The Hindu Business Line : `The issue is about agility so that businesses can grow'

"TCS is not one monolithic company anymore. TCS has a set of multiple businesses... So it is a question of managing the portfolio across markets in a very agile fashion." — MR N. CHANDRASEKARAN, EXECUTIVE VICE-PRESIDENT, TCS

When an Executive Vice-President (and, Global Head Of Sales) of a company with $3 billion in annual revenues spares his valuable time, you do not complain. Mr N. Chandrasekaran, TCS' Exec VP, dwells on the financials of the latest quarter, the robust offshoring with India only nibbling at a huge market, large deals, increase in billing rates and the rest.

Excerpts from the interview:

Are you likely to end with $4 billion this year? When do you think the law of large numbers could catch up with Indian vendors?

The only way I will answer that question is it depends on which number you look at. You can look at our revenues as $4 billion or we can say our market share in the Global IT services sphere is 0.4 per cent. We keep trying looking at the 0.4 per cent so that we can continue growing and keep the pressure growing.

The way I would put it is the issue is about agility. Are we creating businesses that are agile? TCS is not one monolithic company anymore. TCS has a set of multiple businesses and how will we keep the business agile so that the businesses can grow? So, I can't tell you whether we will be growing at 35, 40 or 5 per cent, but at this point of time it is a good opportunity.

Our focus is that of expanding the portfolio. It is not application support, application development and application maintenance alone that we are doing.

That is one portion. We are talking of BPO, which is on the transaction side where we have only scratched the surface and then platforms where again we have scratched the surface. We have infrastructure management and then of course, consulting.

So how do we ensure that we are creating all these multiple businesses to leverage on the capabilities that we have built and then have goals for each of these businesses to grow at a much higher rate compared to the application support and maintenance business which even if it doesn't grow at 35 per cent, grows a little bit less compensating for it? So it is a question of managing the portfolio across markets in a very agile fashion. I am keeping in mind that we are only 0.4 to 0.5 per cent of the market share.

On the margin front, there is a three per cent shift in the onsite-offshore mix. You had said that you were looking at a one per cent change in mix every quarter. How did this take place and is it sustainable?

No, we are not saying we are going to shift three per cent every quarter. Then, in two quarters we would be done! That is not the point. Whenever you are putting an initiative in the company, it takes time to gain momentum.

Shifting people from onsite to off shore is not about giving them aircraft tickets. If there is an account where we have 1000 people working on 40 or 50 applications, it is about taking into account how many applications are working, and how many people are engaged, the reason for transferring, what is the back-up plan, taking the client into confidence, making the process changes in the way those applications will be managed and then moving in.

The push that we have given is all coming into effect because people have put some time into this. First of all for them to buy in, to overcome the initial feeling that we can't do so much... and then accept that we can do it. Then they take the client into confidence and sometimes the clients don't want it. The client may say, `What is your problem?' And I believe they pay more. So then we will tell the client why it is not sustainable, how much value he is losing out on, not only from financial perspective but also from an access perspective. He is losing access to our competency groups in our centres of excellence.

Then the plan is agreed and then we start moving. It is the impact of what we are doing that is coming into full shape. You will continue to see some more in this quarter and some more in the next quarter.

Looking at 8 to 10 quarters, the offshore mix went all the way up to 40 per cent and then came back to 37 per cent...

The reason we came back from 40 to 37 is because we signed two big contracts. Citi was happening, ABN Amro was also happening and large retail customers that we announced were happening. We are now (looking at) $500-million deals, $1-billion deals...

Even now I will tell you tomorrow if we are going to sign a large sized deal, I am not going to wait for offshore leverage. I am just going to take the contract. In the one-day game if you develop a strategy that I am going to play 40 overs very carefully and I am going to hit in the last 10 overs.

But, then, somebody is going to put a lollipop in the fifth over, you will come dancing down the wicket. Here it's exactly the same.

Do you think that's the game you are likely to play in terms of large deals? In the latest call you have said you are looking at about 10 deals of $100 million and five of $50 million...

