Financial Management Report: Analyzing Tata Consultancy Services

This report provides a comprehensive financial management analysis of Tata Consultancy Services (TCS), examining both micro and macro environmental factors impacting its economic stability and profitability. It identifies challenges such as the uncertain environment created by Brexit, the negative effects of the COVID-19 pandemic, high legal costs due to intellectual property theft cases, and internal issues like high attrition rates and market valuation losses. Applying PESTEL and SWOT analyses, the report details how these factors influence TCS's financial performance. Recommendations include improving talent management to reduce attrition and enhance innovation, as well as implementing better financial strategies to manage legal expenditures and protect intellectual property. The report concludes that by addressing these internal and external threats, TCS can improve its financial performance and ensure sustainable economic growth.

Financial management
Tata Consultancy

Executive Summary
TATA Consultancy services is affected by wide number of macro and micro environmental
factors which endanger its economic success and lower its financial stability. The uncertain
environment created by Brexit along with delay in growth of UK technology sector, negatively
affects the economic growth of TCS in UK. In addition to this it is also analysed through
application of SOWT and PESTEL analysis that COID-19 has negatively affected the growth of
TATA Consultancy services leading to loss of profitability.
The high legal costs affecting TATA Consultancy services is another macro environmental
factor leading to economic and financial loss of TATA Consultancy services. The organization
has to deal with high legal expenditure resulting in huge profit cuts of the firm. In addition to this
internal factors such as high attrition arte and loss of market valuation further impact the
economic and financial position of the firm.
It is recommended that he respective organization invests in improving talent management s
that skilled employees can be developed at the company to face fierce market competition. In
addition to this better financial management specifically for the legal expenditure of the firm is
essential for ensuring that TATA Consultancy services avoids costly lawsuits and is able to
safeguard its profit as well as IP from legal trouble. These suggestions will support the company
in eliminating external and internal threats to its profitability, economic growth and finical
performance .

