-S Ramadorai, MD & CEO, Tata Consultancy Services (TCS)

In a career spanning three decades at TCS, Subramaniam Ramadorai has lived the life of the Indian IT industry. He has been instrumental in every aspect of TCS' growth-be it the numerous quality initiatives, the offshoring model, the measurement models for people and processes, the signing up of big ticket clients, or then forging alliances with global technology majors and institutions, and, most importantly, making it the first Indian IT company to cross the $1 bn and subsequently the $2 bn threshold. Following another year of superlative growth after getting listed in the Indian bourses, 2005 was a year of aggressive M&A activity. In an exclusive tête-à-tête with Rajneesh De of Dataquest, Ramadorai delineates the guiding principles behind the acquisitions and TCS' increasing domestic foray, and refutes allegations of being unfriendly towards financial analysts.

After consistently shunning M&A for many years, in 2005 TCS was active in acquiring companies across the world. Especially on the BPO front, the Comicron and Pearl BPO acquisitions heralded TCS' re-entry into this domain. What were the guiding principles driving this acquisition spree, especially on the BPO front?
The acquisitions of both Comicron in Chile and Pearl Group's BPO division in UK were in line with TCS' strategy of being in platform-based verticalized transactional BPOs. While Comicron augmented our presence in the global pensions vertical, Pearl BPO offered opportunities for significant growth in life assurance. Overall, this translates into strong TCS expertise in Finance & Analytics in the BFSI domain from the BPO side, especially taking into account our decision to stay away from the low margin voice-based BPO business.

With verticalization being the overall mantra, the jigsaw was completed by our acquisition of Sydney-based FNS and setting up of C-Edge Technologies in association with SBI. FNS and C-Edge complement the overall BFSI vertical presence by bringing in the IT services component-they help us in selling and deploying core banking solutions globally.

The acquisitions, therefore, meant that TCS has now expertise in the BFSI vertical on both IT services as well as BPO delivery platform. Do you find a wide gulf in marketing these different platforms, one that would require a separate branding for the BPO arm?
We do not require separate branding for the BPO business. In fact, we follow a common marketing pitch for IT services, infrastructure services, as well as BPO though we do have different cross-functional teams for delivery. The models of delivery might be different for each, but a common marketing approach helps ensure more stable longer relationships with bigger clients and, hence, significant deal sizes. Only client relationships of such significant magnitude would keep us on track with our stated goal of reaching $10 bn by 2010.

Are you talking about significantly large deals like the one signed recently with ABN AMRO. What is the significance of such deals for TCS and the Indian IT players in general?
The ABN AMRO deal was a landmark engagement not only for us but for the entire Indian IT industry. Not just in terms of size-the $400-mn five-year application support contract to TCS and Infosys represents the largest outsourcing deal bagged by the IT industry so far-but also in terms of quality. It is expected to give a significant strategic push to unbundling of mega outsourcing contracts to multiple vendors as opposed to the hitherto single-vendor norm. Coming from a Dutch company, this deal has opened the doors for large contracts in Europe for Indian offshore vendors. And, most importantly, a deal of this size and scale has brought Indian vendors into direct competition with the MNC vendors.

For TCS, the milestone engagement is a complete and irrevocable validation of our global delivery strategy. In addition to the significant annual revenues it will generate, this is the first multi-national global engagement that allows us to utilize our Global Delivery Model (GDM) in its entirety. In addition, in our development centers in India over 500 consultants are working on this engagement from our global delivery centers in Brazil and Hungary. Once the deal has been inked, it is now important to monitor how we are performing; how TCS is investing continuously to build its global delivery model and best-in-class execution abilities to remain in the eyes of the customer.

