At the head of the class: Actually, Ramadorai heads a company in a class of its own

Visitors to the verdant, large, showpiece campuses from which Nandan Nilekani, President, CEO and Managing Director, Infosys, and Azim H. Premji, Chairman, Wipro, operate from in different parts of Bangalore, usually come away impressed, even overwhelmed. In stark contrast, the 11th floor offices at the Air-India building in Mumbai's central business district of Nariman Point, where TCS' CEO and MD S. Ramadorai works from, are almost spartan and functional. The difference isn't just an issue of aesthetics. Nor is it a function of real estate costs in each of these cities (though this is important). The thing is, the three offices are fairly accurate reflections of the character of the organisations they lead.

For all its spartan looks, though, TCS is the big daddy of India's it services industry. It ended 2005-06 with revenues of close to $3 billion (Rs 13,500 crore); it hit the mark a mere three years after touching $1 billion (Rs 4,500 crore) in revenues; and it is nearly a third larger than its nearest Indian competitor. If it continues with the 30 per cent plus growth rate which it achieved last year for the next five years, it will easily cross the $10-billion mark. If it grows faster, which is possible, given the company's recent track record in pitching and bagging big deals, worth several hundreds of millions of dollars, over the past few months, it will reach the magic figure even faster. And the company's vision, 10 by 2010 (revenues of $10 billion by 2010), outlined initially as a stretch target, will become reality.

With 66,480 employees and another 30,000 to be added in the next 12 months, the company, which pioneered the factory system in it, has rewritten the dictionary when it comes to the word scalability, a rewrite that hasn't gone entirely unnoticed. "In terms of scalability, TCS seems to be out in front in this regard and is always thinking ahead about 'where next'," says Dana Stiffler, Research Director, Consulting and it services, AMR Research. "It leads in terms of global scope and reach by a margin that Infosys and Wipro will be hard pressed to catch up with, unless we see a major acquisition by either."

Despite a reputation of being conservative when it comes to compensation, TCS' attrition rate of 9.9 per cent is the lowest among large it services firms in India. That could be a critical factor; a study by India's software lobby nasscom and consulting firm McKinsey estimates that the Indian it sector will face a shortfall of half a million people by 2009. "While our compensation matches industry standards, the fact that we have the lowest attrition, shows that culture in the company makes people stick around," says the soft-spoken Ramadorai.

Numbers are not the sole reason why TCS is best placed to hit the magical $10-billion mark first, though that helps. The breadth, width and depth of its portfolio of offerings make it a clear favourite. While other Indian vendors like Wipro and Infosys have their own strengths in key verticals, TCS' substantial presence in banking, financial services, insurance, telecom, manufacturing, retail and consumer goods, transportation, energy and utilities, life sciences and healthcare, media and entertainment, and business process outsourcing (BPO) makes it a player to reckon with. It has 929 clients compared to Wipro's 502 and Infosys' 460.

Already, this unmatched breadth and depth is translating into clear gains in the marketplace if the large deals the company has bagged in the recent past are any indication. The $250-million (Rs 1,125-crore) ABN Amro deal it bagged in September 2005 and the $847-million (Rs 3,811.5-crore) Pearl contract it bagged a month later, gave TCS the kind of visibility across the world that most companies covet. "We are now an automatic contender for large, long-term contracts, across the globe," says Ramadorai.

TCS has not only been bagging large deals but also making specific niche acquisitions to augment its already strong portfolio of offerings. In October 2005, it made two acquisitions within a span of two weeks. First, it acquired fns, an Australian banking solutions firm, for $23 million (Rs 103.5 crore); then, it snapped up Comicorm, a Chilean BPO, for serving the IberoAmerican market at a price of $26 million (Rs 117 crore). "Acquisitions are a part of our growth strategy and we will make them where it makes sense either in getting into a new service line or a geography or obtain key customers but never for the sake of revenue accretion alone," explains Ramadorai.

Not that there is nothing to fix. Partha Iyengar, Vice President (Research), Gartner, believes the company needs to work on marketing and branding. "If only it came out of its marketing and branding 'hole', it'd be able to put plenty of space between itself and the other two companies (Wipro and Infosys)," he says, adding that because the company doesn't do this, it continues to get clubbed with the others. "Strangely enough, in many cases, even though TCS is the 800- pound gorilla, the smaller companies, often including the fourth in the 'India 4', Cognizant, tend to have greater brand awareness and mindshare."

Understandably, Ramadorai disagrees with this analysis. "It is not (about) the noise we make in the marketplace," he says. "While there might have been certain gaps in communicating our strengths because of our privately held status in the past, customers focus on execution and value delivered." There, he says, the company's "track record speaks for itself". Still, TCS could do with some branding, and it could do worse than look to one of its closest rivals, Infosys (see The Brand Is Us), for some tips.

Then, there is the large onsite component (62.5 per cent as compared to Infosys' 49.3 per cent and Wipro's 53.7 per cent) of TCS' revenues that, while enhancing the revenue per employee, depresses profit margins considerably. For the record, the company has managed to increase the offshore component from 28.6 per cent five years ago to 37.5 per cent now.

In an oblique reference to TCS' largescale deployment of its employees at customer sites, Nandan Nilekani, CEO, Infosys, says, "We are not body shoppers. While every work has a component which has to be done onsite, our systems and processes allow us to ship a substantial amount of work offshore." Given that offshore (read India) means lower salary structures, margins are naturally higher. In defence, Ramadorai says that a large onsite presence has helped TCS bag contracts which require deployment at customer sites or near-shore (a term that refers to a growing preference among some customers to ship the work not to India, but to some third destination, that is closer to home). In her latest report on TCS, Priya Rohira, an analyst with Mumbai-based Enam Securities, a brokerage, states that the company's growth in revenues and net profit for 2006-07 will be 34 per cent and 31 per cent, respectively (higher than the guidance). She adds that growth in operating profit will have to come from "gains from fixed price contracts and improvement in offshore share".

And while TCS has managed attrition admirably, it could face tougher problems on the people-management front. Today, around 6.5 per cent of TCS' workforce is composed of people from countries other than India. As the company hires more people at the senior level, and as it grows either organically or through acquisition, it will have to move to a more decentralised management structure, since that is what these senior 'on-site' hires will expect. "What can also hold it back is its perceived (and in many cases real) plodding bureaucracy, centralised (slow) decision making, and its 'stealth' approach to marketing and branding," sums up Gartner's Iyengar. These are issues Ramadorai and his team would do well to handle as they eye 10 by 2010, maybe earlier.

At the head of the class? Actually, Ramadorai heads a company in a class of its own