Bringing Business To Life
The Economic Times — June 2000

There's never been any doubt that the Tata group companies hold technology and domain expertise within themselves. The trick is to 'mine' the expertise.

Piecing the Bytes Together
Put together the rest of the Tata infotech companies, and it's a fairly formidable combine-besides the obvious winners like Tata Infotech, there are hidden jewels like Tata Technologies

It's the 'old economy' bit in the new economy — Information Technology. That's the bread and butter business. The business that provides the fodder to the Tata group to go forth and multiply into the more fancy telecom and internet businesses.

Because of the towering recall of a TCS, the others in the fold (some even listed) are very often forgotten in the reckoning. Recently, in a study conducted by Boston Consulting Group on the top value creators of India (Corporate Dossier dated 12/5/2000), Tata Infotech was ranked number 10 with an average annual TSR (total shareholder return) of 47 per cent over a 5 year period. The Rs. 400 crore Tata Infotech, a systems integration and software services company, is the second largest IT company in the Tata group. With a huge focus on the ever-burgeoning IT training market, Tata Infotech is believed to be the other family jewel of the Tatas.

The markets have often ignited the Tata Infotech and Tata Elxsiscrip prices on rumours of a possible merger; nothing has materialised yet. "Consolidation of our IT business is something we have to deliberate upon. It won't be easy because there are listed and non-listed companies. We will have to look at what is the best model and what gives us the right kind of positioning for the customer," says S. Ramadorai, CEO of TCS. The complexity of business space is such that even if these are different entities, they will have to keep partnering with each other and companies outside to deliver the best service, he feels.

The IT companies often work together too. Says S Devarajan, managing director of Tata Elxsi: "We have common directors on our boards and that helps." Devarajan feels that even if there are certain areas of overlap with other companies, the market is so huge that there's opportunity for every one to co-exist. "Integrating the companies will narrow down the management," he says. The Bangalore-based Tata Elxsi is into technical computing. Tata Elxsi does systems integration work domestically and a lot of design and development overseas. It is the only Tata company that does entertainment graphics as well and has several post-production studios and companies like Pentamedia Graphics as its customers.

There were media reports even about a merger of Tata Technologies into TCS. Patrick McGoldrick, managing director of Tata Technologies, says that according to an internal study commissioned by the Tata group, their two IT crown jewels are TCS and Tata Technologies. "We're the Tata group's best-kept secret," says McGoldrick. Tata Technologies started out as a management service division under Telco and is now a 100 per cent subsidiary. The company's focus is providing solutions to manufacturing companies and does enterprise solutions, engineering automation and supply chain.

Tata Technologies has recently been hit by some of its senior employees joining the dotcom bandwagon. And observers also point out that as long as it is considered as an offshoot of Telco, it's unlikely to make a big impact on its own. McGoldrick however, says that while earlier Telco contributed to 100 per cent of its business, now it constitutes 30 per cent. It also has several big clients outside (like Bajaj Tempo, Kinetic Engineering, GM etc) for SAP implementation.
The company's now working on knowledge-based engineering. Traditional CAD/CAM software concentrated on the physical model that satisfies a customer's functional requirements. Tata Technologies is now developing software that uses customer feedback as an input for design and development.

Chips 'N' Cash Combo
It's the jewel in the Tata Crown. Tata Consultancy Services provides the cash, the competence and the confidence for Group Tata's new economy plans
IF AND WHEN — and increasingly it's seeming to be a question of when rather than if — Tata Consultancy Services makes a public issue, it's almost a given that the Sensex will rock and roll. "I know that if TCS were to go public, we could say the Tata group has the largest market cap, and Tata Sons is the largest company in India or something. But that really is not the driving force for us today," says Ratan Tata, chairman of the Tata group.

He's unlikely to be far off in his opinion: ET estimates net profits of TCS at around Rs. 700-800 crore. Owned by Tata Sons, it's the largest contributor to Tata Sons' net earnings of Rs. 553 crore. That's just a little less than the entire revenue of Infosys Technologies-around Rs. 921 crore.

