Tata Consultancy Services is faced with a tough period with slower growth rates over the last two quarters. India’s largest IT services firm reported a flat growth in profit for the third quarter ended December 31, 2019 at ₹8,118 crore compared with ₹8,105 crore last year, as key sectors, including BFSI and retail, face headwinds. BusinessLine met Rajesh Gopinathan, CEO, TCS, to understand how he is steering the company through this period.
TCS has had two poor quarters. It’s like having two bad sessions back-to-back on day one of a cricket test. How do you plan to dig out of this situation?
It’s a great analogy. We haven’t had two bad sessions but yes we have had two tough sessions. When you have tough sessions you got to protect wickets and go back to the basics. That requires skill, discipline, and confidence and you have to wait. Our industry is also in the same mode and we are executing our plans accordingly, making sure that we use our capabilities to capture any opportunity that is available.
Did you expect that it would be so tough?
Last quarter we were caught by surprise. This quarter we went in knowing that it will be tough and the expectation for the next quarter is also muted.
Given that uncertainty over macro will continue, will 6 to 8 per cent growth become the new norm?
If you take macro uncertainty, the poster child of that has been the UK. There we have grown 15 per cent year-on-year for almost two years, except for the last quarter. If you take that as an example, there is absolutely no reason to believe that 6-8 per cent will be the new norm. Every phase has an opportunity and you need to make sure that you are positioned to participate in that opportunity. You take BFSI as an example where everyone is asking if we have saturated. Compare us with our competitors and you will see that in every quarter we have gained market share.
Last year you had said that growth was not the focus area….
No, what we said was that we were super focussed on achieving double-digit growth but having achieved that goal, we moved some of our senior executives to look at other things like margins, bringing products and platforms on the centre stage and building scale. For example, the TCS National Qualifier Test allows us to recruit and bring the scale without being constrained by campus placement season. Nearly 250,000 appeared for the test and we invited 65,000 for interviews and finally made offers to 30,000. But that’s not the end of it. We have the data set of those who qualified for the interview and where they did well and where they didn’t. We give them feedback on areas where they need to focus and how they can improve their skills. If they do, then we are interested in them. Similarly, we have gone digital on training. So our strategic agenda has broadened from just focussing on double-digit growth.
Why haven't you called out your digital numbers this quarter?
It is becoming more and more difficult to segregate the two. From technology perspective, digital is becoming of diffused value. Anything you do, in some form or the other leverages digital technologies. It is becoming non value adding to draw the boundaries as the boundary becomes more fungible. The number itself is becoming ambiguous today and we decided to discontinue it.
Is there a merit in calling out specific numbers within digital?
We'll see. At a structural level, we are more focusing on servicing offerings that are much more granular. This is work in progress. We looked at it and we had an inventory of more than 800-900 different offerings. We narrowed it down to 500 offerings. Within that also, as you would suspect, it's a very long tail. The bulk of the revenues are at one end and then there's a very long tail. We've cut the offerings by 50 per cent, we'll cut them a bit more. Some of them are duplicate offerings, some of them don't even exist as a service offering. So, if we're not taking it to market actively, it doesn't make sense to track it as an SKU. What we've also done is that we've brought in all the service groups under a single organisation so that those groups are not fighting against each other to be classified.
Are digital revenues translating into better margins?
Yes, digital revenues are definitely translating into better margins. Even on the optimisation side, that also ends up in a good place because we're trying to bring in the participation benefits or the process redesign.
Price resilience in our industry is much higher than some of the others. The flipside is that you need to keep innovating to maintain the price point. If you take the same contract that comes up for renewal 5 years later and see a 20-30 per cent decline in price, the real question is can you get the portfolio price up and cost structure down. We have successfully been able to do that.
The IT industry is facing similar macro headwinds but we see TCS performing very differently from others. Why is it so?
IT industry is not homogeneous. First, everyone is not looking at the same markets and each of the IT service companies has different strategies. Macro is not the only important event. IT is highly differentiated in strategies, in philosophy, in positioning, customer focus etc. Different players have chosen a different path. Five years ago, some players wanted to migrate towards a products or platform side of the spectrum while some migrated towards consulting side. We continued to have our footprint on both ends. There is no one right or wrong strategy.
All the new regulations such as privacy etc, are they a positive development for you?
It is a positive development. We've invested in building not just services but also tools and capabilities. For example, consent management is a big area. Maintaining traceability of data, consent management frameworks are big areas. We have created a data trading platform, which allows data assets to be traded as any other securities.
Is data localisation bill a concern?
I think the principle is well founded. Concerns are real and for the long term interest of the entire ecosystem, I think the government has a big role to play and they have the responsibility to protect the basic rights of data as a community asset of the citizens. When it comes to implementation, there will be rough edges. Legislation is a tough process. What is required is openness in terms of re-engagement to modify it once problems become more obvious and unintended consequences come out. Real world also has to be more pragmatic. Certain freedoms that you enjoyed when there were no legislation, will have to be sacrificed for the sake of larger good. We are quite supportive of the overall direction of the legislation on data localisation and we actively engage.