In a freewheeling conversation, N.G. Subramaniam, chief operating officer, Tata Consultancy Services, opens up about the IT firm’s strategy and future outlook. He also talks about CEO Rajesh Gopinathan’s leadership style. Edited excerpts:
TCS does not spell out what percentage of business is digital or high margin. What metrics will help us to know how the company is building these businesses?
Many metrics are out there but given the industry and the rapidity at which technology is changing today, we are in a perpetual transformation mode. This means that purely revenue per employee is likely to be volatile. I’ve always felt that per capita value creation or net income per employee in the long term is a metric I certainly like.
Are there any new businesses that TCS has built under Rajesh and your leadership over the last four-and-half years? For example, Accenture has built Accenture Interactive over the last many years.
I don’t talk about competition. But we have to give it to them (Accenture); the way they have built it (Accenture Interactive) over the last decade or so. At TCS, we have chosen to bet on a few things given our competency, our strategy and our roadmap to where we want to be. Platforms are one big area for us. In this, iON (a strategic unit focused on manufacturing industries (SMBs), educational institutions and examination boards) is a big bet for us. Ignio (automation solution for IT operations) has the track record of becoming the fastest product company to reach where it is today. TCS BaNCS (core banking software suite) has also grown and has its own path. In each of these platforms, we have taken a bet that we need to completely move towards a SaaS model and a Cloud-based and consumption-driven model.
Can you share some of the numbers on TCS HOBS, Digitate, iON?
As we move forward, I think there will be a greater level of transparency in terms of how much money we are making on each one of these platforms. But clearly, the key number I am giving you is that 90% of all the deals that we are making on the platforms is on a SaaS model. So, even if the customer does not want it in a SaaS model, and says I want it in a lumpy business-like model, we are convincing them to adopt the SaaS model.
In 2017, TCS first shared the concept of technology staples. Back then, the view was that TCS shares should command a premium, similar to the one enjoyed by consumer staples companies. Have you been able to increase the price for your services over the last four years, and does the argument of technology staples still holds?
I think the views we first expressed on technology staples is true and it has only increased our conviction in the last four years. More and more businesses are getting embedded into technology. On improving price and improving the realization, both remain very strong focus (areas) for us. There is a combination of factors but, yes, we have been able to increase pricing where it was possible. At the same time, we have also taken down our pricing and stay committed with our customers because you stay with them both in good times and bad times as that is again an integral part to our operating model and to our strategy.
What explains TCS’s ability to command a premium, which may not be very different than some of your rivals?
There are two schools of thinking. One is you can commoditize everything. Typically, when somebody adopts a technology, it stays at least for 5-7 years or 10 years. In other words, you have to run the hundred meters and a marathon at the same time in multiple situations. Here, I think our competition also acknowledge the fact that TCS is the best execution company. On the customer service, independent customer surveys rank TCS as the superior execution partner. So, say if you go to buy Apples, you can buy it in the supermarket or you can buy it in a speciality food store or you can buy it in the street corners. There is a price difference, quality difference, predictability difference in each one of this. The way we approach it is sometimes we have to play the horses for courses and sometimes you lay the courses for the horses.
There are a few who now question the style of Rajesh’s leadership. A few have questioned if Rajesh is a lot more conservative when it comes to investing or taking business decisions. When it comes to meeting with clients, how do you think Rajesh, who was earlier the CFO, has grown over the last four years?
The fact that we are invested in so many new initiatives, the fact that we have grown TCS Cloud which is an infrastructure or asset-heavy business shows that Rajesh has not shied away from taking aggressive decisions. Remember, TCS always shied away from asset-heavy businesses. Look, we have to be disciplined in whatever we do. The fact is that TCS cloud has become a very decent sized business. He (Rajesh) has been a fantastic person to work with. Stitching together large deals—whether the Prudential or the Postbank deal—shows that he (Rajesh) drives from the front. He called out the multi-year investment cycle; anticipated the talent demand and our move towards TCS NQT (National Qualifier Test) to encourage freshers to be digitally savvy. He has also transformed the company into a very empowered structure.
Does TCS continues to prioritize margins over growth when you say you have to remain disciplined?
We are extremely focused on growth and growth with margins and we don’t focus only on one of them. If we are focused on only one of them, we will lose both. That has been our philosophy and experience.
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