Blue Ocean Strategy (BOS) – HCL Technologies –India's fourth largest IT Services Company -Performance 2005-2010

2005 was a year of make over for HCL as the baton passed from founder Shiv Nadar to Vineet Nayar as President. Vineet Nayar adopted the Blue Ocean Strategy immediately and his four pronged strategy focused on service innovation, pricing innovation, creation of new markets and technology disruption. Also he adopted the policy of Employee First philosophy and full service co sourcing model. The company saw revenue YoY growth of 26 %( 6200Cr) in 2007-08, 41% (8764Cr) in 2008-09, and 25% (10983Cr) in 2009-10 under the leadership of Vineet Nayar as CEO. It has been an up and down performance during the time where financial crisis and recession played a spoil sport. Company still sticks to the Blue Ocean Strategy.

Initial part of 2007 most of the Indian IT vendors suffered form appreciating rupee and by mid year the financial crisis started unravelling and by end of year it was a big mess which led to bankruptcy of Lehman Brothers and many bank failures across the globe. Key clients of HCL in BFSI cut budgets drastically. 2008 was year when HCL tried to accelerate to growth with acquisitions of Liberata (provides platform based BPO offering in the insurance space) and Control Point Systems (another platform based offering). HCL acquired Capitalstream, a US BFSI product company for US$40 million in February 2008.HCL also acquired the UK based AXON Group for US$658 million in December 2008. HCL also raised $800 million, much of it devoted to the takeover of Axon, the SAP consulting firm.

2009 was year when recession was at its peak when even the Indian IT vendors were handing over pink slips to the employees. HCL’s Employee first and Customer Second Philosophy helped them to grow in recession and also gain the No.1 spot in employee satisfaction. HCL invited ideas from employees and launched the cost cutting exercises with the support of employees. Employees actively participated in increasing the revenues from existing customers by their value addition and significant commitment. SAP offerings also played a crucial role during this time.

The tough market scenario forced the company to move away from value to volume growth in 2009 and 2010.  HCL signed many deals during this year and volumes came from BFSI and large transformational deals from telecom. Some of the key clients are Nokia, Vodafone, and Electrolux etc. HCL also tried to improve geographical mix as most of the revenue is coming from US (60%-65%) by focusing on Latin America, Middle East and Asia Pacific. European revenues increased on the back of SAP offerings. HCL also have seen margin declines as mainly due to investments of profits back into business primarily in people, sales and marketing.

HCL is expecting the JFM and AMJ 2011 quarters to see significant improvement in margins as they invested in SG&A expenses. HCL is expecting its BPO unit to turn profits by March 2012 and the company is also looking at divesting some of the existing business by 2015. HCL is also focusing more on the emerging markets including India and Africa for future growth. Despite the fact the margins may be low in these markets it is expecting good volumes.

Discussion Points:

1. Does dependence on Blue Ocean Strategy help HCL enter  into top 3 vendors?
2. What should the company do to improve its margins further?
3. How to improve the geographical mix reducing the dependence on US revenues?