The Hindu Business Line : `We do IT differently'

By full service, we mean a global network delivery, a very strong domain content built on a platform of delivery excellence where you can give an experience of certainty for customers.

N. CHANDRASEKARAN of TCS. -- Paul Noronha

Former Indian cricket coach John Wright, in his book Indian Summers, talks of Pakistani captain Inzamam-ul-Haq reminding him of a `galleon in full sail'. Slow, steady, but sure of progress.

The description seems to fit Tata Consultancy Services, in the Indian software services arena, the oldest, the largest and strangely, one of the more aggressive among large companies when it comes to acquisitions.

The comparison with the cricket captain, of course, stops there. TCS is the first among non-equals. N. Chandrasekaran, Executive Vice-President and head of global sales of this $3-billion company, spoke to eWorld recently. Excerpts:

Over the last year-and-a-half, how have competitive dynamics changed among frontline vendors? Say a Wipro, TCS, Satyam?

The first one is that there is no distinction in the mind of the customer, by and large, that certain types of deals are for MNCs and others (types) are for Indian vendors.

In every deal everybody is there. There are many deals that start with 15 vendors, which would include us, IBM, Accenture, Patni, Satyam, among the frontline vendors. So it has become another strong segment. That is the change. It's both good and bad - the good thing is that the pie has expanded. The second is that the size of deals is going up — both in terms of value and also in terms of volume. For example, nobody would have believed that we are beginning to bill pure infrastructure deals of $50-million plus.

Earlier, we were not considered for infrastructure. But now we are not only considered for infrastructure but we are also going to get a large volume for infrastructure. We are going to be announcing something soon, but the point here is that we are doing infrastructure deals of large size. In at least two deals that we won, the last two were us and an MNC. We won against the MNC well known for infrastructure. That is what they do all the time.

That would be the change in dynamics.

In the last 3-4 years, , there has been talk that there has been hardly any differentiation among frontline vendors. They all look generic. They all offer all the services. Everybody is looking at new service offerings. Do you think there is scope for differentiation to develop?

I think there is a lot of scope for differentiation and probably the market is not seeing it (yet) but we clearly see how we are different. A Global CIO from one of our customers asked me to come over to introduce a business opportunity to his executives. So the business executive asked me the question, "we have already had a long working relationship with this MNC vendor and now I am being introduced to you saying that the experience has been extremely good and that we want to extend the partnership. In what way are you different?"

So I started to talk a little bit abut TCS. But the CIO instantly interjected and said "if you permit me I will take the question" and he said, these guys when they say global delivery, it is truly globally networked. The distinctions that he brought out was the process, the methodology and the transparency that they have been able to build, with the help of the tools, the training and the whole eco system, it is truly global with one single service standard. That is not so with the MNCs, he said.

You cannot say when you operate in different parts of the world, it is a different thing. Ok?

And I think what we have been able to do is processise and digitise what we do and the other portion is the mobility of our people. So this combination of mobility of the people, the process maturity, the digitisation and what we call the global network division are all differentiation. There is no question about that. But it will take some time for people to recognise it.

Will the ramping up of IBM and Accenture, and deals such as EDS-Mphasis and Kanbay-CapGemini, make the paradigm shift away from Indian vendors at some point?

The last time we spoke, I told you that the companies would look different three years from that point. You can already see it emerging. If you see the TCS mix either from a geography perspective or from a services perspective, it is dramatically changing. If 70 per cent or 68 per cent was the revenue mix from the US you have already gone to 54per cent. Latin America is developing as a major destination. All said and done, we will be over $100 million this year in Latin America and if you take India, India is again growing to be a big market and the services are remarkably changing. If you take infrastructure management, when we launched in all the international markets 18 months ago in a full-fledged way, we were doing a $2-3 million a deal. Now, we were ready to announce $50 to $100-million plus. So our revenue component mix is going to be completely different. As a result, for a $100-order, we will not be competing with the same set of players. If you look at it, for e.g. five years ago, for a $100 of revenue, you would be competing with the top 3-4 of the Indian players. Right? Maybe $5 you would compete with international players, and for the remaining $95 you would compete with the Indian players. Today, for every $100 revenue, we are competing not only with the top three Indian players, but in some of them even with only multinational players. For a product order, there is going to another $10 that I will be competing with platform players where none of the Top Tier western players or Top tier Indian players is in the race. So the competitive scenario for my $100 is changing. That is good enough proof point of the differentiation that I am building in terms of the full services play.

By full service, we mean a global network delivery, a very strong domain content built on a platform of delivery excellence where you can give an experience of certainty for customers

So where is the cause for concern? If interest rates go up, then there is less money to circulate. But you are saying the demand is strong.

There is no cause for concern in the demand environment absolutely in the near future. I can't tell you how it will be later on, you know the customers are doing their budgets, we will have more visibility in January. But so far, no customer has come to me with any alarm. Then we are recruiting a lot of people, not only at the lower end but we also continue to nurture middle management, continue to have the right number of project leaders, architects, leaders not only in legacy technology but in business intelligence skills, in service-oriented architecture, in cross training, to make the whole eco system pump up because you are adding significant numbers of people.

