Tata Consultancy Services (TCS) which has posted consistent results for the past eight quarters, is upbeat about the sector and is keen on investing in technologies, competency centres, hiring and training people among others. In a tête-à-tête, TCS Chief Executive Officer and Managing Director N. Chandrasekaran outlines the vision for the company and the industry. Excerpts from an edited interview:
For TCS, new businesses contribute just 1 per cent of total revenues, while the lion’s share comes from repeat business. Is that a concern?
The way I look at this is that the overall spend in the industry is continuing to increase, as technology is getting sophisticated. So, I think, volumes are not a problem. I believe there is lot of business to be done. It doesn’t matter whether we add new customers, whether it’s one per cent or 99 per cent. Our customers will ramp up (operations).
I wouldn’t put a metric, whether the one has to go to 3 (per cent) or whether the 99 has to go to 91 or 91.1, that will always vary. The point is that, can we invest in the right places and can we build the right solutions? I think being relevant is the most important thing and the most difficult thing.
Which are the new sectors you plan to invest in?
Digitalisation is the biggest thing happening now. We will invest in more in platforms - our platforms are domain-centric – such as banking and individual processes across different sectors. We will continue to invest, and that would be in cloud, big data and mobility.
TCS has been trying to get a foothold in China and Japan. How has that strategy played out?
We are still working on that, those markets are growing, but slowly. China is a tough market for many reasons, one is the language, and another – it’s a large country. We have to operate from multiple cities, we need to gain scale in each city. The whole thing is difficult and cost structures are different. It’s a focus market for us, but it’s going to be a slow growth, and it’s important for us to be there.
How important is the Indian market for TCS?
We have been in India for 30 years now, and we have done all the major projects in India. On the revenue front, you can’t compare an Indian spend with that in other parts of the world. So, we are big in India and we will continue to be big in India. The point is that in India technology investments are comparatively less and the business mix is more discretionary in nature. So there will be volatility. We have to live with that.
What are the headwinds for the company?
I think we have to learn to manage scale, and we have to execute. So far we have executed very well and we have to continue doing that. We have to adopt and make the right investments in the platforms and get them to work.
Moving to a new platform is a big change for the customers. It’s not like doing a project with somebody before and somebody else now. It’s a business model change, so how do we work with customers to get them on boarding the platforms? The migration has to happen, that’s the important thing. And the scale has to happen.
At more than 2.5 lakh employees, you have the biggest pool of talent. How do you keep the organisation agile?
Our biggest strength is our employees. We have the biggest pool. You take knowledgeable people, and make them realise their potential, and keep making a difference, that’s the biggest thing we can have. So we are investing in internal platforms, collaborative platforms, social media platforms. We are pushing that big time.
You have also said that you wouldn’t acquire a company unless it brings in scale and value. Where are you scouting for acquisitions, and what are the sectors?
Our M&A strategy is focused on market presence. For us growth is important. At the same time, it has to be manageable and we should be able to get the right margins. We fully understand that anything we buy will not be operating at our margins. So it is important for us to go for assets of strategic fit, in terms of the customers you want to serve, in terms of industries you want to be, and it has to be growth-oriented. We have to be able to integrate and deliver. All of these are important.
We are interested in Europe, Japan, the US, and in healthcare and platforms. We keep on looking.
Is there any specific vertical you are lagging and you want to ramp up?
You will always lag … You will never say that I am absolutely right, I have arrived. That will never be the case. We are strong in financial services. We are getting stronger in other verticals such as retail and manufacturing.
Telecom is an interesting vertical for you, but is it dragging?
Yes, it’s a vertical we continue to watch because the growth has come from the deals we were able to sign in the last few quarters. But the large accounts on telecom are still not growing the way we would like it to grow.
What is the support the industry is seeking from the government, as you are also chairman of Nassscom?
The main thing we (Nasscom) are seeking is clarity on tax and transfer pricing. We have maintained that this industry has a lot more to offer.
How are you dealing with the changing landscape of technology, the transformation that is happening in the industry and the emergence of digitalisation?
ANS: Technology is definitely driving efficiency. Transformation, which essentially means how do I create a future footprint which is very efficient from the current footprint, takes advantage of everything that is possible today, whether it’s infrastructure, whether it’s creating a portfolio of applications, whether going for a packaged product, whatever it is.
Customers are investing in digital technologies. They (clients) are adopting technology seriously. I personally believe that decision cycles are becoming normal. We find the customers have all made decisions on what they wanted to, clarity about they wanted to.
Is the increase in technology spending and adoption an indication that the overall market is improving?
They are embracing technology to do whatever they have to do, whether it is driving efficiency or launching of new products. The point is that from a customer’s point of view, they have an agenda.
And they are getting on with it. And from a technology context, I suppose decisions are getting made. So, that’s why I feel that, you know, will you be getting back to 2006 levels, those questions are not relevant. Because, today is what it is, today we are, where we are.
Some of the areas of technology adoption – new areas like mobility, big data and cloud - are moving very fast…
Yes, absolutely, and that’s exactly the point. What we call as technology is changing rapidly. In 2008 Beijing (Olympics) there was no iPad and in 2012 there many versions of iPads available. Earlier, none of knew how to express ourselves in 140 characters (SMS).
What you call technology is emerging pretty fast, adoption cycles are getting shorter. And there is an impact, technology can make an impact. And so they want to adopt (technology), but at the same time they also have to adopt it judiciously. They cannot adopt something this year, and write it off next year.
Today, we are used to mobile phones and tablets, and we understand the whole network, combination of the network, form factor, content.
How is TCS, which has been doing traditional IT services, gearing up for the change?
When we are taking about a change in the business model, we are not talking about an overnight change. Business model is constantly changing. For example, we never had a platform play before, today our Diligenta (TCS’ UK-based pension and insurance outsourcing arm) is a complete platform play. We are going to the customer and then saying you have five million policies and this is what is going to cost you for us to handle your policies end-to-end.
We have significantly invested in all these technologies, and our client teams are empowered. Our client teams are supported with the skill sets, the tools, and whatever else is required. Constantly we are investing, so that we are able to work with our clients practically.
How do you see economic slowdown of 2008, which actually resulted in adoption of digital technologies?
We are in interesting times. Everyone was worked up about 2008-2010, but I believe that when I look at this period from future, this period will be known for the massive digital revolution that happened, not for the economic slowdown. That’s my view.
Just before year 2000 (Y2K) there was a big spend to remediate systems. When you go back and look at things, this period will be known for digital revolution.
TCS investing for the future
We have to be prepared, we have to make the investments. It means setting up competency centres, training people, hiring, building solutions and imagining particular processes. We are investing in all of these. Are we threading new business models. So it’s a whole new experience, change is happening…
Today, we have the scale, we have the domain knowledge, we have organisational knowledge, intellectual property, process, tools. So we are into strategic partnering with many customers. So there is no single point of arrival, where we can say everything is done. It’s a journey. We are much better today than yesterday.