Confident about outpacing competitors in our space: TCS

CNBC-TV18’s Kritika Saxena spoke to Rajesh Gopinathan, MD & CEO of Tata Consultancy Services (TCS) and asked him if TCS will continue to deliver growth that is ahead of the industry average.

NASSCOM now represents a much wider variety, there are delivery centres of foreign companies here, there are captive units of other industries here, they are all getting clubbed and have been called part of the industry. In our competitive set, we are quite confident about outpacing our competitors, he said.

The momentum is there as company enters FY19, he added.

Chairman's message on simplification & synergy is very powerful, said Gopinathan.

Acquisition is not a specific focus area for the company currently, he further mentioned.

Below is the verbatim transcript of the interview.

Q: You have had an eventful one year, you completed one year at Tata Consultancy Services (TCS), as the CEO of TCS on February 21. If you had to point out one big challenge that you have undertaken given the fact that it has been a difficult time for the entire IT industry, what would that one big challenge be that you have been able to overcome in the last one year?

A: I would characterise it not as one big challenge, but kind of a rolling set. So, if you look back at the year, the first task at hand was to make sure that the transition happens smoothly, both from our employee perspective and even more importantly from our customer perspective. So if you were to split it into three parts, I would say the first third was about doing that, making sure that we get in front of as many customers and as many employees as possible that we emphasis continuity aspect of it and reinsure that trust and that relationship continues.

The second third of it was about relooking at ourselves internally and saying that now that there is unexpected shift, how do we use this opportunity as a trigger for some amount of incremental change internally. We have been through a series of resets, incremental, but significant in its entirety or in its cumulative effect. So we refocused the company around three big themes, agile, cloud, and automation, and then moved our management teams around to make sure that they are aligned to those teams. We went through a services reset as it were, created a whole new group called Business Technology Services (BTS) Group.

The third leg of it has been about repositioning the company from external perspective and ensuring that from a client perspective, we are resonating with where the client side focus was. So, for the whole theme of business 4.0, we distilled our understanding of our clients and played it back to them and that is getting a lot of resonance. We are now on to that phase where I think whatever changes that we have done internally, is showing results and we are seeing the momentum come through in the larger deals. So I would not really think of it as a one thing, it has been a slow and steady TCS style, continuity with change has been the mantra.

Q: One of the things that you did was completely reshift and reset the digital focus without changing the management team significantly. So that took care of the attrition aspect, but is the reshift of the digital focus the reason why you have been able to scale on to those large deals, USD 6 billion worth in three months alone, and that is not something that any other IT has company has seen?

A: I would not look at it as a reset of digital, I would look at it as an expansion of our digital strategy. We had invested in digital more than three years back, we had gotten it to a certain critical mass. Essentially what we have done is we have taken that single point and then broken it into its components and broad based digital and that has really helped us in the large deals that you see. Because of that broad based spectrum, the deals that we are now looking at are much more complex.

It is about making digital work for customer transformation rather than looking at it as individual small projects. This is significant enterprise wide transformation engagements and that is why the deal sizes are where you see it to be. So it is that broad basing of digital and embedding it into everything that we do and making that work for the customer across their entire spectrum has been the hallmark of the deals that we have recently announced.

Q: Last time you told me that you are going to be ready to breakup digital revenues as well. So based on the individual segments, you will be able to do this in a years’ time, are you still on track with that, could it happen earlier?

A: We are on track. Sometime during the course of the year we will do it, but how we do it and in a manner in which it is useful for us and does not increase the reporting overhead significantly, and it is meaningful from an investor perspective is where the real challenge is. So what we are seeing is services transformed and much more combined set of services being valuable. So when you look at these deals, it is important from an internal perspective to ensure that we have ascribed value to different groups, but if there is an external view to it, it only complicates it. So I don’t see a value for me to do it.

Q: USD 6 billion that you have signed worth of multiple, about five deals roughly in the las three months alone, how much will it scale up revenues and annually if you can give us the ballpark figure?

A: I would not want to do that.

Q: 250-300 basis points annual is what analysts are expecting.

A: I do not want to put number on it. However, these deals are, there are many different elements to it. Some of them are five years less, and some of them are 10 years plus. So, you have a full spectrum of deals in that setup.

Q: More such deals around the corner, large deals?

A: Pipeline is strong.

Q: But how is it that you are winning these deals and every IT company that I have spoken to, the question I ask is are large deals back judging by the deals that TCS has won, they say no.

A: It is like this, yesterday also I spoke about this, large deals in the last era were essentially deals of size, of volume. So we had a set of services and we just increased the volume of it and they were really procurement deals, we were combining large procurement to stitch together a large deal.

The last deal that we are now talking about, our large transformation deals which were actually large in scope, so, they are going across a portfolio of services and you need to have the full spectrum. So, if you look at the Transamerica deal or any of the other ones, we have spectrum from products all the way to operations. So you need the full spectrum, if you have the spectrum and if you can bring it together uniquely for the customer, customers are ready to put it out.

