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Blue Ocean Strategy (BOS) – HCL Technologies –Indias fourth largest ITServices Company -Performance 2005-20102005 was a year of make over for HCL as the baton passed from founder Shiv Nadarto Vineet Nayar as President. Vineet Nayar adopted the Blue Ocean Strategyimmediately and his four pronged strategy focused on service innovation, pricinginnovation, creation of new markets and technology disruption. Also he adopted thepolicy of Employee First philosophy and full service co sourcing model. Thecompany saw revenue YoY growth of 26 %( 6200Cr) in 2007-08, 41% (8764Cr) in2008-09, and 25% (10983Cr) in 2009-10 under the leadership of Vineet Nayar asCEO. It has been an up and down performance during the time where financial crisisand 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 rupeeand by mid year the financial crisis started unravelling and by end of year it was a bigmess which led to bankruptcy of Lehman Brothers and many bank failures across theglobe. Key clients of HCL in BFSI cut budgets drastically. 2008 was year when HCLtried to accelerate to growth with acquisitions of Liberata (provides platform basedBPO offering in the insurance space) and Control Point Systems (another platformbased offering). HCL acquired Capitalstream, a US BFSI product company for US$40million in February 2008.HCL also acquired the UK based AXON Group for US$658million in December 2008. HCL also raised $800 million, much of it devoted to thetakeover of Axon, the SAP consulting firm.2009 was year when recession was at its peak when even the Indian IT vendors werehanding over pink slips to the employees. HCL’s Employee first and CustomerSecond Philosophy helped them to grow in recession and also gain the No.1 spot inemployee satisfaction. HCL invited ideas from employees and launched the costcutting exercises with the support of employees. Employees actively participated inincreasing the revenues from existing customers by their value addition andsignificant commitment. SAP offerings also played a crucial role during this time.The tough market scenario forced the company to move away from value to volumegrowth in 2009 and 2010. HCL signed many deals during this year and volumescame from BFSI and large transformational deals from telecom. Some of the keyclients are Nokia, Vodafone, and Electrolux etc. HCL also tried to improvegeographical mix as most of the revenue is coming from US (60%-65%) by focusingon Latin America, Middle East and Asia Pacific. European revenues increased on theback of SAP offerings. HCL also have seen margin declines as mainly due toinvestments of profits back into business primarily in people, sales and marketing.HCL is expecting the JFM and AMJ 2011 quarters to see significant improvement inmargins as they invested in SG&A expenses. HCL is expecting its BPO unit to turnprofits by March 2012 and the company is also looking at divesting some of theexisting business by 2015. HCL is also focusing more on the emerging marketsincluding India and Africa for future growth. Despite the fact the margins may be lowin 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?