Indian IT giant Tata Consultancy Services (TCS) is set to close new deals worth $1 billion with British retailer Marks & Spencer in the coming weeks, according to industry insiders. This marks the biggest deal win of the year so far for TCS, which is also in line to renew its existing five-year engagement with the UK-headquartered company. The new deals are expected to include mandates for business process services and digital transformation programmes, among others, with engagements spread out over 8-10 years. M&S representatives have not responded to queries as yet, but TCS has said it does not comment on market speculation.
The significance of these large deal wins is that they come at a time when global enterprises are turning cautious about technology spends. Many companies are resorting to more outsourcing as they drive costs and organisational efficiencies in a tough macro environment. With a weakening macro environment, clients have started cutting on discretionary spends with increased focus on cost optimisation. In general, cost optimisation deals are of longer duration and larger in size.
The fact that TCS has been able to secure these deals is significant in the current climate, and it reflects a broader trend of Indian IT firms being able to snag large deals aimed at cost optimisation. Recent big deals bagged by Indian IT firms include Wipro’s five-year multi-million dollar transaction with Mazda Motors and Finastra, while HCLTech has snagged a multi-year deal to digitise security and workplace solutions for Mondelez International, in addition to a digital transformation deal from State Farm, among others. Infosys has also reported that it has signed large orders worth $3.3 billion during the October-December quarter.
TCS has been a strategic partner to Marks & Spencer since 2018, working on human resource solutions addressing over 80,000 employees of the British company, as well as a solution using the Oracle supply chain management platform. The Indian IT services exporter was also designated as a strategic technology partner as it helped M&S transition to a new technology operating model. TCS sees increasing caution among clients that is leading to more deals focused on cost optimisation and vendor consolidation.
TCS has also recently taken over a project for UK-based National Employment Savings Trust (Nest) after it terminated its 18-year $1.8 billion IT transformation contract with French provider Atos. While the organisation is still evaluating the new vendor, TCS stands a good chance as a frontrunner to bag the deal in entirety, sources said. The company has also won a mandate from Boeing to outsource a third of the airline manufacturer’s jobs.
In conclusion, TCS’ ability to win these new deals with Marks & Spencer, and the broader trend of Indian IT firms being able to secure large deals aimed at cost optimisation, reflect the current climate of cautious technology spending by global enterprises. The longer duration and larger size of cost optimisation deals make them particularly significant in this environment. TCS has been able to establish itself as a strategic partner to Marks & Spencer, and its track record of successfully delivering human resource solutions and transitioning M&S to a new technology operating model has likely contributed to its ability to secure these new deals.
Tech Spends Under Pressure
Several large tech companies have rationalized their employee headcount, citing an “overestimation” of demand. Industry experts suggest that renewal deals need to be reviewed to determine if there are increasing components of consolidation or if they remain with the same vendors. Phil Fersht, CEO of HfS Research, suggests that many companies will stick with the same service provider but with reduced costs or other advantages, as service providers are also incurring higher labor costs. Pareekh Jain, founder of technology advisory firm EIIRTrend, believes that there will be both cost optimization and transformation components in future deals, as vendors can optimize delivery costs by including their platform offerings.
