TCS re­mains No 1 - just about

TCS un­der Ra­jesh Gopinathan con­tin­ues its growth mo­men­tum de­spite in­dus­try dis­rup­tion, US visa re­stric­tions.

Business Today - - FRONT PAGE - By Nevin John

In Fe­bru­ary, when N. Chan­drasekaran moved out of TCS to join Tata Sons as chair­man, the IT in­dus­try was fac­ing tur­bu­lence from two quar­ters — tech­nol­ogy dis­rup­tion across sec­tors and visa re­stric­tions im­posed by the Don­ald Trump gov­ern­ment in the US in re­sponse to job losses due to off­shoring. It was left to his suc­ces­sor as CEO and MD, Ra­jesh Gopinathan, to take up the chal­lenge of reimag­in­ing TCS’ role in the on­go­ing dig­i­tal revo­lu­tion and tack­ling visa re­stric­tions by hir­ing more Amer­i­cans for jobs in the US.

The dis­rup­tion, says Gopinathan, has put TCS in a 100 per cent risk sce­nario. “Ev­ery­thing is chang­ing, whether it is fi­nan­cial ser­vices or re­tail­ing or util­ity ser­vices. We are de­vel­op­ing do­main and con­tex­tual skills and tai­lor­ing cus­tomer-spe­cific so­lu­tions to counter the chal­lenges,” he says. But he also be­lieves that the up­side po­ten­tial of the cur­rent phase of dis­rup­tion is higher than the down­side.

In spite of these chal­lenges, TCS posted 9.35 per cent growth in con­sol­i­dated in­come at ` 122,187 crore in 2016/17. The profit rose 8.3 per cent to ` 26,357 crore. But in the

first six months of this fi­nan­cial year, the in­come rose just over 2 per cent to ` 61,903 crore, while profit fell 4 per cent to ` 12,410 crore, mainly due to ru­pee ap­pre­ci­a­tion and higher wages. The av­er­age mar­ket value of the com­pany was ` 4.67 lakh crore in the Oc­to­ber 2016-Septem­ber 2017 pe­riod, which makes it the top­per. But it was

3.73 per cent lower than the year-ago pe­riod. Its peers feared worse. In­fosys’ av­er­age mar­ket cap slipped 14.3 per cent, while Wipro’s fell 8 per cent, dur­ing the pe­riod. In gen­eral, the mar­ket sen­ti­ment has been against IT com­pa­nies be­cause of the chal­lenges they are fac­ing. TCS, in par­tic­u­lar, has had to check back on a mas­sive ` 16,000 crore share buy­back to give con­fi­dence to in­vestors. Its share price has risen 10.5 per cent since Oc­to­ber 3 (till Novem­ber

20). Ri­val In­fosys is also go­ing for a

` 13,000 crore buy­back.

The Chal­lenges

Gopinathan says the main chal­lenge is the con­trast­ing dy­nam­ics at play. “We have to par­tic­i­pate in the chal­lenges of ex­ist­ing cus­tomers re­lated to pro­duc­tiv­ity while ex­plor­ing new op­por­tu­ni­ties. We are em­brac­ing two dif­fer­ent worlds, and the bridge be­tween the two is the con­tex­tual knowl­edge,” he says.

The fourth in­dus­trial revo­lu­tion at play is driv­ing the con­flu­ence of phys­i­cal, dig­i­tal and bi­o­log­i­cal worlds. The next phase of change is go­ing to be more pro­found than ever given the rapid pace of break­throughs in emerg­ing tech­nolo­gies, their ef­fect on each other and em­bed­ding of tech­nol­ogy into all as­pects of busi­ness and life. This is re­shap­ing en­tire in­dus­tries.

“At present, dig­i­tal ac­counts for 20 per cent of our rev­enue, and that is pri­mar­ily where our growth agenda is. Over time, it will be­come 80 per cent,” says the 46-year-old CEO. The cus­tomer of the fu­ture will go to some­one who can make tech­nol­ogy work in its own con­text. “Cus­tomised tech­nol­ogy for clients is the trend,” he says.

By putting ex­pe­ri­ence first, lead­ing en­ter­prises are win­ning over new cus­tomers and cre­at­ing growth at a su­per ac­cel­er­ated pace. “We call this

Busi­ness 4.0, and just like its three pre­de­ces­sors, tech­no­log­i­cal ad­vance­ments are the cat­a­lyst,” he says.