Q: That we used to see once upon a time which the city kind of deals where there was one big traditional deal.

A: It is not request for proposal (RFP) pipeline led deals. It is much more custom built deals.

Q: This is something that everyone wants to know, NASSCOM has already given its guidance for the IT sector, TCS is on the executive council, 7-9 percent is what they are expecting which is a marginal increase. TCS has obviously been ahead for the most part of the last 10 years, been ahead of industry average. Would that continue in FY19 as well?

A: It depends on what the industry is. If you take the industry as technology services providers, we definitely are, but NASSCOM now represents a much wider variety. There are delivery centers of foreign companies here, there are captive units of other industries here, they are all getting clubbed into and they are being called part of the industry, they are hardly part of the industry, that is not their business.

So, in our competitive set, we are quite confident about it. The rest of it depends on company dynamics rather than competitive dynamics. So we do not want to comment about it.

Q: Will you be within that range or higher?

A: Again, as I said, I do not want to use that as a benchmark, it is not the right one.

Q: For FY18 then, what is the outlook like? You are ending on a positive note, in terms of the scale and the deal momentum, are things looking better as you go into FY19, is FY19 looking like a better year than FY18?

A: Every time around this time of the year you ask this question. Momentum is there as you have clearly seen from the deal side of it, and from an industry perspective, various industry groups are coming together. We have called out bottoming out in retail, and as you have seen some of the deals are coming from that space.

Q: You have said the big challenge that is BFSI, another two quarters left and that should start getting better. Do you maintain that?

A: I think we are much more constructive on insurance as we see this and banking is still an area that is work in progress. We need to see how that turns out. So, other than that also the other industries are actually doing quite well.

Q: With the large deals you will have better visibility, with the kind of deals that you have signed already, the kind of pipeline that you have. You have better visibility right now than you had at the start of last year.

A: We have a better order book to work on but I would rather wait to see how it turns out. So let me put it this way for you, for investors, everyone, we are not going to make forward looking ones. So the market will need to get used to it. We will talk about what is near term visibility, and what is in the kitty already. There we will be as transparent as possible, but beyond that people have to take a call.

Q: The fact is that even NASSCOM made this comment that while yes they have given a guidance, the fact remains that North America is going to be volatile. You do not know the kind of immigration processes, the kind of protectionism statements that are coming from US, is that going to be an overarching worry for you in 2019, in FY19?

A: North America is our largest market and any form of risk there, economic or political, definitely would be of a worry.

Q: Is this continuing this year, can you see that risk continuing?

A: I think there is that residual base level of risk and we are constantly moving to make sure that we are better represented in with customers, with our other stakeholders in this equation and also we are systematically de-risking by actually investing in the pipeline in terms of talent transformation and talent development in the US market. So it is a very supply constrained market.

The actual – by current projections, the skill shortage in the tech sector is more than a million people. So, it is a hugely supply constrained market. Our focus has been to build up that supply side by significantly investing in the high school level because the infrastructure exists. What we are trying to do is to encourage children to come over into the technology sector.

Q: The other thing that I wanted to ask you about, as a CEO of India's largest IT company, there is concern and there is a lot of talk about how IT is no longer going to be one of the biggest jobs generator in the country. The fact is that it has become non-linear, it has flattened out in terms of net addition that you are seeing on an annual basis. Is it going to decrease as we go by every year?

A: It is very difficult to project what the actual trajectory will be but remember that technology at the end of the day is about enabling human talent to become more productive. So productivity is an ongoing challenge, but technology is getting much more embedded into many other areas. So one is to look at the technology services industry, but then if you look at extent of technology consumption by many other sectors in India also, it is significantly increasing; you saw e-commerce coming in as an area, you have seen product development coming in as an area. So I would say the outlook for technology jobs in India is very robust.

Q: At a group level, N Chandrasekaran is working on increasing synergies. As you look at go into the next level, building the scale further, how important is synergies across Tata companies, the other IT companies; there is Tata Elxsi, there is Tata Technologies. Have you started those synergies already with the other IT companies in the group?

A: I think that the Chairman’s message on simplification and synergy and scale is very powerful and technology per se could act as a single most integrating factor across the group. There is a new Chief Digital Officer in the group and thinking is also becoming much more widespread as to how do we optimise and how do we enable technology to act as a fabric that integrates across the entire group. So we are very excited about it and how do we participate in it, but it has to evolve the various stages.

Q: How long will it take to get some clarity on how the synergies are going to happen across the IT companies, across the tech capabilities?

A: It is not about the IT companies that the focus is. The focus is against the operating companies and how do we get together. So we have been having series of meetings with various companies, people have been coming to our EBC in Banyan Park and not just that we are increasing our focus on trying to think as to how do we learn from the transformation agendas that we have participated in and how do we bring that to bear to companies across full scale spectrum inside the group. So do we make it available for relatively midsized companies to participate in technology spectrum in a much more holistic way.

Q: What are the chances of a big bang Tata Elxsi-TCS-Tata Technologies merger?

