The Hindu Business Line : Our focus is offshore for top clients

N. Chandrasekharan, executive vice-president, TCS, talks of current and future trends in technology, even as the company is fresh from an action-filled period since September.

A GOOD September quarter this year is not the lone feather in Tata Consultancy Services' (TCS) cap. Since then, it has managed to fill up a few key gaps in its services portfolio. It has bagged a contract from Pearl Insurance of the UK, marking its foray into end-to-end BPO and acquired Australia-based FNS for $26 million to strengthen its presence in core banking.

eWorld caught up with N. Chandrasekharan, executive vice-president, Tata Consultancy Services, when he was in Chennai to launch the company's new infrastructure management centre, to see what the future held and if trends that could change the fortunes of IT players were visible. Excerpts from the conversation:

A recent Forrester report has indicated that the Consulting and Systems Integration opportunities - seen in the last few years - might be short-lived. Your perspective, in the light of IT players moving in that direction?

I haven't seen the report... But, customers need consulting. As long as there is business, there will be consulting. What will change is the mode in which it is offered. Price structures may change. The value proposition that is being articulated as consulting by a particular integrator may change.

We see a few trends: earlier, the entire world market was more focused on cost-outs. That is changing. There are significant investments going on. (They realise they) can't depend only on cost outs, to see revenue growth. I would call it programme versus sustenance. Sustenance would be asking for cheaper and more work, for less. So, definitely programme trend is increasing. Second , there is significant specialised activity, from the perspective of offshore. Earlier, application development and maintenance and then BPO came offshore. Now it's also transaction processing. Customers have accepted the offshore model and are no longer placing brackets saying this or that alone could be done.

Third, technology adoption is increasing. Radio frequency identification (RFID) is seeing traction. There is pervasive adoption of RFID generating new business models. Customers don't want 36-48 months to put up large applications. The trend for new system deployment is towards incremental spends. Big vision will be there but customers are not prepared to put up $ 300 million and wait five years to see if the thing worked or not.

There isn't a must-have technology (as there was between 1995 and 2000, be it Y2K or the Internet)...

The next must-have is Services Oriented Architecture (SOA).

SOA has been there several years and come back in different forms. What will make it work this time?

I don't think SOA, as it exists or as it is being articulated today, had existed earlier. The evolution of systems has been from a lifecycle methodology to a client server methodology to a Net-based model to Object Oriented methodology and then to Web services and now to SOA.

Always, certain technologies have achieved critical mass and have become big while others faded away. Client-server did happen and then we moved away towards Internet technologies - thin client - it was all pervasive computing in some form. It brought tremendous business model changes.

The problem comes when a new technology comes up. The hype and expectation are high. However much adoption happens, it never matches the hype. For instance, object oriented concepts came along. It did happen in some form but never went onto replace mainframe systems. In the commercial world, security is as important as performance, scalability and reliability. If these four are not achieved, then it is not possible (for a technology to evolve). That is why COBOL still exists. Forty per cent of all code is in COBOL.

SOA, I believe, will have a significant impact in the market place.

There has been muted growth in the Top Five clients, excluding the top client. Any specific reasons?

Whether it is the top three or four clients, these are clients where we are aggressively moving work offshore. While the overall offshore mix has increased by 0.7 per cent, what you are seeing is the net figure. What we want to achieve is at least 70 per cent offshore in the top clients.

Your onsite-offshore split is currently is 62:37. What is the mix that you will be comfortable with?

I will be looking at a 55:45 mix for onsite offshore. It will not happen in the next quarter, but will take time. While this mix is a good number to look at, it will depend on the deal flow that we are winning.

I think we would like to work on achieving a 70 per cent mix for established clients. That is a better mix to keep than to say that we are working towards a 55:45 mix.

Are you planning any strategic remix in your customers, going by your client composition and pipeline?

No. But we are doing two or three things to improve our client pipeline. We are looking at annuity revenues and clearly focussing on clients in different brackets such as $ 1, 5, 10 and 20 million.