The market has been waiting for years now, for the Rs. 2,100-crore TCS to go public. That's about the only thing anyone wants to know about the company. Ratan Tata isn't at all averse to taking his star to market, provided a host of tax issues are solved, including a capital gains problem in TCS: "If we have the right mix of problems being solved, we will certainly consider it (TCS) or any of the other IT businesses," he says, "it's the single largest provider of cash flow to Tata Sons and enables us to grow the group."

It's not only TCS' potential market value, the expertise available in TCS is clearly what the Tata Group is banking on to grow its internet related ventures. "It's our family jewel," says R. Gopalakrishnan director, Tata Sons.

TCS has been and will continue to be a cornerstone for a lot of new forays for the Tata group. "TCS has the experience, it can easily share with other group companies; like experiences in regulatory or cultural issues," says S. Ramadorai, CEO of TCS. Many of the group companies including the telecom companies and Tata Internet depend heavily on the technology expertise of TCS. Although the policy is not to encourage exclusive relationships within the group, it's unlikely many will choose to go to anyone else.

Another area which observers feel TCS' experience could help the group is in globalising.With over 65 offices overseas and fairly high recall in countries like the US, the company can hand-hold others in its fold that want to go global. And there is a need for it, Ramadorai feels. "The Tata brand needs to be globalised and externalised more. TCS may be a little more known, but the whole Tata brand needs to be more well-known worldwide like a Sony or a Hyundai."

"Thank God we didn't go for an integrated model"
"THAT's MY GOAL, my dream: I can call up at any time, at the touch of a key, all the issues in any company, sitting in my office on my screen. If I want to know how many Indicas were sold, I could access it; although it's not my business."
My own feeling is that the way this will work in this group is to showcase this application in six or seven major companies and then let it migrate itself into other companies. Don't give a mandate for the whole group to adopt this, because it will just dwindle.

These few companies are inclined to use it, need to use it, so give them support to really use e-commerce and IT. We put in a VSAT many years ago, we have the ability to move data, although slowly. But we don't have a system that puts it all together.

"The bigger you are and the older you are, the harder it is to make a clean break and transition. You have much in the form of legacy. A younger company can make a transition, or start afresh much better. It's one of the disadvantages of having an old established business."
The greatest challenge we have in making this happen is the transition of the human mind, across the board of the large number of people we have. Just to tell you how difficult it is: being totally committed and totally wanting to have a paperless office here, at great cost I forced the company to put in a document imaging system which would digitise the data we have.

It hasn't worked. It hasn't worked partly because of me. I find it difficult. You have many key pushes to get your document, lots of key pushes to get your comments in. I look at all that and say I'm at fault. We digitise all our documents now, we save on filing, but in terms of retrieval and using it the way we wanted, I have to say that transition is a difficult problem. In a large organisation with many people who come from different ages, many of whom may not be as committed as I was to see something done, this transition is going to be a problem.

At senior levels of decision makers in companies, it becomes difficult to adapt. We've not made investments in having a focal point that is dedicated to making that company move to the new environment.

"Out of ignorance, I thought the integrated model was what we should do. Thank god we didn't go that way. If you have one big behemoth that's trying to do everything, I think we'll have something that will only serve us, and serve as badly."
Sometime ago, I had a view that we had to have one enormous internet or ISP acivity, having access, connectivity, content, backbone, everything, all in one. I really believed that for a while. I've come to the conclusion that you need to be much more nimble-footed than one large entity could be.

I've moved away from this one single internet-based entity, we need to be much more flexible on this. There are not very many models anywhere in the world that are totally integrated into one. We were in fact going down this single integrated route, looking at infrstructure, content, access activity all these all rolled into one. And I think we would have a huge disaster on our hands in course of time.

"Now you will continue to be confused, because you will keep seeing little Tata things coming out and you don't understand why Tata Steel is doing something and Telco's doing something else."
The ability to put it all together may only come in hanging things together on an axis you provide, but not in fact creating different business. On the content side, perhaps you want more of it with the companies, or in creative pockets-Tata Interactive for one. Some portals may be best developed in individual pockets.

You would like to have a group internet service provider entity on which all these things will hang, but there again, if there is any reason for one or two to be elsewhere, and it's best for that application, that's where it ought to be. In some of our businesses, there may be a need to be part of an exchange. Let's say there's an auto exchange, or a steel exchange, the place we need to be is there, and not to say we'll do it ourselves.

