consistent with a robust sourcing strategy, such politics or complacency. It will be interesting to see whether this deal remains an outlier in a world of smaller and shorter deals or is part of a wider trend that favours consistency and size.
About the author
Andrew Burgess has been the lead architect within several major change projects, including strategic development, IT transformation and outsourcing, in a wide range of industries across four continents. He has developed and implemented sourcing strategies for global organisations, running sourcing programs and helping re-organise IT departments to maximise their value from sourcing. Andrew was recently awarded ‘Automation Champion of the Year’ by the GSA, the industry association and professional body for the global sourcing industry. He is widely considered to be a leading expert in the growing Legal Transformation and Outsourcing market and has recently written ‘The Rise of Legal Services Outsourcing’ in collaboration with the London School of Economics (LSE). Andrew’s latest book, ‘The Executive Guide to Artificial Intelligence‘ has recently been published by Palgrave Macmillan. Andrew is a council member of the Global Sourcing Association and is Head of Consulting at HG Insights.