Contents
Executive Summary.........................................................................................................................2
Contents...........................................................................................................................................3
INTRODUCTION...........................................................................................................................1
Subject.........................................................................................................................................1
Background..................................................................................................................................1
Analysis...........................................................................................................................................1
Key micro and macro environmental aspects that impact the technology sector and TATA
consultancy..................................................................................................................................1
Environmental analysis................................................................................................................4
CONCLUSION AND RECCOMENDATION...............................................................................5
Conclusion...................................................................................................................................5
Recommendation.........................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Subject
The subject is this report is importance of economic and financial management in the
technology industry. The organization selected for this export is TATA Consultancy which is
also known as Tata Consultancy services, a multinational technology services company
operating from India offering various technological services across different international
markets.
Background
The financial management in the technology industry is an important business function. It
examines how the financial resources which are available in the company, should be utilised.
The Tata Consultancy services is part of the TATA group and utilizes business intelligence and
analytics in the field of digital technology and AI to offer innovative solutions for various
business problems (About Us, 2022). The company is affected by variety of external and internal
environment factor resulting in unstable financial performance of the company. The purpose of
this report is to examine the key macro and micro environmental factors affecting the company
and its impact on the financial and economic aspects of TCS.
Analysis
Key micro and macro environmental aspects that impact the technology sector and TATA
consultancy
The micro and macro environment of the technology industry is continuously evolving
which affects the strategic decisions of enterprises operating in the technology sector. TATA
consultancy is headquartered in Mumbai India, where immediate factors associated with location
and the firm such as employees, intermediaries and suppliers affect the firm. On the other hand,
being global leader in IT services, digital and business solutions and offering services in 55
countries Tata Consultancy is also impacted broader macro environmental factors of technology
sector such as economic, political and financial factors. Identification of Key macro and micro
environmental factors of Technology industry can be done by applying PESTEL and SWOT
framework on TATA Consultancy.
PESTEL Analysis of TATA Consultancy
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Macro
Environmental
Factor
Impact on Tata
Consultancy
Situation
Past Situation Current Situation
Political Factor-
Brexit
Uncertainty in
decision making
Negative
Impact on
service revenue
from UK
Market stability in UK
Economical Factor-
Covid-19
Negative Impact on
share value of TCS
Loss of
profitability
Slow Profitability recovery
after COVID-19 hit (TCS
Profit Matches as Asia’s
Top IT Firm Recovers From
Covid, 2021)
Social Factor-
Cultural Diversity
Positive Impact on the
cultural equality and
diversity of TCS
Diverse
workforce
across the globe
Better workforce resilience
through cultural diversity
Technological
Factor- Digitization
Positive Impact on
revenue
Global
expansion and
leadership
Continued success in
different international
markets
Environmental
Factor –
Sustainability
Positive Impact on
maintaining
sustainability through
CSR
Ensuring eco-
friendly
business
practices
Supporting sustainable
development (TCS
Positioned as a Leader in
Sustainable Technology
Services, 2022)
Legal Factor- Trade
secrets theft case
Negative impact on
brand reputation
Compliance
with legal
requirements
Extra legal costs
SWOT Analysis of TATA Consultancy
Basis Impact
Strengths: Global reach, Global strategic
alliance
Better performance in international markets
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Weaknesses: High attrition rate, loss of
profitability
Negative Impact on future growth
Opportunities: Global expansion, Innovative
Mobility Solutions
Possibility of becoming global leader and
expanding in technology industry
Threats: High Competition, Immigration
Constraints
Challenges in implementing innovative growth
strategy
It is understood from the above Macro and Micro environmental analysis that there are
several factors at play in context of Tata Consultancy’s financial performance and economic
growth which need to be examined in detail to ensure strategic development of the company.
Further analysis of Micro and Macro Environmental Factors affecting technology industry and
Tata Consultancy is provided below:
 Brexit: The political deal between UK and EU affects global technology industry as
many technology industry leaders believe that the implementation of Brexit deal delayed
growth of UK technology market as the investors we uncertain about investing capital in
Brexit influenced economic ecosystem (‘Brexit delayed UK tech scene’s $1tn valuation,’
industry leaders say, 2022). This also affected TATA Consultancy as the United
Kingdom and European market contributed to the global revenue of the company. 15% of
TCS revenue comes from the UK market (Brexit deal inked, Tata companies can heave a
sigh of relief, 2019). The slowly imposed deal and its legal as well as economic
consequences complicate international business in UK negatively affecting financial
position of TATA Consultancy.
 COVID-19: The rise of global pandemic has negatively affected profitability of many
industries, the technology sector being chief among them. TATA Consultancy also
suffered from reduced profit because of COVID-19 pandemic as world faced uncertainty
regarding industrial and financial growth in global markets. In the first quarter of 2020
TCS faced huge profit slump as profits were reduced by 13.8%. In addition to this TCS
also stated drop in 6.3 percent of in top line in constant currency terms because sharp
profit decline from key international markets such as UK and USA (Covid-19 weighs on
TCS numbers in Q1; net profit falls 13.8% to Rs 7,008 cr, 2020).
 Digitization: Quick digitization in different sectors has benefited the technology industry
as consumers and ente4rprises are accepting and adopting digital tehcnology and
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innovation. In United Kingdom the tehcnology industry has reached the milestone of one
trillion-dollar milestone with growth of 42% because of extreme digital transformation.
On the other hand, India is also experiencing digital growth, as the Indian IT sector is
growing at twice the rate of economy (UK tech industry valued at $1tn, becoming third
country to hit milestone, 2022). This positively affects TATA Consultancy increasing
growth and expansion opportunities for the firm.
