HCL is one of the leading global Technology and IT enterprises with annual revenues of US$2.7 billion, with IT Products and Services contributing to revenues of US$1.1 billion.
The 29 year old enterprise, founded in 1976, is one of India's original IT garage start ups. Its range of offerings span Product Engineering, Technology and Application Services, BPO, Infrastructure Services, IT Hardware, Systems Integration, and Distribution of technology and telecom products in India. The HCL team has 30,000 professionals from different nations working in 15 countries including 300 locations in India.
At HCL, we have a rich experience of professionals across all facets of risk. We handle applications, which deal with credit, market, operational, liquidity, underwriting, actuarial and sovereign risk issues. This involves deep understanding of information management, feed management, simulation and valuation models and reporting for internal and regulatory requirements, such as Basel II, Solvency II, Sarbanes Oxley, AML, Patriot Act and country specific regulatory requirements.
HCL has an exclusive Risk Centre of Excellence (CoE) focused on delivering Risk Management Solutions to Banks and Financial Institutions across the globe. We provide end-to-end technology services in the risk landscape, including Feed integration, Modeling and Analytics, Risk data repository, Regulatory Reporting, System Integration and Technology Consulting. Led by our deep domain expertise we perform complex risk management processes like Risk modeling, Sensitivity Analysis, Stress testing, Exposure Calculations, Pricing and Valuation, VaR reporting and correlated risk assessment.
Risks and Concerns in IT sector and HCL Strategies:-
1)Operating Business Environment Risk & Deepening Recession
The business environment deteriorated because of sub prime crisis in US and its spiral-down effect to other parts of the world. Most of the IT service providers derive significant business from the Banking, Financial Services & Insurance (BFSI) vertical those who are facing the problem of credit crunch. The service providers are facing challenging times with clients and the downward trend is expected to continue into 2009 as well with global IT spends expected to decline due to challenging economic environment. As in time of global recession there is a growing trend among the IT outsourcing client base to explore opportunities to achieve cost optimization through consolidation of services provided by various technology service providers and by putting discretionary projects on hold.
HCL Strategy
To reduce dependence on any particular market,
HCL has its operations well diversified across various geographies.
it has a vertically focused business approach and offers combination of services mix reducing its dependence on any particular service. The Company's business is spread over six distinct service lines and no single business line contributes more than 32% of the total revenue.
HCL strengthened its position in Package implementation segments and Platform based outsourcing services by making acquisitions in these segments.
Competition Related Risks
New competitors are emerging from adjacent markets and distant geographies. The Company faces competition not only from the India based IT services providers but increasingly from the multinational IT vendors who are expanding their presence in the country owing to attractiveness of the Off shoring model.
HCL Strategy
HCL's differentiation strategy incorporating its unique business approach has led to its emerging as a "Thought Leader" in the rapidly dynamic IT industry. HCL's differentiation strategy is four fold which includes
Employee First initiative.
Value centricity and Trust.
Transparency
Flexibility.
Employee Related Risks - Managing Talent
Attracting talent is still important and so is retaining key talent during an economic downturn. What was the "war for talent" is now more complicated. One of the key challenges being faced by IT industry today is to avoid losing key competencies especially when companies are undergoing downsizing or making strategic divestures. Even though the attrition has abated a bit, still the supply of talent and skilled manpower continues to remain major challenge for companies in services and consulting domain.
HCL Strategy
HCL's continues with its "Employee First" initiative which has now entered in its fourth year of successful implementation. The focus on employees as key resources has led to introduction of several employee friendly policies that has helped HCL in containing its attrition rates from 20.4% in 2005 to 13.0% in 2009.This year, HCL was ranked the No. 1 Employer in India and Best Employer in Asia by Hewitt 2009 Study
HCL has been taking adequate steps to improve and augment the supply of experienced manpower. It has partnered with select local engineering colleges/institutes and imparts quality and contemporary technical education.
HCL continues to make investment in Employee Development initiatives through Up-gradation of skills, re-skilling and leadership development.
Technology Risks
HCL operates in an ever evolving and dynamic technology environment and it is of utmost importance that the Company continuously reviews and upgrades its technology, resources and processes lest it faces technology obsolescence.
HCL Strategy
The Company keeps itself abreast and updated on the contemporary developments in technology landscape through participation in key technology forums, in-house training and development initiatives and its intensive focus on core research and development activities.
The Company is not dependent on any single technology or platform. HCL has developed competencies in various technologies, platforms and operating environment and offers the wide range of technology options to clients to choose from, for their needs.
HCL has a dedicated Delivery Excellence Group (DEX) which offers consulting to various delivery teams in developing best practices, development of reusable code and registering patents for methodologies and tools developed. This group works closely with Technology Research Council (TRC) of respective Vertical Delivery Units for adopting and implementing the latest technological enhancements in their respective domains.
Exchange Rate Risks
Global financial crisis and house price declines has sparked capital flight from emerging markets thereby causing depreciation of currencies of developing countries against US Dollar. This would benefit the exporters and provide a gain which partly offsets the decline in margin on account of pricing pressure due to deepening recession. However, this benefit will not accrue in the short term due to hedges taken by exporters against their forecasted revenues.