While the ABN AMRO engagement signifies TCS' global reach, how are you looking at the domestic market that too is now witnessing large IT infrastructure outsourcing projects? Why is it that most of the large domestic engagements are being bagged by MNCs like HP, IBM and Accenture?
The domestic market looks exciting today especially on the IT infrastructure outsourcing front, and we are actively exploring opportunities there. The CMC acquisition has provided us with a strong foothold in the domestic market and we believe that Tata Infotech coming into the TCS fold has further bolstered this. Tata Infotech had a strong domestic SI presence, especially in the defense and telecom sectors, and this could perfectly supplement the capabilities of both TCS and CMC.

Even Indian enterprises are looking at the scale of offerings the vendor provides and its size and that perhaps explains why MNCs are winning many of these deals. With the TCS/CMC/Tata Infotech combine in force now, we too expect to score with Indian clients on both scale and size. A recent example could be the landmark Tata Teleservices (TTSL) deal estimated at over Rs 1,000 crore and spread over five years. Under this contract, TCS has been given the responsibility of managing the IT infrastructure of both TTSL and Tata Teleservices Maharashtra.

The merger of Tata Telecom into TCS gives you stronger foothold into the domestic market. Does this also signal the first step in the consolidation of all the infotech companies in the Tata group under the TCS umbrella?
The merger of Tata Infotech into TCS was meant to provide us with an expanded customer base and deeper penetration in key geographies. It had also prevented situations like when both companies were bidding against each other in bagging the same projects. While Tata Infotech complements our strengths, the other three companies operate in completely different areas. Tata Technologies possesses expertise in auto engineering, Tata Elxsi in visual infotainment while Tata Interactive is strong in e-learning. Each of them are running profitable businesses and we do not foresee any of them merging with TCS in the near future.

How is TCS ramping up in terms of manpower during 2005-06? How would you react to the common perception that only manpower increase can enable topline growth for services companies?
The gross addition of manpower at TCS in the current fiscal could be pegged at 18,000. With allowance for attrition, the net addition to manpower in 2005-06 would be around 13,500. This does not, however, include personnel of overseas companies we acquired during the year-Pearl BPO had 950 employees, Comicron 1,257 while FNS brought 220 employees. This would mean that TCS would have manpower strength close to 50,000.

While the perception that topline growth is directly proportional to manpower addition is true to some extent, it can never be accepted as an axiom. Managing the addition of 13,500 people into the fold is a mammoth HR challenge that very few can handle. And topline growth would ultimately depend on how you manage your businesses and client relationships and not just on having a huge manpower.

How did the different verticals contribute to TCS' topline growth in the current fiscal?
The BFSI sector accounted for around 41% of TCS' turnover followed by manufacturing and telecom that accounted for 18% and 10% of our revenues in the current fiscal. The retail sector contributed to around 5-6% and so did life sciences, energy and utility. The government sector accounted for around 2% of our turnover. Going forward, while BFSI would continue to be our biggest revenue driver, the new areas of business focus include life sciences, utility and energy. In the e-Governance space, we are focused on multiple initiatives, including front office and back office applications both in India and abroad.

It is now more than a year that TCS has been listed on the stock exchanges. But still you do not seem to be a darling of the bourses like your competitors, with the investor and analyst community. Do you feel that TCS needs to sweeten its communication with the investor community? 
We at TCS would like to reiterate that we do not believe in giving q-by-q guidance as we feel that our performance over the years speaks for itself with both investors and the analyst community. We would like to ensure our investors long term returns on their investments and not just hanker after getting 'good' news every quarter. Even if some analysts feel that this means our business model is ridden with unpredictability of revenues, the ethics of corporate governance embedded in TCS does not permit us to provide quarterly guidance.

What about plans of getting listed in bourses abroad?
We would eventually like to get listed in the US but it would not be possible for me to give a time frame to it at this moment. We are not facing any significant financial challenges currently, and are certainly not desperate for cash. Any motivation for a secondary listing for us would therefore be strategic, rather than financial. Other than US, we might look at a secondary listing in Europe, either on the Deutsche Bourse, or the London Stock Exchange.

Rajneesh De  
rajneeshd@cybermedia.co.in

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