If we are recruiting 30,000 people and recruiting architects in the ratio of 1:10, so many architects and project leaders have to be trained and the governance has to be stronger so that the delivery excellence is maintained and that is where my focus is.

I also feel that we are still not bidding on the level we can be bidding. I honestly believe that we can be looking for a number of deals where there are opportunities for companies like us. We need to get a little more proactive in spotting those deals, build a bit more on relationships in order to capture more market share...

We were also looking at the overall portfolio and for first time you have broken down your service offering under different heads. Looking at the overall service offering mix, where do you think, after the several acquisitions you have made, gaps still exist which you will fill with acquisitions or organic growth?

The biggest opportunity for platform BPO is Financial services market. So we are looking at more platforms in the financial services market over a period of time. We are engaged with specific customers in exploring possibilities for platforms, two or three different platforms. We are in different stages of discussion and definitely that's something that we will do. And with regard to other verticals there are also some horizontal opportunities that we are working on across verticals and with regard to other verticals what we need to do is to get some scale in terms of the transaction processing so we are focusing on building that.

Our BPO business has two components, one is serving corporate customers and transaction processing at high volumes. This year, including the Comicron business, the UK business and the India business, we will be over $200 million in BPO. It is a very significant growth from last year to this year but nevertheless still a young business, it has to grow a lot more. I would only say that there are a lot of opportunities, so in terms of gaps or platforms, it is not so much the gaps, it is the positioning of the business model to the customer. You are not trying to replace some other platform somebody is offering. Here you are trying to position a new business model to the customer.

What I am saying is that I am bringing out a platform for you where I am going to be able to take care of your IT and your operations and bring about process organisations. You know it takes time for operations, for our customer operations directly means impact on their customers. So customers take time. They don't move to this overnight. So it is not so much the gaps. Anything you take since you will be doing it for the first time, you will have to put the proof of concept, if somebody is doing it in certain areas that are interesting, we will not hesitate.

What are the focus areas you are looking at to fulfil acquisition-led or organic growth?

We run the largest Business Intelligence (BI) for any Indian company... significantly large compared to whoever is no.2 and our BI offering is already integrated in terms of business intelligence and performance management. Now we are going to become service-oriented. We have got a huge practice on SOA (services-oriented architecture.) We think there is a huge amount of work that is going to come in SOA. And we are gearing ourselves up for that.

If you take infrastructure, it is an area we are growing in tremendously. If you see the type of deals we have been announcing and we will be announcing, it is not a question of buying somebody there for competency. Today we have a very strong competency because as I told you, in the last few deals where the size is $50-million plus, our competitor in both situations, was a leading Western infrastructure player. So there is no doubt on the capability that we have. There the question is scale. Because again if you want to have 10,000 people in infrastructure, it is not easy, because you are not going to hire people, train people or you cannot move people from existing applications that are also growing. There the challenge is how fast we can scale. So we are really putting the global network delivery model in force. We have a huge capability in Hungary, we are building capability in London, and building capability in India. All at the same time. We are growing across the globe as far as infrastructure placements are concerned.

Assurance services again we have built tools for a large period of time, so we are just growing in the market place. See SAP is an area where we are seeing tremendous amount of business. Again, scale is going to be very important. Because if you want to have 100 consultants, it takes a long time because there are not that many good consultants.

We are eternally investing tremendous amount of energy and money for training people. So I can't tell you we will acquire here or we will acquire there. Wherever we see a distinctive capability, for instance, FMS was a distinctive product we bought, if there is another product and we have a gap, a solution in the banking space it when comes, we will acquire, because we have a huge portfolio.

In Gartner's Magic quadrant of Business Intelligence, IBM and Accenture are in the leader part. The definition also clearly says that it all boils down to the need of offerings that you have in that space to gravitate to the next level. Is it that the nature of offerings is still at the lower level? How do you change that?

Obviously we have to do a better job in terms of communicating our future ability to all these analysts. It is also how much you communicate in that one call or two calls then they visit you and then you have to comply and have the right people aligned to be able to make a fantastic show. So we are getting better and better at that. The second is that you need to have a strong book of customer reference cases. At the time the analysts want to go for interviews, you need to get those customer interviews organised.

It is a question of converting the capability in terms of domain expertise and all this time how much of BI work you? You may be using a SAP, or a BO (Business Objects) or a Cognos, and what business process result that you are using it, can you completely verticalise it, is the question. That takes time and that is what we are working on and we address that more and more from a domain-centric point of view. I think it is a stated goal for each one of my practices to appear in the right place in my order.

Talking about growth, a client such as GE, an example, since names keep changing, has been growing at a substantially lower rate than the industry average. And that could be a drag on the overall ... How do you manage that?