HCL Strategy
As a risk containment strategy, HCL has taken forward covers to hedge its receivables and forecast revenues against the foreign currency fluctuations. This strategy ensures certainty in revenue collection and also provides safeguards against any unfavorable movement to stakeholder.
The treasury department of the Company continues to track the foreign exchange movements and takes advice from financial experts to decide its hedging strategy from time to time.
There is an increased focus on Europe, Asia Pacific and Rest of World for generating business which not only insulates from dependency on a single chosen economy but also ensures that the revenue streams are denominated in multiple currencies thereby de-risking the currency risk.
Geographical Concentration
HCL has fairly well diversified portfolio of services spread over various geographies across multiple verticals. This has ensured adequate de-risking of the business model and protects HCL from any adverse development in any geography, vertical or for any service line. Enclosed below are the details of HCL's business concentration based on geography and verticals. In addition, the client portfolio of HCL is also adequately diversified and does not carry any concentration risks.
HCL Strategy
This year has marked a positive growth in all geographies across HCL.HCL derives 59% of business from the US and rest 41 % from the other regions. Even though the company has a strategy to grow more out of non-US geographies, the share of the US has increased in total revenue during the year 2009. The same has been primarily on account of two reasons â€"
On account of more number of outsourcing opportunities arising out of the US due to continued focus on off-shoring and cost-cutting necessitated by recession.
Because of decline of value of other currencies especially in Euro Zone vis-Ã -vis US Dollar.
Industry Vertical Concentration
While the BFSI remained the most challenged vertical against the backdrop of US slowdown, HCL's broad based vertical approach ensured that business impact is minimized through enhanced contribution from other verticals.
HCL Strategy
Our vertical constitution has changed significantly. New growth verticals constitute 5.5% of our business as against 1.2% till last year. Further, HCL has been successful in gaining new client engagements In newer growth verticals like Life Sciences and Media, Publishing & Entertainment. These verticals are not conventionally large outsourcers of business applications and therefore present good growth potential. HCL continues to replicate its successful business engagements in these verticals in newer geographies and has been successful in gaining clients in this space.
Physical Security
Increased risk to human life and assets due to frequent incidents of terror assault remains major risk for companies operating in third world. The impact would be more on service companies as against manufacturing companies due to manpower intensive business model applicable to IT/ ITeS companies.
HCL Strategy
Related steps in this direction to minimize the loss of human life and to provide continuity of operations with minimal disruptions.
HCL has stringent security levels on all its facilities and ODCs.
Comprehensive security is provided by leveraging on People, Processes and Technologies.
Formation of ERT (Emergency Response Team),
Evacuation plan
strengthening of Disaster Recovery and Business Continuity Plan (DR-BCP) are other
Mergers & Acquisitions - Executing M&A Transactions
To increase depth and breadth of HCL's services, UK based SAP consulting company AXON Pic. has been acquired (441 mn) through a combination of internal accrual and debt.
HCL Strategy
For facilitating integration of AXON, HCL's strategy was built around Five Ps i:-
Purpose
Planning
Process
Pace
People
Multiple tracks were formed with joint participation of HCL and AXON covering Delivery and Sales & Marketing and Back-office operation. Milestone driven timelines have been set-up and achieved for completion of layers of integration. The acquisition has already started contributing toward growth and penetration into new business verticals.
HCL using Technology:-
Re-engineering of Market and Credit Risk Engines (to handle new derivatives)
HCL’s Xek Data for Risk data integration and presentation
Optimization of VaR Reporting Cycle
Application Portfolio Optimization
Scenario Generation, and Simulation
Testing of risk models
Basel II solution implementation
Risk management consulting:-
The Risk Management consulting services at HCL include regulatory compliance like SOX Consulting and Sustenance, and Enterprise Risk Management.
SOX Consulting
Our proprietary SOX methodology (as illustrated in the figure), modeled on COSO & COBIT Frameworks, assesses and evaluates internal controls and aids companies in deriving essential business value from compliance with SOX.
At HCL, we believe that compliance with SOX not only helps organizations adhere to the laws of the land but also serves as the armor against future corporate battles and lays the roadmap for organizational excellence. Our experienced financial, accounting and process experts have worked on numerous compliance consulting assignments for a number of Fortune 500 companies across various industries.
Impact of Risk Management on HCL:-
As a leading partner for SAP, HCL offers comprehensive services in the operational risk and fraud management space. It includes services in Access control, Segregation of Duties and setting business rules to avoid any possible setbacks due fraud or any other misconduct.
HCL leverages its position as an Integrated Services provider (Applications + Services + Infrastructure) to provide a one-stop solution for all needs of the customer.
HCL also hosts a Center of Excellence for High Performance Computing (HiPC) which help clients in setting up the infrastructure for the enhanced performance of applications hosted. The team leverages its partnerships with QuIC and GemStone Systems to provide solutions in risk analytics as well as fast and accurate pricing. The solutions support complex mathematical modeling used in contingent credit analysis, portfolio analytics and P&L attribution for derivatives, sensitivity analysis using finite difference and tree based methods. The risk libraries are integrated with MS-Excel tools.
