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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.
INSIDE TCS |
Revenues*:
Rs 4,187 crore
Profits*: Rs 1,300
crore
Employees: 21,000
Clients: 1,000
Spread: 106 branches,
30 countries
Potential Market Value:
Rs 60,000 crore
Vision: To be
among the top 10 consulting firms by 2010
*2001-02 |
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.
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"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.
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"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.
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