Tata Consultancy Services secured revenues of Rs22,863 crore ($5.7 billion) in 2007-08, an increase of more than 22 per cent over the previous year, and profit after tax of Rs5,026 crore ($1.25 billion). These are impressive figures by any standard and S Ramadorai, the chief executive officer and managing director of India’s premier information technology enterprise is quick to highlight the positives that drove the company’s performance.
In this interview with Christabelle Noronha and Philip Chacko, the TCS boss speaks about staying hot in cold market conditions, about new beginnings and not-so-new capabilities, about the year gone by and the years ahead.
It has been a good year for TCS. What were the positives you saw in 2007-08 and what were the difficulties?
The year has been very positive in terms of overall achievement as a company, our standing within the industry and the global market, customer connect and customer wins, the depth of engagement with customers through innovation, and the ability to deliver on our promises. All of these fell into place very, very well and that enabled us to look at how we have to address the future, rather then get caught up in correcting the problems of the past.
The momentum with regard to growth, our capabilities and the digitisation we have been able to achieve is giving us an enormous amount of confidence in our abilities as a data-driven, process-driven and people-driven organisation.
The challenges during the year were predominantly external, fuelled by market conditions and the appreciation of the rupee. There was the challenge of managing market expectations and our internal efficiencies because of the rupee’s strengthening, and this we did fairly well. We became a benchmark within the industry for our hedging strategy, the way we managed currency fluctuations and our whole treasury operations. But you can do these things only up to a point, which is why improving operational efficiencies is better than playing the market. The customer pays you only so much and you have to optimise your functioning to offset the disadvantages, by offshoring, by taking up turnkey assignments where you use fewer people to do the same amount of work, by improving the productivity of employees in other ways.
We take on a lot of trainees at the ground level and getting them up to shape is a time- and energy-consuming task (about 35 per cent of our people would be in this bracket and the inflow is continuous). We are good at training our people, but there is a significant cost to the company here. Training is just one of the multiple parameters that have to be tackled. Maintaining growth and margins while taking care of issues such as human relations, productivity and currency fluctuations is a big challenge, and this consumes a lot of management time.
There’s a human dimension here that makes matters all the more difficult. We have people coming into the organisation from different backgrounds, tier-II towns as well as big urban centres. We have to deal with, and take care of, a young workforce and in big numbers at that, not five or so people but around 20,000 at any given time. They hail from different parts of India and, now, the world. Managing social and cultural integration on this scale is no walk in the park. The possibilities are exciting, but also disquieting.
It’s a fast-moving business, a fast-moving industry and we have to juggle many balls at any given time. Technologies keep changing, market structures keep changing, business models keep changing. You have to build the right kind of competencies to address a situation of such flux and stay relevant to your customers, you have to work from multiple locations, you have to take care of governance concerns, you have to deal with security problems and internet usage issues, you need customer data-protection policies — every area is a challenge, every jurisdiction is a challenge.
TCS recently redesigned its organisational structure. What are the salient features of this new structure and how is it expected to improve the company’s operations?
You do certain things when the going is good; we don’t believe in waiting till something has broken down to fix it. Any organisational redesign has to be envisioned with the future in mind, and that’s what we have done. We did a recasting of the organisation in 1996, in 1999 and in 2003, all of which was to improve our performance. That’s the thinking once again.
The redesign, which was announced in January 2008 and became effective on April 1, is an elaborate exercise. The endeavour is to create an organisation for the future and the key themes we have addressed are future relevance, simplicity in design and understanding, agility of response, proactive nature in comprehending market and customer requirements, offering opportunities for exceptional growth, excellence of delivery mechanisms, and end-to-end ownership in terms of leadership building and the creation and retaining of talent.
The idea was to craft totally independent industry solution units, whether in banking or insurance or financial services, that were clearly customer focused. These units are responsible for their customers, they own the intellectual property they generate and its delivery, they own the balance sheet with regard to profitability, and they have their own HR and finance people. We see these units as autonomous, accountable to themselves first and foremost, handling about 5,000 people each. That makes things much more manageable in every respect.
We also now have units devoted to emerging markets, whether in Russia, the Middle East or Latin America, to the development of future-oriented initiatives and models in the domain of small and medium businesses, to pursuing new businesses in mature markets such as the United States and Britain, to developing intellectual assets in the financial services sphere (that can later be licensed).
What we have done is provide much more freedom — something that may have been lacking in the past — to our different units and the people heading them. These leaders have been identified, more clearly than ever before, as our brand builders, the true ambassadors of what TCS stands for. We have also started a shared services division that can be accessed and used by the entire organisation; this will work in areas such as quality, payroll and support functions. At the corporate level, overseeing the organisation and managing its progress will become easier thanks to digitisation.
This new structure provides a lot more empowerment, a lot more accountability and ownership, a lot more leadership opportunities.
Which are the segments or areas that you see as critical for TCS’s growth over the next two years? What about the new geographies that you are focusing on?
The most exciting verticals are life sciences and pharmaceuticals. Then there’s government, retail, transport and travel and hospitality. Information technology is minimal in pharmaceuticals, for instance, which makes the growth possibilities there very interesting. In the horizontals the action will be in the integration of operation and information technology, process changes and reengineering, and bringing different systems together. The third area where prospects are bright is analytics, which is going to become critical in every industry across the board, in relation to customers, employees, business trends, business operations and much more.
As for the geographies, let me start with India, because of the growth, the need for technology and global corporations emerging out of the country, just as multinationals keep coming in. We always believed India was going to be important, but there were problems with procurement practices and transparency. We will make bids where the rules of the game are clear, with a focus on engaging in institutionbuilding, transformational initiatives.
Besides India there’s China, with all its requirements, and countries like Vietnam and Egypt. Also Africa, where it’s important to have a presence now so you can cash in on the opportunities that will undoubtedly spring up down the line. In that sense, Africa presents a similar picture to Latin America, where we established a presence five years ago.
How important is innovation, especially technological innovation, in TCS’s scheme of business? Could you give us a bird’s eye view on what’s happening on this front?
Our business is all about innovation. It could be as simple as improving productivity in an enterprise and the tools that could accomplish this. A second level of innovation is the process change you can bring into an organisation; this is sophisticated work because of the understanding and expertise required, the digitisation and automation involved. The third level would be the intellectual assets you can create and market. Here we collaborate with other organisations and institutions, including start-up companies.
TCS seems to have gone slow of late with its acquisitions. Has there been a shift in the company’s thinking in this regard?
I wouldn’t say we have slowed down on acquisitions. We will never acquire for the sake of top-line growth; it has to make sense in terms of improving our margins or filling a gap in our business portfolio.
There has been talk of succession planning in TCS. What’s happening on this front?
By reengineering the organisation for the future we have created substantial leadership positions, and there’s a second-in-command in each of these positions. Additionally, we are looking at some extremely focused leadership training programmes for a set of people — ranging in age from 35 to 43 — we have selected. This is a vital initiative and there are exciting roles that people are going to play for a very long time.
How is it going with TCS’s stated goal of being a top-10 player by 2010? Are you satisfied with the progress being made?
We are satisfied with the progress, but the new organisational structure we have in place means we will be able to stretch our goals and the way we do things. More importantly, the brand experience, best-in-class delivery, the impact we make on our customers’ business, the way they are measured (on a sustained basis rather than one project) — all of these will come through much more forcefully in the future.