After $32 billion rally, TCS CEO wants to get back to double digit growth
Since Rajesh Gopinathan was named CEO last January, TCS shares are up 50%, adding about $32 billion to its market value. TCS is now worth about $100 billion, more than that of the next four rivals combined.business Updated: May 31, 2018 13:08 IST
These are challenging times for India’s technology-services industry. Growth has slowed. Profits are pinched. Layoffs, once unheard of, are commonplace. Many of the businesses’s own leaders think its best days are in the past.
Rajesh Gopinathan is not one of them. The chief executive officer of Tata Consultancy Services Ltd. argues the industry’s opportunities today are bigger than they’ve ever been. The problem he contends is that his peers aren’t thinking creatively enough about how to evolve from the services of the past.
India’s tech industry was built by using the country’s low-cost labour to handle basic tasks like technology support and infrastructure maintenance. Now corporate clients need help with ever more challenging questions of technology and strategy -- and companies can thrive if they divine the answers.
“The industry has been overdoing the negativity,” says Gopinathan, 46, during an interview in his wood-panelled office in Mumbai. “We have the largest technology talent pool in the world - 400,000 people - and if we can’t figure out how to grow from here, then there’s something wrong.”
He’s done okay so far. Since Gopinathan was named CEO last January, his stock is up 50%, adding about $32 billion to its market value. TCS is now worth about $100 billion, more than that of the next four rivals combined.
“Their strategy is working,” says Deven Choksey, managing director of the Mumbai-based KR Choksey Investment Managers. “Investors are more confident about TCS than its peers.”
Gopinathan vows to get revenue growing even faster, despite warnings from rivals like Infosys Ltd. about tough times. “Our target is to get back to double-digit growth,” he says, which would be up from 8.6% in the last fiscal year.
He may negotiate more acquisitions to get there. Critics point out that rivals like Dublin-based Accenture Plc have spent billions of dollars on deals to boost growth. He cautions TCS will be selective about finding “the right asset at the right price point.”
He also has to contend with President Donald Trump, who has been tightening the rules for foreign workers, like those from TCS, who take high-skill roles in the US. Gopinathan says new technologies will let his company handle client needs wherever its employees are. “Work will go where the talent is, rather than talent moving to where the work is,” he says.
On a recent May afternoon, Gopinathan welcomes visitors to his office at TCS House, an impeccably-restored colonial building in Mumbai. The sprawling space is adorned with art, antiques and a historic map of the local neighbourhood. He sits on a couch and then immediately springs up to put on his jacket, making sure he’ll look nothing less than professional for a photographer.
Gopinathan started his career at TCS in 2001, becoming chief financial officer in 2013. He took over the CEO suite last year when his predecessor was promoted to restore stability at conglomerate Tata Group after a bitter boardroom coup.
TCS pioneered the India tech services model five decades ago and, until recently, the industry barrelled along at 20 percent-plus growth with little trouble. Now easy outsourcing deals are gone and customers are looking for price cuts. Gopinathan says the industry needs to adapt, like it has with the evolution from mainframes to smartphones.
“If the iPhone doesn’t come up with a new model every two years, they will fall off the peak,” he said. “If they don’t have the luxury of permanence, why should any of us even expect that?”
Gopinathan offers an example. British retailer Marks & Spencer Group Plc initially came to TCS looking for cost cuts on technology in the wake of Brexit and market tumult. Instead of pushing back, TCS came up with a broader five-year strategy, including an enterprise-wide tech-led transformation to use digital and other technologies to boost the retailer’s customer experience and drive growth. “By not responding negatively, we turned it from a CIO’s project into a CEO initiative,” he says. Business grew.
TCS benefits from helping corporate customers unsnarl internal operations that are inefficient or outdated. Among its recent contracts are mega-deals with Rolls-Royce Holdings Plc and Transamerica Corp. “For every dollar spent on customer-facing ops, it’s getting clients to put four dollars on the back-end,” says Ashutosh Sharma, India head of Forrester Research. “That’s where TCS shines.”
Gopinathan spent much of his first six months meeting with clients to hear their concerns and see if TCS could help. He came away convinced new technologies are agitating most industries -- like in retail where the buying experience is digitized or in autos where cars are sold based on how smart they are. All these shifts can amplify demand for TCS services. But the company has to invest in new technologies, like artificial intelligence and cloud computing, and retrain hundreds of thousands of employees. “It is aligning yourself for the future,” says Gopinathan.
He’s overhauled his management team. He tapped the head of the infrastructure services practice, a 36-year company veteran named PR Krishnan, to lead a newer automation services unit. Digital services -- like cloud computing, analytics and machine learning -- account for about $4 billion revenues, about a fifth of total revenues, but nearly every large deal is becoming a digital deal.
He’s pouring money into training. TCS used to teach workers skills much like at university -- with classrooms and faculty. Now employees are more likely to get guidance from its “classroom-in-the-cloud,” where they watch short videos or take micro sessions on mobile devices anytime. Learners code on the fly, compete with peers and become ‘gurus’ in specific technologies. Internal job fairs recruit those proficient in newer technologies and counsel others on which skills to learn.
As the conversation winds up, Gopinathan stands against tall windows that overlook lush foliage. There’s a distant rumble of construction for an upcoming metro line. Are the tremors shaking up TCS headquarters? “Not those tremors,” laughs Gopinathan.