S. Ramadorai, CEO, TCS: All eyes are on the man

Tucked away down south in Trivandrum is Technopark Kerala, the information technology showpiece of the state government, spread over all of 156 acres and 1.5 million square feet of built-up space. Technopark is host to over 55 it and it-enabled service companies that collectively employ over 5,000 it professionals. Occupying 2.15 acres of that space is the Trivandrum branch of India's largest and the world's second-fastest growing it services firm, Tata Consultancy Services (TCS). The Trivandrum outpost is just one of the 106 offices TCS has put up across 30 countries. Don't get lulled by this relatively obscure location. The one in Technopark is slightly different, and very special. One that CEO S. Ramadorai can't do without. That's because the lifeblood of his company-people-cuts its teeth in the Kerala capital. Since April, some 1,800 fresh recruits into TCS were put through their paces at this office. It is after all the Corporate Training & Education Centre of the software giant. By March 2003, at least another 1,200 freshers from 35 of India's finest campuses would have done the stipulated four-month onsite stint in Trivandrum and come on board the company, which as of today boasts a workforce of a little over 21,000.

In the next seven years, another 20,000 fresh recruits would have done the Trivandrum drill. That's a conservative estimate of the number of freshers TCS would have hired locally by then. By 2010, TCS would need to have at least 40,000 more employees if it has to achieve its avowed ambition of being amongst the top 10 consulting firms in the world, in the big league of IBM, EDS Accenture, CSC, KPMG, and Deloitte. To get there, the division of Tata Sons (the holding company of the Tata group) will have to hit revenues of $6 billion (Rs 28,992 crore)-roughly six times the projected revenue for 2003, of roughly $1 billion (Rs 4,832 crore). If 20,000 are freshers, the other 20,000 will be a mix of local talent from international development centres and the people who come along with the acquisitions TCS proposes to make over the next seven years. ''This is a company whose most important asset is people,'' says the 57-year-old CEO, who stepped out of the shadow of the legendary F.C. Kohli in the September of 1996, 24 years after joining TCS.

Even as Ramadorai crunches the recruitment numbers for the years ahead from his 11th floor Mumbai office in the Air India Building in the city's financial district, less than a kilometre away, there's another chieftain who's avidly tracking the fortunes of this it giant. Sitting in his 4th floor of Bombay House, the headquarters of the Rs 45,000 crore Tata group, Chairman Ratan Tata is clearly aware about what TCS brings-and can bring-to the table. $6 billion may today still be a gleam in Tata's eye, but there's little else in his stable that boasts the potential of not just delivering revenues of Rs 30,000 crore but of growing at 28-30 per cent year on year, for the next seven. His flagship, whose exports constitute 94 per cent of revenues, is his best bet in making the Tata brand a global one, and building a genuine Indian multinational. And, yes, if he's able to unlock just 10 per cent of the immense value secured in TCS-investment bankers estimate it at Rs 60,000 crore (or $12 billion) in current market conditions-he'll be able to raise around Rs 6,000 crore. Much of that sum will come handy in fuelling his other growth engine, telecom, which will call for Rs 10,000 crore over seven years. "TCS is a jewel that needs to be fully supported. It is the flagship, in terms of earnings and profits, and is a global company. When market conditions are right, we will be able to unlock significant value," says Tata, as he recollects a six-month stint he did in TCS way back in 1971.

"Post listing, the perception of TCS will change, as it begins generating more news, thereby increasing visibility" Phiroz Vandrevala, Executive Vice President, TCS

The Jewel In The Crown

There's absolutely no room for doubt: The 33-year-old TCS is the crown jewel in the Tata crown that isn't exactly glittering from all sides. In terms of revenues, it may still be smaller than a Tata Engineering or a Tata Steel, but in terms of profit margins and profit growth it's streets ahead. Last year, TCS did an estimated net profit of Rs 1,300 crore, as against Tata Steel's bottom line of Rs 205 crore on Rs 6,708 crore, and Tata Engineering was in the red to the tune of Rs 54 crore on sales of Rs 7,506 crore. Nobody at TCS will confirm this, but TCS profits grew at 58 per cent last year. Nobody at Bombay House will confirm, either, that India's largest it services company contributed all of 110 per cent to Tata Sons' bottom line last year.