We are ensuring that for those clients we are cross selling and up selling. We are doing customer profitability analysis from the onsite-offshore point of view. We are also going after end-to-end engagements that are programmed beyond mere annuity revenues. These are $100 million engagements that are part of our revenue mix and we are pushing our sales force for those deals. These kinds of opportunities help in a) moving up the value chain and b) help margins look good (in the long run).

The third thing is cross selling. We are putting out a list of services that we have and are asking each of our clients why they are not our client for different offerings. By doing all this, we find that the number of our active clients is going up and the same time, we are not losing too many of them (compared to our peers).

Coming back to services, the average deal size is down and everything is playing to the advantage of offshore players. Alliances are the in thing - BT group has allied with HP, it did so earlier with CapGemini and with Accenture. EDS has now allied with Cognizant. Fundamentally, will alliance strategies change the way the contracts are clinched?

I think alliances are important, but only in the context of a particular opportunity. You can't say - generally - that two players will work together for the rest of their lives. It won't work. But, sales cycles are also long. You have to invest in building solutions.

Examples in our case were the National Health Services deal and two enterprise transformation deals we did with partners. But I don't think you can form a loose alliance and hope for a change.

In the top 50 deals - in the last three or four quarters, those that go above $500 million have gone to IBM, Fujitsu...

You can look at it with or without asset takeovers...

In some cases, it was desktop outsourcing, infrastructure management and pies of maintenance and development. The ABN AMRO deal does change that but even in the past, we observed this phenomenon.

You are right. We contemplated a deal in Europe 18 months ago. It required complete takeover of infrastructure, managed services of infrastructure, along with the takeover of 2,000 people across the globe. We didn't want to bid alone. But, since we didn't get the right alliance, we decided not to bid.

TCS recently acquired FNS, an Australian banking solutions company. CMC, a TCS subsidiary, has its own core banking solution. What is value does FNS bring?

Very significant value in the core banking space.We were strong in branch banking but did not have centralised core banking. Hence the acquisition. There will be $30 billion worth of business in the next 3-4 years in this space. The top 20 banks are going to replace their systems with core banking solutions and each project is at least $100 million.

In the context of Oracle acquiring i-flex, Temenos having an edge with its early mover advantage...

FNS has 160 installations in 35 countries. It brings regulatory compliance in these countries. It, with a little more push, is probably the most capable core banking solution we have seen. It supports 5,500 branches in a single instance today - SBI in India. It is easily the largest in the world. SBI is going to have 100 million accounts, with 25 million transactions a day. FNS is implemented in the 4th or 5th largest bank in China, in the 2nd largest bank in Russia and in the largest bank in Korea and in the Baltic countries. FNS is live in Japan. It has scalability and (client) reference and is huge. And above all, we have got it for $25.5 million.

How did you get it at that price if it has achieved so much?

FNS is a products company, not into services. If you take other companies, they are into both. If there is a deal with a $100-million total spend, FNS would probably capture $5 million. It would leave the rest on the table for Systems Integrators. With the TCS combination, we capture the whole thing.

We have been working only with FNS', and not CMC's product. We have never positioned the latter or Quartz' product for this market, because that is not our strength. We need a product that is strong and not only has India functionality but also global functionality and client base. Sure, TCS could build such a product. But, FNS has spent more than $100 million in product engineering so far.

They have expensed it out and there is no goodwill in the books. If TCS built it, we have to spend that kind of money, (assuming) we use the CMC product to build it. Even if you do that when will you get it to 160 customers? When are you going to prove it in the largest bank in India or Russia?

We were looking at product wins for Temenos and i-flex... .

FNS has not been doing well as a company. It has been going only after licence revenue. It is a small company and doesn't have the balance sheet to compete with big players. It has been profitable only till 2003 not so for the last two years. When someone is buying a product, one gate-process criterion is the balance sheet. It had that problem. With the TCS combination, that (obstacle) has gone away now.

What are the key challenges and focus areas that TCS will be working on for the next year or two?

As we ramp up in all these geographies, we have got to get our people integration right and process consistency in place. This is a theme we have to be careful about; otherwise we will blow the delivery. Second, we have to ramp up in consulting.

Third, in BPO, through Pearl Insurance we have one platform. I would like to see five or six platforms getting created in different verticals.

Picture by Shaju John

bharatk@thehindu.co.in

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