A: You should ask their shareholders.

Q: But is there an option looking at a merger with other IT companies in the group?

A: That is not the focus of the agenda.

Q: You have talked about how acquisitions you will do and even Chandra used to say this. If it fits in the right skillset or the niche capability that you needed at that particular point in time. Why haven’t we seen TCS be aggressive with acquisitions in the last many years?

A: We have been aggressive in our own forms in many ways but as I said the focus is right asset at the right price point.

Q: Are there assets right now which you are looking at?

A: There are assets of both natures. There are right assets at atrocious price points and there are assets at good price points but which do not fit us, so when we find the right one --- but the important thing about TCS is whenever we have made an acquisition our hallmark is we do a few things but we try to execute it exceedingly well. So whenever we have made an acquisition we have stayed very-very focused with it and you will see us constantly staying with it. We have not done an acquisition and then walked away from it whether it is Japan, whether it is France, whether it is any of the other ones in the earlier times. So given that our frequency of acquisitions is going to be much more measured and at any point of time I do not think we have ever felt that if we had done an acquisition we would have bene better off.

Q: The domestic midcap IT companies do not interest you?

A: I do not want to rule out any given sector but that is not a specific focus area. If there was specialised skillset available and if we found that there was a point of time that that can be leveraged well and the price point is right then we are always in.

Q: A broader question since we spoke about Tata Sons. When Chandra left were there any concerns that you had when you took over, when you came to know that you are being appointed as the CEO? What was on your mind at that point and how is TCS in its current from different than what it was one year ago?

A: First of all, when the announcement happened it happened suddenly. There was not much time for anything to be in the mind.

Q: Did you know before it happened?

A: It was matter of days, so it happened at such a fast speed and technically if you see TCS today compared to TCS a year back, you will find that structurally component wise, DNA wise it is very similar. So think of us as we are realigning but the connections, the interlinkages, the pieces are all same.

Q: Any further transition or changes that could be around the corner?

A: The big change that is going on is as much in our focus to the customers and what our value proposition is. So if you think about it, our focus always is to stay close to the customer and stay relevant to them and we are moving away from optimisation and efficiency as a primary proposition to growth and transformation as a primary proposition. Therefore, if you look at the big deals that we have done, none of them are about optimisation. All of them are about transformation. So you will find that the entire shift is the shift in focus into growth and transformation as the main agenda which reflects where our customer set is because we have moved away well and truly away from 2008 scenario and there is a lot of appetite for growth and transformation and all the incremental changes that we have done is to position ourselves for this growth and transformation opportunity.

Q: A personal question, was it difficult to move into the CEO role after the CFO mindset. The financial aspect is completely different from the broader aspect that you are now taking care of?

A: The CEO role is much more liberating than the CFO’s role.

Q: You travel more now?

A: I travel a lot more now.

Q: How do you handle it with the family? How do you balance that out?

A: That balancing has to happen. So far the family has been very supportive. I need to go back and balance that out a bit. But once a year has gone by I am understanding the credence of the year because there are distinct to it. So I think in the second year I will be in a much more planned way because now I know what to anticipate and from family perspective also it is easier to plan. It’s a fairly streamline credence.

A few rapid fire questions:

Q: Your management mantra in one line?

A: Change with continuity.

Q: Your favourite tech visionary?

A: Steve Jobs.

Q: Your favourite Indian corporate leader that you look up to or that you take inspiration from?

A: Mr. JRD Tata.

Q: According to you how do corporate leaders manage or where do they learn. Do they learn at the job or do they learn from business schools?

A: They learn at the job with their peers, interacting with their teams and staying close to the business is where you learn.

Q: Are you a coffee person or a tea person?

A: I am both.

Q: What time do you like to be at your desk?

A: I am not a very early person so I come in by around 10 o’clock and like to stay till about 8-9 pm.

Q: Describe your management style?

A: By walking around.

Q: Do you like to be feared or respected by your juniors or your peers?

A: I would say liked and respected. You have to earn the respect. I would like to be liked.

Q: Not feared sometimes?

A: No.

Q: Do you socialise with your peers and your junior teams?

A: Peers a lot. Juniors, a lot less than what I would like to.

Q: What does your support team look like, if you had to talk about immediate support team at TCS, what does it look like?

A: We have a very lean setup so I have an immediate support team of three people; one from financial side, second from customer side and third from strategy, planning and coordination side. So three people and behind them they have very thin teams.

Q: What are you reading right now?

A: It’s been quite some time. Not read a book in the last six months.

Q: Any management book that you take inspiration from?

A: There are many and some as old as The Effective Executive by Peter F. Drucker and others like Warren Bennis’ An Invented Life but more on the personal side than on the actual management side.

Q: Your biggest shift in your career. The one thing that changed or lead you to the next leg of growth?

A: Joining TCS.

Q: What would your one key management advice be to future leaders?

A: Stay with the team. You win together or you lose together. There is no individual winners and losers.