''Here is a company that has got a wealth of talent. Here is a global organisation that's got clients that are world class. Add the power of the Tata group, and you can be assured of great returns, over a sustained period of time,'' gushes Ramadorai, CEO, TCS, in what may come across like a ''please-invest-in-my-company'' plea. Yes, every investor worth his portfolio (and many that aren't worth it, either) has been eagerly awaiting TCS' public issue of shares, but then the 57-year-old Ram-as he's known in it circles-has little reason to hardsell the company he's worked with for 30 years. A company that's the only Indian representation in US consulting firm Kennedy Information's Consultants News' list of the world's 40 largest it consulting practices. TCS comes in at No. 12.

That's not all. Last month, TCS was perched in the top 25 bracket in Gartner Inc's compilation of the Top 50 software maintenance and support providers in the world, at No. 21 (the only other Indian company is Satyam Computer at No. 40). In terms of revenue growth, TCS emerged the world's second fastest-growing in this category (with Satyam Computer at No. 4).

There's little doubt that a public issue of shares by TCS will provide the much-needed fuel for the Tatas' growth aspirations, but that doesn't mean there's nothing in it for the it major (the public issue is imminent but neither TCS nor Bombay House is still clear when exactly it will hit the market; conditions and sentiment will decide the timing). One clear advantage of a listed TCS is that it can use stock as a currency to buy companies. Also, as Phiroz Vandrevala, Executive Vice President, explains: ''Post listing, the perception of TCS will change, as it begins generating more news, thereby increasing visibility.''

But going public-and later integrating the other it companies in the Tata fold like Tata Elxsi, Tata Infotech, Tata Technologies and CMC-is just the beginning. The road to $6 billion is long and winding. There'll be plenty of barriers TCS will encounter along the way as it seeks to become a globally-visible brand and rub shoulders with the likes of IBM, Accenture, EDS and CSC in the elite Top 10 consulting bracket. In revenue terms, TCS is still way behind. For instance, last year IBM had raked in consulting revenues of $10.8 billion and Accenture $9.5 billion, over 10 times TCS' $875 million. ''It's a crowded market out there, dominated by huge players, so you have to be realistic,'' says Mike Dodd, Vice President (Research), Giga Information Group, UK.

"Rather than being a technology company, we now have to become a customer-facing, marketing-oriented organisation" S Mahalingam, Executive Vice President, TCS

Reinventing TCS

It's not just about revenues, either. Clearly, the time has now come for the TCS top brass to reinvent the company they grew along with (the A team includes Executive VPs Phiroz Vandrevala in Delhi and S. Mahalingam in Chennai, CIO Kesav Nori and CFO Vinay Aggarwal, besides Ramadorai). Having earned their spurs as quality back-end service providers, TCS now faces the formidable task of acquiring a front-end that can bag huge global projects, and of broadbasing its portfolio of products and services, which in turn have to find their way into new geographies. That's the only way to step up brand recall and marketshare. ''Having established their brand equity and value propositions in terms of quality, productivity and cost, now it's time to look at providing end-to-end-solutions,'' points out Som Mittal, Vice Chairman, NASSCOM. Adds S. Mahalingam, Executive Vice President: ''Rather than being seen as a technology company, we now have to become a customer-facing, marketing-oriented organisation.''

In a way, TCS-and indeed the first rung of Indian it services players-has little choice but to quickly create differentiators in their business model or run the risk of becoming commodity players, competing only on price. ''That's just the starting game; it can't be the end game,'' says Ramadorai. Adds Noshir Kaka, Principal, McKinsey and Company: ''It's going to be difficult for Indian it companies to break out from the current mould, but then moving up and providing a broad spectrum is the only way to go if they have to stay in the tier 1 level.'' Being a tier 1 it services player today assumes significance at a time when clients are preferring to deal with just two-to-three vendors in a bid to get a good price. Tier 2-3-4 players stand the risk of drifting away from the radar screen of global clients.