Look at it all together-if you need to be in backbone, you need a project company who can manage it and to sell capacity on that backbone. Then we have an access provider, which may use that backbone or any other.

As far as individual companies are concerned, e-commerce has to be their own. At some stage, we will integrate it into an overall Tata thing, but probably it may not happen very much. It may happen in purchasing, but there's unlikely to be an e-business model that will apply to the whole group.

"Many (internet companies) are formed to be sold and the founders go and do something else, and many go public and shareholders are left holding worthless paper in the course of time."
When you talk of convergence, everybody's talking of will Tata's enter the internet business or ISP business, and if you don't create an entity, you're not seen to do it. But what are we trying to do?

If you don't see something that has the comparable hype of what is happening around us, there are underlying reasons. There's been a lot of development in India and elsewhere, companies have grown very fast in money terms, got valuations which are extremely attractive, based not on the bottomline but on eyeballs. They make losses, but they seem to have the eye of the investor, in terms of the potential. A large percentage of them predictably will fail, and a few will survive.
That's what everybody's expecting us to do in India, but if you look all around the world there are no models of integrated players to follow. There's a great deal of chicken-and-egg involved, one business leads to another, but if we start doing that we will spend enormous money, and not get returns, and then have to quit the business before it even resulted in anything.

"I asked our people, what has Tata's style been? Do we look at this business as something that you get in, do something quickly, find AOL or Rupert Murdoch, sell out to him for a fancy price and we come back to our own business? Or go into it for the long term."
By and large, this is not good for your returns. We've usually gone into something for the long term. Then we must have a business that is sustainable. If we do have IPOs, if we go public, after five years there will be shareholders who bought a share for Rs. 10, and which will then be worth 50 paise.

Those people disappear into the forest and are never heard of again, or come back again with another business. I believe for us, people will turn right to us and say, you're Tatas and we put money into this company because of you. And you're right here because you're in steel, you're in auto.

We have a responsibility that whatever we do on the external side, we do something which is sustainable and profitable for shareholders. A shareholder may buy into something and make five times that amount of money, but somebody will have bought the share and be left holding the paper.

Or we decide do something, create a portal, get out - I think that is by and large on the creative side. If we are going to be long term, then we need to choose the business that will be sustainable. Maybe not have a very high revenue growth, but be sustainable in terms of profits.

"I am just saying that there's no single model for the Tatas to do what you are seeing around you."
Take a safe view, we do it within a company that shelters that enterprise. In other words, the public never gets to that enterprise.

Particularly on the infrastructure side. If today, we say we want to set up a company called ABC Fibre Optic and it fails, we may not be able to make profits. We shelter it within Tata Electric, and if it fails, Tata Electric's profits may be a bit battered. Tata Electric shareholders will benefit because Tata Electric has gone into this business. On the creative side, we may take a short view. There's no finite model, each one is discrete.

GET, SET, GeO
Here's where group strategy is born. Holding the group's e-initiatives together around a common axis is the high-powered team of Kishore Chaukar, R. Gopalakrishnan, and Ishaat Hussain in the Tata group, bifurcating businesses into 'old' and 'new' economy is a bit like heaping an indignity on the former. Of course, there is a lot of excitement about the 'new'. But Ratan Tata assures you that the big action is in the existing companies migrating to a new method of doing things.

"There isn't a disconnect between the two," GEO-member Ishaat Hussain emphasises. He is in his own words, the old man talking about the new economy "The group's portfolio is changing. We already have the building blocks to play a major role in the new economy," he adds. The excitement is real - ask either Ishaat Hussain, R. Gopalakrishnan, or Kishore Chaukar if the Tata group has enough well, chutzpah, to take on the new economy, and they reel off figures, presentations, numbers.

The transition process began over a year ago, about the time the group executive office (GEO) was set up. The chairman's broad direction was: 'Think business groups, not individual companies.' Says R. Gopalakrishnan, director, Tata Sons: "Traditionally, the company was the centre of the circle without much connection to what the epicentre was doing. Now, the business sector is the centre, the company is secondary."