Your point is right and that is why I talked about business facility. We have a portfolio of businesses. We look at the portfolio in terms of nine verticals, in terms of geographies, on service lines, or in terms of specific customers. And there are three different characteristics of these portfolios. There are businesses that are growing extremely well, there are going to be businesses that have a charm in the sense that I maintain a high degree of discretionary spend in a particular account, then the third one is the ones which are stagnant and not growing. So we constantly look at portfolios and at the mix. I do it everyday. It is very important because I don't want to put undue pressure on one growing segment. One guy grows 100 per cent and the other guys are not growing. The point is well taken and it is not done by churning the first customer.

Are you doing this thing across verticals in the choice of your clients across verticals?

You mean risking. You take a Financial services portfolio or Insurance, some of these segments if you really see it is not that they are overly dependent on one single point. There is not a significant risk about which I need to worry. For, we have a client list in each one of these verticals, I am adding the clients and the clients are growing. So it is not so much the derisking of a client but it is a question of growing with a client that has the potential to grow. We don't have high risk in any situation.

If 40 per cent comes from financial services, and if the industry were to slow down...

You can look at it in three or four different ways. No.1 is that our financial services is also spread across geographies. The second one is that we have a bunch of customers who are doing extremely well. Third also if you look at it, the Fortune 50, Fortune 100 and the Fortune 500, you cannot deny that there are more banking and financial customers in that than anybody else. And if you look at the percentage of IT spend, financial services customers spend more on IT than any other industry vertical. From the point of view of revenue, the significant amount of budget is from the financial services and financial services business is becoming a technological business. It is extremely inter-connected. And the last point, which is extremely important, is that our business in financial services is well distributed between `run the business' and `change the business' kind of spend.

By that I mean it is a significant volume of application support and maintenance than new programs. Even in a slowdown situation, nobody is going to take away your application support business. In fact we are trying to see what other business we can offshore so that we can create some costs. So the impact will come only on the new programs and hopefully a new program is distributed globally ... .. we are globally implementing a program for banks, we are also implementing new programs for a French bank, a UK Bank, a Netherlands bank and an Asian bank and a Latin American bank. I believe while my application support and maintenance portfolio is largely skewed towards the US, my discretionary spend on all my implementation is beautifully distributed across the globe.

Recently TCS was quoted as saying wage inflation is a cause of concern and needs to be addressed and hopefully the industry will have more overseas recruitments. Only so much can be done with overseas recruitment and having as many freshers as possible as a percentage of overall recruitments. Is there any way to address this problem?

Fundamentally India is becoming a big place for recruitments. No other place can scale the way India can scale and we are definitely looking at increasing the availability, that is all I can say. We have 2-3 initiatives going on in terms of productivity. How can we bring about productivity in order of managerial differentials.. We are investing and working on it. This is a marathon, this is not for the next quarter.

A hypothetical question. Do you think if the exchange rate were to drop from Rs 44 to Rs 40 what kind of scenario do you have to manage such a situation?

Yes, I think the exchange rate will definitely have an impact. The volume growth is definitely there. Making it that much harder to reach whatever mark, say, $5 billion or $6 billion. And in terms of hedging I think we have our policy to make sure that whatever is our outstandings to that extent we hedge. And Maha (the CFO, S Mahalingam) has a lot of metrics and he keeps monitoring that.

The European and other geographic business is growing as well. It is all not dollar business. So we have dollar in our revenue, we have British Sterling, So if one goes down the other goes up.

That can be a natural mitigation factor. Contractually I am not doing anything. We are not trying to change away from dollar, we are not doing anything funny. We are not trying to say that ok get out of dollar contracts and get into some other currency contracts. We are not doing all that.

Do you anticipate a big churn in the middle management of the frontline vendors? A substantially bigger churn could be expected, keeping in mind the fact that there could be niche firms coming in the market place which address specific areas. Ravi Gopinath leaving for Geometric Software is an example...

One is that middle management and architect skills will always be in demand. Definitely those skills are hard to come by so companies that get new areas of work in that area will definitely target those candidates. But so far we are holding that quite well.

Also, I am not a believer that there will be niche companies that will be coming out to address further specific needs. I think that the future is going towards more consolidation. I am not saying that some applications will not come out tomorrow or day after, but I think the trend is more for consolidation...

Any reasons for that? Niche companies are talking about agility. If a biggie averages between 60,000 and 80,000 employees, agility becomes key.

So that is a challenge and if you ask me what is the other challenge, we have to be more agile and if we don't become agile that will definitely affect our work We have to be agile not only from the point of view of keeping our portfolios agile but we are going to be agile from a business process point of view. We need to make our processes much leaner. We need to take a relook at it. The problem is that when companies grow, they keep introducing processes. No company has a scientific process to re-visit those processes every year. So we need to introduce that and we have started looking at it every two years.

Agility is key. But the advantage that companies like us have is that we will truly be able to offer the full service. And we will truly be able to take specific requirements and address them. Very small companies and niche companies will not be able to handle both full services and also they will not be able to handle a sudden churn in a particular area as we can handle it. It's the same reason why a CIO chose IBM? Because, then he can be at peace. So now we are in that league. We have the full services, we bring in the agility, we bring in the execution engine, delivery excellence, and a global network delivery capability. So it is a question of working and enlarging our strengths.

bharatk@thehindu.co.in

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