New Horizons

To be sure, there is plenty that TCS is doing to ensure that it stays top-of-mind. It's expanding its footprint into newer geographies, with markets like China, Latin America and the Asia-Pacific region being the more recent additions. The main markets are well covered: 30 offices in the US, six to seven locations in the United Kingdom, operations in Western Europe, Singapore as headquarters in the Asia-Pacific, and a presence right from New Zealand to Japan to Korea.

In Latin America, Ramadorai recently zeroed in on Chile, which he feels is important for servicing that region. ''It is fairly a stable country, fairly strong in the financial services market. There are some very good Chilean banks that require some complex solutions so we do want to play in that market since we think we have got solution capabilities and assets that could be sold there.'' Similarly, TCS has also put up a development centre in Uruguay: Reason: the country's pool of infotech professionals that can speak English and Spanish.

What's also significant here is that in its bid to become a truly global company, TCS is hiring local people from those regions, in addition to Indian talent, which will always be necessary from the skill and price points of view. Mahalingam points to two advantages of local hiring. One, you need an expert in a particular practice in a certain area. ''For instance, if it's managed healthcare services in the US, we need someone from there who understands the business.'' The second benefit of local people is that only they can ensure continuity in services, as the Indian engineers can't be there for ever.

Another prong in the end-to-end consulting solutions strategy is the sustained launch of new industry and service practices coupled with alliances with global it giants. A relatively recent initiative has been to provide it consulting and sofware solutions to various governments, in India and abroad. That's given birth to the latest industry practice: sGovernance. At the same time, alliances have been forged with the likes of Sun Microsystems, Novell and Oracle, to name just three.

The Downsides

Clearly, TCS is making all the right moves towards its 2010 vision, but the questions uppermost on the mind of many of the industry watchers are: Is TCS taking on much more than it can chew? And, should TCS even be attempting to become a high-end consulting company?

L.C. Singh, a former TCS veteran of 18 years, now President & CEO of knowledge management firm Nihilent, doesn't feel Indian it services players should be looking so high up the value chain. ''A Walmart can't be an Armani. I wonder if there's any need for a show of artificial virtuosity. Instead, the focus should be on maintaining one's leadership position in the existing business via innovation." McKinsey's Kaka continues, in a similar vein: ''One option to going the consulting way is to globalise the existing Indian delivery model.'' This would mean that TCS would have to become more of a contract manufacturer, focusing on quality and price and honing its execution rather than taking the entire end-to-end responsibility of vendor interaction, project management, client relationship-building et al. The downside of this strategy: You run the risk of being relegated to tier-2. Upside? Your risk is considerably lower.

A Gargantuan Task

But it's clear that Ramadorai and his A team have decided to bite the bullet. ''We have to become a recognised player in the global context, across various parameters. It is a logical process and we've got to do it," says the CEO, as a matter of fact.

On the road to 2010, TCS's consultants would have found answers to many of the questions analysts are asking now. Will TCS be able to build the capabilities-the domain knowledge-required in the consulting sphere? Will TCS be able to transform itself from a rigid ''factory'' model to a more informal partnership-type of consulting firm, or at least succeed in creating a hybrid of the two models? Value in consulting firms is created at the front end by insight rather than products or processes. And it's the partnership nature of consulting firms-wherein the partners get to share in the spoils-that helps create that insight. Ramadorai doesn't rule out acquiring a consulting company to get that front-end in place, but then the integration of the factory with the consultants that could prove a gargantuan task.

Giga Information's Dodd points out that the weakest link in Indian companies attempting to make the consulting leap is branding. Today the Tata and TCS brands may be well known in offshore centres as a quality, value-for-money executor, but to be accepted as a consulting brand will call for a radical makeover-and pots of money.

You could accuse Accenture of going over the top when the company spent a mind-boggling $175 million (Rs 870 crore) on its rebranding effort, but the Tatas will have to invest at least a quarter of that amount annually to reinforce the brand in clients' minds.

Clearly, the TCS vision isn't just one of growing revenues, but means much more than that. If the Tatas do succeed, they would have created one of the very few truly global Indian corporations. This will call for not just an increase in export revenues but the ability to attract international talent at all levels in all regions, and to increase the perceived level of local-ness in global markets.

Meantime, back home the No. 1 priority of the top brass will have to ensure that it keeps attracting, developing, mentoring and compensating employees in droves. After all, it's all about people.

1 2