Within the IT/Communications business sector, the broad scheme is already in place. The GEO's responsibility is to drive synergies and keep relationships going. Kishore Chaukar, MD Tata Industries and part of the GEO, was recently called in to arbitrate between two group companies. And yes, there's no appellate authority beyond the GEO in these matters.

These three are the ones who are ultimately responsible for ensuring that companies in the IT/Communications business groups don't take off in different directions and that the axis stays in balance.

Says Kishore Chaukar: "We have the domain knowledge in our various group companies, say in auto for instance. We have the technology expertise in companies like TCS. And we can put it all together." Chaukar is clear that the whole initiative will move backwards from the Tata home page: be it the women's portal, travel portal or B2B vortals. "The branding will be Tata," clarifies Gopalakrishnan.

Having a business group helps in concretising the picture to the market. "It is a slightly confusing scenario. Whether it is internal IT usage or the IT face the Tatas present to the world, there is a case for streamlining," says Partha lyengar head of IT research firm Gartner Group.

There are other benefits too. Says S. Ramadorai, chief of TCS: "It helps if we have to take up issues with the government. It could be anything like tariff or infrastructure-related." What's critical about the GEO function is that the trio are in close contact with each other, and everyone else. Communication, strategy, information, news-they're virtually in each other's pockets, in addition to regular business review meetings with the chairman.

Such a high-powered senior management team responsible for ensuring synergies goes a long way in reducing possible turf problems or overlaps.

There's never been any doubt that the Tata group companies hold technology and domain expertise within themselves. The trick is to 'mine', as it were, the expertise. No one in the group hesitates to admit that transitioning the mind is the biggest challenge. Ask about collecting together the expertise of various companies, and Hussain will tell you that it's not only the old economy companies that have turf problems. "Sometimes, getting technology expertise out of various pockets isn't at all easy," says Hussain, whose long standing association with the group is no doubt helpful in soothing such tension.

First, there's a need to bring the older companies into the buzz. Already they often use the services of the group IT companies for their internal needs. Now they're getting into alliances with the Communications/IT companies to set up industry portals and B2B sites.

Then there are innumerable relationships among IT companies-TCS provides technology services to virtually every company in the group; TEC will be the main infrastructure-provider to the entire group; companies like Tata Cellular get help in SAP implementation from Tata Technologies; when Tata Teleservices started basic line services in Andhra, Tata Cellular passed on its knowledge to newcomer; Tata Interactive and Tata Intenet will work with many group companies in the web design, hosting and content areas... This can never be a finite list.

And it's not really to new one. It's just that the trio is now trying to formalise the process of using group companies' services. They are also trying to actively forge relationships. In infrastructure, the logical grouping of TEC and telecom companies will carry the group forward.

The possibilities are immense. Prabhat Pani, chief of Tata Cellular says: "Apart from sharing infrastructure in Andhra Pradesh, we can also have common resources on the customer end like common distributors." He goes on to explain how his company could play a critical role in Tata Internet's presence in Hyderabad, enable cross-selling of the pool of products and services within a common customer base. Adds S. Ramakrishnan, managing director, Tata Teleservices: "As regulations take into account convergence, we can offer integrated communications services for a certain area."

But the GEO-level stand on relationships allows only for preferred relationships, not exclusive relationships. Service providers, for instance, can't be affiliated to any one IT company alone. Observers do raise the issue of the clout of larger group companies like TCS tilting things in their favour.

An issue that's likely to come up more in the future is what happens when external partners come in. For instance, will the Tata-Birla AT and T combine want to continue to use the services of Tata group companies. Pani does admit that's an issue they'll have to deal with as it comes.

The GEO is also working on a strategy to iron out overlaps in what each of the companies within the Communications and IT business group offer too. Take for instance, something like both Tata Technologies and Tata Elxsi offering CAD-CAM services.

All these plans steer clear of a third of the ICE combination- entertainment. There are no concrete plans, yet, the GEO says. But there are no outright NOs. The pure content company of the Tatas, if you can call it that, is Tata Donelley. The company brings out apart from Yellow Pages, some niche magazines like Overdrive. The Tatas recently increased their stake in this company which will be working closely with Tata Internet on portals.

There may be no statements now, but if the group decides to get into entertainment at some point, Tata Donnelley may be the one to watch.