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Tata
Consultancy Services (TCS) is the oldest and most profitable enterprise in India’s
IT pantheon. While Indian software players see TCS as the organisation which set
up the industry in India, Tata Group companies look up to it for the pace at which
it implements various management and quality practices. As it scales up to become
one of the top 10 global consultancy firms, TCS is playing a game where rules
are stricter and opponents tougher. TCS hopes its adoption of EVA, in April 1999,
will help it survive in this intensely competitive business. To
achieve operational excellence, TCS had to answer a few questions: How to grow
beyond just an increase in numbers? How to sell competence and value rather than
skills? How to manage commitment? How to reduce wastage? The answer to these questions
demanded a system of efficient resource management, better control of outstandings,
and performance evaluation that would link rewards to revenue generation. TCS
faced many challenges while implementing EVA, but it successfully overcome them
to complete the implementation ahead of schedule. The implementation coincided
with corporate reorganisation. Also, given the nature of its projects, TCS had
to design an incentive mechanism not only to retain talent but also to reward
it accordingly. EVA
for employees
TCS’s EVA framework aligns corporate
value with the performance of the constituent business units and the individuals
who comprise these. It is a compensation model where the employee has a share
in the profits of the organisation. At the individual level, an employee needs
to know the drivers to enhance the EVA of the enterprise and the business unit,
and his own contribution towards all these. There are three basic drivers: revenue,
cost and capital charge. "Given
that the order size is increasing, TCS has now started looking at pricing and
structuring of deals using the net present value approach," says Tej Pavan
of Stern Stewart. Revenue is driven by the rate or license price put into the
product, sales, billable hours, response time and domain skills. Cost is managed
through productivity, and is affected by sales and marketing costs, recruitment,
etc. Receivables and training are the bulk of the capital charge. The
individual works towards the improvement of the benefit package, which essentially
has three components: corporate EVA, business-unit EVA, and the individual performance
factor. Out of the total EVA payment, a certain percentage goes to each employee
on the basis of corporate EVA improvement. Besides, if one’s business unit does
better than another business unit, one gets more than somebody in the other unit.
It is a team reward concept. Bonus
bank
The third one depends on the evaluation of individual performance. TCS has also
introduced the concept of ‘bonus bank’. Whenever a stipulated corporate target
is exceeded, the company declares a potential bonus for the individual. It is
cumulated over years and the pay out is a function of the cumulative balance.
This approach ensures performance improvements and maintains a cumulative relationship
between pay and performance. If
TCS successfully implements EVA, the credit should go the organisation’s willingness
to break down the broad strategy into day-to-day activity and then integrate them
properly. More importantly, it is the commitment of the entire enterprise towards
value creation that sets TCS apart from the rest of the industry.
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