We are pursuing and we are close to clinching the deals. We should be hopefully be announcing a few more this quarter.

Are new deals coming in at a billing rate that is substantially lower than the industry average?

We are not compromising on margins at all. Pricing, you know people will say different things to different people. Just study the contract to see what are the other terms linked to the price?

I may have different types of billing, I may have commitments, I may have different bonus payments, I may have a different penalty, I may have different fixed price situation, I may have a different price for different skilled employees.

Contracts are not as simplistic as one rate per hour. If somebody is just talking in the market that they took this deal at this much per hour, just don't believe it.

The margin improvement that came through last quarter is largely due to a number of factors; it is not one of the one-off things. The momentum is there. I see improvement definitely happening. I have been able to get some good contracts favourably negotiated. We are going to get a few contracts before this quarter and some more coming in the next quarter.

So the cumulative efforts you will see a few quarters later. After each quarter we expect some renewals and after three quarters you will see the effect of all the renewals coming in.

So I definitely feel good about offshore movement and about pricing improvement. On execution, we are just raising the bar everyday. We want higher productivity, we want to execute our fixed-priced projects better than anyone else. We do that already but we want to move couple of notches above. So, I definitely feel very good about all these aspects to improve margins.

The increase in billing rates by 3-5 per cent on existing and 5-10 per cent on new deals was a major surprise. What has changed?

There is a lot of demand. I really don't understand why there is surprise, because market is quite good and is bullish and we see both offshore and outsourcing needs as well as new programme implementations.

The latter require both complex capabilities and track record and for that you are able to get a slight premium. There is no question about it. So when you are going in for new contracts you are getting increased prices.

How much of the billing rate increases are linked to discretionary spends and how much is linked to annuity contracts?

This is the average. A 3-5 per cent increase in the existing contract is the average between existing and discretionary and likewise for 5-10 per cent. If we really take some high-end skills then the rate can be much higher. For common skills, the rate may not increase that much.

Clients with annual revenues of $ 50 million have gone up from 10 to 15...

Two things again. One is that you have to fulfil all the requirements and convert them. The second thing is that (not only are people selling one kind of service involved) if we can sell infrastructure deal then the question that employees ask is if it can be sold to a new client, why not existing clients?

Cross-selling for existing customers is the theme we have been pushing for in the last few quarters and that has been producing results. Another point is that the client concentration of the top client, top three and top five and top ten is very healthy.

No, definitely we are not scaling down any client. We like business with our clients and we like to continue to grow with them. I am not seeing any particular threshold at this point. If we reached a $50 million with a client two years ago with a predominantly application development support and maintenance, then with our portfolio today having multiple offerings I have to effectively cross sell. Probably, we had one engine firing in full speed and we had 3-4 engines in the making and today if we have 6, 7 or 8 engines we have to get all the engines to fire with full throttle. If we are able to do that we will grow and obviously the budgets are limited and are not infinite.

A typical CEO will spend his budget in two parts: In running the business and to change the business and the split is anyway between 50:50, if you are efficient, and 70:30 if you are not. The IT budget of companies vary from 3 per cent of revenue to 7 per cent depending upon the business they are in and so you know the overall IT split. I am not saying it is infinite but definitely we can go beyond the $100 million mark. I am sure there is a limit but $90 million or $100 million is not the limit.

Are you consciously looking at a re-shuffle of your Top client orTop 10 or how often do you look at that and churn it

I am not going to churn it, I am trying to make the businesses more profitable and agile. We are definitely worried also about every account being agile. Agility means a number of things. Business has to grow, it has to be profitable and all the parameters we have to look at. Things have to be offshore. So all we are trying to do is to go through each account and see what the potential is, how much we can grow and what our current growth rate is, what kind of dialogue can we enter with the client, and what kind of other portfolios we can sell.

But if an account is going to be extremely stagnant and not growing, it will be down, it will never be a top 1, top 2 or a top 5 accounts. Then the other accounts growing will definitely overtake it. Then what steps we take for an account to be agile is done case by case, I cannot tell you what we do. A one-line answer if you ask me if I force churn, I would say 'no'.

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