The Hindu Business Line : ‘Focus will still be on the US because of the huge potential’

Mr N. Chandrasekaran (Chandra, as he is well-known) is the Chief Operating Officer (COO) and Executive Director of Tata Consultancy Services. In an exclusive interview with Business Line, Mr Chandra, the optimist, spoke his mind about the future of the business and the challenges of turbulent global markets, a day after the company announced its quarterly numbers.

Excerpts from the interview:

TCS’ profit growth has been slowing down in the last six quarters, but you sound optimistic about the future. How come?

Look, despite an 11 per cent surge in the rupee that has had a tremendous negative impact on our financials in the previous fiscal we managed a 22 per cent annual growth rate. If you annualise our dollar revenues based on the exchange rate at the end of every quarter, we have grown by 38 per cent.

If we had not lost revenues due to exchange rate fluctuations, we would have had an additional $500 million in revenues. We would have grown to $6.2 billion (as against $5.7 billion reported this fiscal); that would have been a growth of 45 per cent over last year.

One must bear in mind that if a company shows a growth of above five per cent for three consecutive quarters, it is but obvious to see a dip in the fourth quarter. You cannot always expect four quarters of double-digit growth.

However, I continue to be optimistic since the performance of the business has been strong on a yearly basis. We have closed the highest number of large deals — about 20 of them — in the last year. It is only now that multiple deals of over $200 million have been signed in a year. Moreover, I am now pursuing at least 25 qualified deals above $50 million and hope to convert a good percentage of them.

Quarterly performance is a matter of expectation; as a company we do not give guidance. We had never given guidance to the market saying that our bottomline would grow by ‘x’ per cent.

Citigroup is reported to have said that the IT businesses would be the first in the group to be downsized. How do you see the environment panning out?

We continue to anticipate specific problems related to global financial services firms. People are keen to know whether clients have finalised the ‘discretionary’ part of their IT budgets. Specific clients who have been impacted by the crisis are not going to earmark discretionary spend for this year, even if they have been doing this in the past.

They are going to evaluate each technology project and ask themselves ‘do I really need this investment’. If the answer is yes, only then will they approve of the investment and spend money. That is the way it is going to be for such firms this year.

But when it comes to IT spend related to the actual running of the business, companies will resort to outsourcing in a bid to cut costs. Yes, some firms will delay outsourcing decision.

We realise that different clients face different situations. Those dealing with multiple vendors might go in for vendor consolidation.

We see volatility owing to changes in top management of many client firms. However, as companies look to innovate and differentiate themselves, spend on technology is always going to be high, irrespective of domain or industry. Yes, for specific clients in the banking financial services and insurance (BFSI) space, we do see a cut in tech spending. The idea here is to keep a close watch on every large financial services firm in the US, at least for the next couple of quarters.

So, how will TCS cope with this fluidity?

We want to be extremely well-diversified in terms of geographies and industries. Last year, our 20 large deals came from diverse industries and geographies. Even in the BFSI space, we closed a fairly large deal. We are consciously factoring in the prospect that troubled clients are taking time, but they will ramp up in future.

That requires manpower adjustments of a new kind?

We have to redistribute and re-deploy our people. If we had expected to ramp up to 1,000 people between two clients, it might not be possible now. Instead we will have visibility for 400 people and we would need to ramp up the 600 people elsewhere.

Given an opportunity, would you put your money in any area other than BFSI? Are you consciously moving away from the American markets?

Recently, we closed a fairly large deal in the banking, financial service and insurance space. We will continue hunting for opportunities in the BFSI space. However, it is important for us to diversify our portfolio. It would be untrue to say that we will defocus in the US because of the sheer size of the opportunity there.

Even with the current problems, there are sizable opportunities in retail, pharmaceuticals and manufacturing in the US. In pharmaceuticals, for instance, we see opportunities to provide IT services, enterprise solutions, SAP Implementation and BPO services.

The current business environment demands a departure from the traditional, revenue-per-person method to a more non-linear growth approach, doesn’t it?

Non-linear growth has become a very important aspect of TCS’ business. Having said that, only a certain component can come from non-linear growth. There are certain elements that we believe will drive non-linearity in our business. First, we believe the software product business (such as a core banking product) is important for non-linear growth.

Secondly, there are re-usable solutions in different domains that can be replicated for customers in the same industry. Also, platform-based BPO will completely break linearity by changing the basis of pricing from ‘pricing per hour’ to ‘pricing per transaction’. Moreover, we have several components and frameworks that are standardised in nature, that provide productivity increases.

Which are the emerging technologies that could lead the next wave of growth for TCS?

Service-oriented architecture, platform-based BPO, component-based software development and mobile technology could be the new drivers of growth. SOA will play a major role for promoting business agility, within the organisation as well as in the future systems that we build.

What exactly are your activities in the mobile technologies space?

In mobile technologies, we are keenly working on data services. We have a dedicated team working on data technologies in Chennai. The applications that we build out of Chennai and certain other centres will offer 3G and 4G type services. Convergence is the main aspect of our mobile technologies business.

What are the overarching challenges for TCS in these unsettled times?

Being continuously agile…shifting gears all the time! It is of utmost importance to retain people, train them and deploy them in different projects. TCS has been focusing on agility and nimbleness. An example is the new organisational structure within TCS with global operations re-organised into five different units. This has given the company a very simple yet modular structure, making each business unit highly nimble and empowered. As it is a flat organisational structure, each business unit can now take independent decisions and is accountable for the profit and loss of the business.

(Picture by Paul Noronha)

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