December 2014 | Shubha Madhukar
'We must innovate for survival and growth'
Tata Communications is in the middle of a transformational journey that is taking it from being a service provider to a solutions provider. The past investments are sweating harder, the company has been positioned in the leaders' quadrant of the Gartner Magic Quadrant for Global Network Service Providers, which is opening new vistas of business and the market is responding to the change. Spearheading the journey is MD and CEO Vinod Kumar who speaks to Shubha Madhukar about the shift in investments, the challenges ahead and ways in which the company is preparing to handle new ways of communication.
In April 2014, Tata Communications earned a position in the leaders’ quadrant of the Gartner Magic Quadrant for Global Network Service providers. What does the recognition mean for the company?
It is a great milestone for a 12-year-old company. The recognition puts Tata Communications in a position to serve multinationals in their networking needs and moves us away from a niche positioning to a global positioning. We can now stand shoulder-to-shoulder with companies who have been in the industry for three, four and five decades.
It is not just an accolade on the shelf, it is being translated into business. A lot of multinationals use the Gartner Magic Quadrant to choose companies to bid for various opportunities. By virtue of being in the quadrant, we are being invited to the table now where earlier it was a struggle to find ourselves in the consideration set. It is good to be in the Gartner leadership quadrant, and we want to continue to strive to keep evolving and move to the north east within the quadrant.
You have talked about the company’s investments now slowly beginning to pay off. Can you elaborate?
If you look at the financial performance over the last eight to 12 quarters, the numbers speak for themselves. We are growing the top line and we have an improved and stronger EBITDA; our cash flow has increased in a sustained manner and we believe this will continue.
For several years we focused on building a solid foundation. We invested in capital as well as operating expenses to develop tangible (infrastructure) and intangible (teams, brand, communication) capabilities. This was essential to pivot ourselves from a voice-focused, India-based, wholesale business to a data-oriented global business that sells to multinationals directly. To make these transitions, we needed capabilities that answer competition and service level platforms that meet the expectations of customers. The investment is finally paying off. The foundation we have built will be able to sustain business as it grows without linear investments in capital expenditure or operational expenditure. The market is responding well to this and the board and the shareholders are happy with the growth path. We are trying to concentrate on investments that have worked well for us. What we free up will go to bolster the bottom line and also fuel and fund new business. The nature of our business mandates that we keep setting up new avenues for growth.
Tell us about your plans to invest $200 million to double your data centre capabilities in India over the next three years? What other investments are in the pipeline?
Over the next couple of years we will be investing in building data centres and managed services within those data centres. As the IT industry (both hardware and software) grows and moves to cloud-based solutions, there is a huge demand for data centres from all around the world. We have chosen to focus our activities in India, and in South East Asia.
In India, we are the only company with a nationwide footprint of data centres. We would like to take the experience we’ve had in India to other geographies, especially a few South East Asian markets. Some of our large existing customers will move into those new places with us, both for operating comfort and for the solutions we build for them if they operate from multiple data centres across two countries.
We are exploring other industry verticals in the Indian market where we can leverage our relationship with large Indian businesses, the Tata brand name and our network backbone in providing industry solutions. We are beginning with the healthcare industry, making services such as telemedicine and radiology much more available than they currently are. They might not be capex intensive, but they are new domains that will unfold in lots of interesting ways in the coming years.
Innovation and generating new big business ideas seems to be a focus area. What are the new business opportunities that have been identified by the company?
We have to constantly invent and innovate for survival and growth. As an industry, we have a lot of demand. We are constantly being threatened by new ways of communication from start-ups and next generation companies. We believe the process of innovation begins with curiosity and a desire to learn. Therefore, we are trying to make people curious, make people want to learn. We have more than tripled our number of learning days in the organisation, people are being trained in a variety of different things — not just the basic managerial skills and self improvement.
We run a programme called Moonwalk (see box: The call of the unknown), which is all about exploring completely new industries and new subjects. We have five Moonwalks currently underway. The whole idea is to get people to be comfortable with something they know nothing about. Shape the Future is another programme to identify business opportunities that will add to the top line in the future. We invite our people to submit ideas that have the potential to become a $200-million business within 10 years and touch billions of people; we select the best ones, and then coach the teams set up to implement them. In the first round we had about 100 odd ideas of which six were selected by an internal team. The implementation teams underwent a grooming-coaching programme, which culminated with a week in Silicon Valley where they met many entrepreneurs and immersed in the whole start-up environment.
These six teams made a final pitch to a panel of internal and external judges from which we chose to fund two ideas. These two teams will incubate the ideas, run them like a small company with complete autonomy and get funding based on pre-decided milestones. It’s their business but with the safety net that if all goes awry, we will take them back.
My goal is to have 10 different incubations going on within two years. We have $10 million of capex and $7.5 million opex earmarked for the programme.
What are the initiatives you are planning to boost productivity?
Last year we launched Saumill (stands for 100 million; sau means 100 in Hindi), a programme to cut $100 million from our costs. We positioned it as a productivity initiative to fund growth and improve the bottom line.
We let the idea surface very democratically from various functions in the organisation and clarified the principles we would use upfront. We crowd sourced cost optimisation and then created a platform where we could apply the same lens to assess the ideas and opportunities that were presented. I have to say that the Saumill meetings were like melas (fairs); never had anyone seen so much festivity and celebration around a cost-cutting programme.
We enabled the implementation and celebrated the success of this cost-cutting venture by recognising the teamwork and the people who were involved. We are now working on how to make productivity an ongoing exercise, something that everybody owns and not something driven just by the top management. It will take us probably another year or so, but based on the success we had last year with the first wave of Saumill, I really am confident that we are well on our way to make this a part of our DNA.
Tata Communications is in an industry where the external business environment is changing at supersonic speed. How does the company maintain its agility and respond to challenges?
We continue to find ourselves at various points in the learning curve across our business, but our ingenuity comes from three things, of which the structure of the organisation is one. By nature, we are a distributed organisation with no centre of power anywhere. The structure is global and this definitely helps.
Two, the leadership team spends a lot of time with our customers and vendors. We invest in scanning the environment for opportunities and watching out for threats. Three, we try and set up self-directed teams as much as possible. We let the mission and vision of the organisation drive behaviour rather than what the boss says or what the key result area dictates. We are not there yet, but as compared to an average organisation we are quite evolved.
These are the three things we will continue to sharpen to make us more agile. In our industry, you can never rest in your quest for staying ahead of the competition.