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 Well in continuation to my previous articles on cost management Cost Planning & Cost Management tools at Toyota Australia series-4, I am presenting the series 5 of the same objective .When we are battling with the survival of the Cost Methods and Cost Audit from getting abolished a big IT giant has adopted and implemented the finest prints of the same and now growth is being envisaged to get the company into new heights. It’s none other than Tata Consultancy Services or TCS. In the recent interaction it has been found that Activity Based costing and Activity Based Management have been the key drivers behind the TCS success story during the tenure of Mr. N Chandrasekaran.

This mid aged young key executive established different business model which made a revolution within the TCS business process and its goal achievements. The success have been so high that Mr.Chandrasekaran, who has been the CEO and MD of TCS since October 2009 and was re-appointed by the company’s board for another five-year term. The profit numbers for the last two quarters are enough to speak for the level of Activity Based costing and Activity Based management have been deployed within the organizational culture and business.  In the last two quarters, the quarterly profits of TCS have exceeded those of Accenture, which is more than twice its size — $845 million versus $817 million, and $861 million versus $671 million.

The growth of the company after the adoption of Activity based costing and management is well depicted through the annual performance over the last couple of years.

Annual performance TCS Cash FlowHe implemented 23 strategic business units within the organization. These units were created within the TCS as separate business centers responsible for creating revenue within the main organizational structure. He developed each unit as a activity based centre where it consist of a separate finance, HR and other functions attached to it and was headed by a leader, who had responsibility for its profit and loss (P&L) account. Each unit ran as an independent profit centre. This activity based management lead to growth of entrepreneurial bacteria within the employees and department of the organization. TCS has significantly invested in digital technologies – mobile, cloud, big data analytics and social media. TCS’ ‘Customer Collaboration Center’ in Silicon Valley is a digital innovation lab, where customers from retail, telecom, banking, manufacturing and other industries are collaborating to shape the digital future of their business. The company achieved new heights of scale and growth and its well managed its 300000 employees, creating self motivation to drive the business. The benefits of activity based management not only improved the business numbers but it developed a culture to be agile, nimble, take responsibility and ownership, pursue a dream and, at the same time, leverage the scale of growth for TCS. Activity based costing improved the margins and blocked the loopholes of mis-management and improved the business numbers. The company is on the way to create a land mark in diverse business segments like mobility, cloud, social, big data, analytics and robotics. Over the next three to five years, Chandra expects TCS to earn $4 billion to $5 billion in revenues from these new technologies.

The company’s digital innovation lab has built several digital applications and solutions for multiple industries, which are being implemented by customers. By investing early, TCS has built up significant scale in capabilities across the Digital Five Forces, and it continues to build our Intellectual Property in these areas as well. TCS has increased patent filings significantly; so far 1,746 patent applications have been filed, of which, 114 have been granted. The company is actively driving activity based management and activity based costing to drive the business growth over the next decade.

Well I need not require saying that we are official closing down costing methods and cost audit for the Indian industry where on the opposite it is being highly adopted by the corporate. Today each of the units of TCS is focused on the right kind of growth: of revenue, profits, knowledge, people, deeper relationship with customers riding on activity based management. Turning every unit into profit making has been the key game changing strategy for the organization as a whole. I wish form the core of my heart all the best to Mr. Mr. N Chandrasekaran for his next term and hope to meet him.

Indraneel Sen GuptaIndraneel Sen Gupta ( )

Global Macro Economic Researcher and Business Strategist

Master of Economics, MBA in International Business Management, ICWAI (Final)/CWM Final/Journalist

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  1. N.Krishnan says:

    Very informative, Cost and Management Accounting is an indispensable tool. Managements of every company use this in some form or the other.

    When anything is imposed human psychology is to resist so also Cost Audit as a statutory requirement is being opposed by industry eventhough they may have costing system.

    Unless industries sees value addition they will oppose. Wherever Cost practitioners have demonstrated the utility of the reports generated for Cost Audit those companies will continue with Cost Auditor maybe with a modified role as a Cost Management Consultant.

  2. CMA Pankaj Jain says:

    A very insightful discussion. TCS is having all kind of wisdom to implement globally accepted and time tested new age costing methods to improve its performance but our SME are legging behind to recognize all these areas. Most of the SME are failing to understand the cost/benefit involved in early adoption of such methods for helping them to become competitive enterprise in global area. Making costing a statutory requirement is only solution under this situation.

  3. Kalpataru says:

    Why Cost Accountant’s need Government support even after existence for more than 5 decades? Market economy never associated with Govt support. To an entrepreneur, cost audit (if made under legal obligation) is only an wasteful expenditure.

  4. CMA Suresh Pimple says:

    This is in deed an excellent series and will give solid support to Government to continue the mechanism in a bigger way.

    Costing will make India more competitive and prosperous and the job CMA Institute doing will be recorded in the history of accounts for long time.
    IFAC has applauded India for developing mandatory Cost Audit and compliance mechanism.

    Like software engineers, Indian Cost Accountants can also contribute for making India great !

    CMA Suresh Pimple

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May 2024