 Intellectual Property theft: Protection of Intellectual property is essential for growth of
Technology enterprises as it helps them gain revenue through distinguished technological
IP. In case of TATA Consultancy group, the company has been sued by US based
company Epic Systems for Intellectual Property theft. US judge has upheld verdict which
finds TATA Consultancy guilty of IP theft awarding Epic Systems with damage worth
871.3 million GBP (ET Explains: All about the trade secrets theft case TCS is fighting,
2019). This showcases the important role of economic and financial management when
complaining with legal aspects so that heavy international lawsuits causing financial and
reputational damage can be avoided.
Environmental analysis
Both Macro and Micro environmental factor have financial or economic consequence on the
organization. In case of TATA Consultancy, the macro and micro environmental factors such as
Uncertainty due to Brexit, impact of IP theft lawsuit and high attrition rate have negative
financial impact on the company. The negative impact of key macro and micro environmental
factors on TCS in context of financial and economic conditions are provided below:
Micro Environmental Factors
 High Attrition Rate: TCS has high attrition rate which means that many of its
employees leaves the workforce quickly with low employee retention. The current
attrition rate of TCS is 19.7% (Why Infosys, TCS, Wipro, and other Indian IT giants are
facing record-high attrition rates, 2022). This negatively affects financial growth and
economic stability of TCS because knowledge and innovation offered by skilled
employees helps technology enterprises attain strategic objectives. TATA Consultancy is
negatively affected by this as it increases expenses and reduces financial success.
 Loss of market valuation: TATA Consultancy faces intense competition from
established and emerging regionals as well as international competitors. This negatively
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impacts the growth of share and valuation of the company in market. TATA Consultancy
market valuation slumped by huge margin (Six of top-10 firms lose Rs 1.68 trillion in m-
cap; TCS biggest laggard, 2022).
Macro Environmental Factors
 High Legal costs: Information technology companies have to face high legal costs
because protecting and safeguarding intellectual property is complicated often
leading to heavy lawsuits. In case of TAT Consultancy, the company is planning 1.9-
billion-pound buyback of shares as he legal costs of the company has risen to the
extreme damaging its overall profits (India's TCS plans up to $2.2 billion buyback as
legal costs hit profit, 2020).
 Cybercrime and cyber security: Being in the information technology sector, TCS is
negatively affected by rise in cybercrime and cyber security. This is because
effective functioning of the company. 88% of professional hackers can infiltrate an
organization within 12 hours. TCS can face huge profit, reputational and share loss if
cybercrime case affects its daily functioning or personal data of consumers.
CONCLUSION AND RECCOMENDATION
Conclusion
From the above report it is understand that external and internal environmental factors
including attrition rate, competition and Brexit negatively affect financial management and
economic growth in the technological industry. In context of TATA Consultancy, the high
attrition arte of the fir, slowed growth of technological industry in UK because of Brexit, profit
and market value reduction are some of the macro and micro environmental factors negatively
affecting financial and economic growth of the TCS. It is important for respective organization
to invest in building effective financial management strategies and practices to handle the
negative economic impact of external an internal environment factors such as high level of legal
costs reducing the profitability of TCS. Rising cybercrime and loss of market valuation can lead
to slow growth and even failure of TCS in different international market if suitable financial and
economic management practices are not adopted by the firm.
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Recommendation
 Develop talent management: TCS neds to enhance its talent management practices so it
ca lower its attrition rate and take advantage of the skilled employees in India and foreign
markets of the firm. This will help the company manage finances by reducing low
employee retention expenses and achieve success through innovative employees.
 Improve financial management: Financial management is essential for the growth of
theological organizations specifically working in the information technology sector. This
is because it helps manage the negative impact of external and internal factors.
 Reduce legal costs: TCS needs to improve financial and economic management in terms
of its legal compliance and expenditure that it can use its profits effectively and avoid
costly legal troubles in foreign markets.
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REFERENCES
Online
‘Brexit delayed UK tech scene’s $1tn valuation,’ industry leaders say, 2022. [Online] Available
through https://www.privatebankerinternational.com/news/brexit-delayed-uk-tech-
scenes-1tn-valuation-industry-leaders-say/
About Us, 2022. [Online] Available through https://www.tcs.com/about-us
Brexit deal inked, Tata companies can heave a sigh of relief, 2019. [Online] Available through
https://www.moneycontrol.com/news/business/companies/brexit-deal-inked-tata-
companies-can-heave-a-sigh-of-relief-4546051.html
Covid-19 weighs on TCS numbers in Q1; net profit falls 13.8% to Rs 7,008 cr, 2020. [Online]
Available through https://www.business-standard.com/article/companies/covid-19-
weighs-on-tcs-numbers-in-q1-net-profit-falls-13-8-to-rs-7-008-cr-
120071000059_1.html
ET Explains: All about the trade secrets theft case TCS is fighting, 2019.[Online] Available
through :https://economictimes.indiatimes.com/news/et-explains/explained-the-trade-
secrets-theft-case-that-could-tarnish-tcs-name/articleshow/68598028.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Indian IT Sector growing at twice the rate of economy, 2022. [Online] Available through
https://timesofindia.indiatimes.com/business/india-business/indian-it-sector-growing-at-
almost-twice-the-rate-of-eco/articleshow/89602308.cms
India's TCS plans up to $2.2 billion buyback as legal costs hit profit, 2020. [Online] Available
through https://www.reuters.com/article/us-tcs-results-idUKKBN26S25H
Six of top-10 firms lose Rs 1.68 trillion in m-cap; TCS biggest laggard, 2022. [Online] Available
through https://www.business-standard.com/article/markets/six-of-top-10-firms-lose-rs-
1-68-trillion-in-m-cap-tcs-biggest-laggard-122071700164_1.html
TCS Positioned as a Leader in Sustainable Technology Services, 2022. [Online] Available
through https://www.tcs.com/tcs-leader-sustainable-technology-services0
TCS Profit Matches as Asia’s Top IT Firm Recovers From Covid, 2021. [Online] Available
through https://www.bloomberg.com/news/articles/2021-10-08/tcs-profit-matches-as-
asia-s-top-it-firm-recovers-from-covid-hit?leadSource=uverify%20wall
7

UK tech industry valued at $1tn, becoming third country to hit milestone, 2022. [Online]
Available through <https://www.uktech.news/news/industry-analysis/uk-tech-industry-
valued-1tn-20220329#:~:text=In%202018%2C%20the%20UK%20tech,towards%20the
%20%241tn%20milestone.>
Why Infosys, TCS, Wipro, and other Indian IT giants are facing record-high attrition rates, 2022.
[Online] Available through https://www.businesstoday.in/latest/corporate/story/why-
infosys-tcs-wipro-and-other-indian-it-giants-are-facing-record-high-attrition-rates-
346139-2022-09-01
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