Just as the early 20th cen­tury ush­ered in elec­tric­ity to glob­alise and de­cen­tralise man­u­fac­tur­ing, Busi­ness 4.0 brings so­phis­ti­ca­tion to the sup­ply chain and re-imag­ines how it works. And just as the late 20th cen­tury ap­plied mass com­put­ing to en­hance pro­duc­tiv­ity, Busi­ness 4.0 prom­ises in­tel­li­gent au­to­ma­tion on an un­prece­dented scale. To­day, tech­nol­ogy has gone from be­ing a busi­ness en­abler or a cost cen­tre or a back-of­fice op­er­a­tion to the front end. For in­stance, a car ad­ver­tise­ment now talks about how the car will park it­self and not how fast it can go. For a re­tailer, it’s no longer about just fash­ion, it’s also about how well he knows the cus­tomer and how he can cus­tomise the prod­uct for him or her. This, says Gopinathan, has re­sulted in tech­nol­ogy com­pa­nies con­tribut­ing way beyond sales & gen­eral ad­min­is­tra­tion, which is just 15 per cent ex­pen­di­ture for an av­er­age com­pany. “Tech­nol­ogy has be­come cen­tral to the prod­ucts and is nor­mally 60 per cent of costs,” he says. “With the dis­rup­tions, we have got a play in both, which comes to 75 per cent of the over­all ex­pen­di­ture of the com­pa­nies,” he says.

In the sec­ond quar­ter, TCS gen­er­ated 51.9 per cent busi­ness from North Amer­ica, fol­lowed by Europe and Asi­aPa­cific. In­dia ac­counted for 6.3 per cent. Bank­ing, fi­nan­cial ser­vices and in­sur­ance (BFSI) was the largest ver­ti­cal with 33 per cent busi­ness, fol­lowed by re­tail and con­sumer pack­aged goods (11.9 per cent). TCS has 37 large clients (over $100 mil­lion rev­enue).

When Chan­drasekaran took over as the CEO in Oc­to­ber 2009, TCS’ con­sol­i­dated rev­enue was ` 30,000 crore. It is now over ` 1 lakh crore. Prof­its rose from ` 7,000 crore to

` 24,000 crore dur­ing his ten­ure. The five dig­i­tal forces — mo­bil­ity, big data, so­cial me­dia, cloud com­put­ing and ro­bot­ics — changed the way TCS op­er­ated as Chan­drasekaran and his team showed agility to adapt.

TCS first went past Re­liance In­dus­tries in val­u­a­tion in May 2012. For the next seven-eight months, both were neck and neck, but TCS took off from there and con­tin­ued widen­ing the gap till 2015. Since then, the gap has re­duced. RIL over­took TCS in 2017/18 af­ter con­sol­i­dat­ing the cus­tomer base of its tele­com busi­ness, Re­liance Jio.

Gopinathan has taken over the job dur­ing a much tougher pe­riod for the IT in­dus­try. TCS’ prob­lems are not over. For one, US visa re­stric­tions are still a big headache for IT play­ers. “There is a short­age of tech­ni­cal ta­lent in the US. We will have to hire ex­ter­nal ta­lent,” he says. TCS is in­vest­ing mas­sively for STEM (science, tech­nol­ogy, en­gi­neer­ing and math­e­mat­ics) ed­u­ca­tion in the US. It has launched a pro­gramme, ‘Ig­nite My Fu­ture in School’, for en­gag­ing 20,000 teach­ers and one mil­lion stu­dents by 2021. The ef­forts are be­ing ap­pre­ci­ated by the author­i­ties, says the CEO. “We have been one of the top three hir­ers of tech­ni­cal ta­lent in the US for years,” he adds.

TCS will have to live through epic changes in the com­ing days. As Sil­i­con Val­ley guru Kevin Kelly cites in his re­cent book, The In­evitable, “70 per cent of to­day’s oc­cu­pa­tions will be re­placed by au­to­ma­tion” and “most of the im­por­tant tech­nolo­gies that will dom­i­nate life 30 years from now have not yet been in­vented.”

Chal­leng­ing times ahead for TCS, it seems.

Ra­jesh Gopinathan CEO & MD, TCS

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