Tata Digital Could be the TCS of the Future, Says Rajesh Gopinathan

TataTCS has an outsize influence on the Tata group in terms of market capitalization. How conscious are you of that responsibility/burden?

None whatsoever. The way it has been set up, we pretty much run to maximize our business. It’s DNA that gets transmitted because the DNA is very strong. I started at the group level, and I know that 20 years back, other people carried the baton; there were other companies that were as large and as diverse… Today, it is our turn. The analogy is of migratory birds as they fly in a V-formation. The physics of it is that the bird in front creates lift for the next one. Over time, different birds will take up the forward position… That’s how we are as a company. In any given portfolio, there will be one or two that are performing very well at any point, which will seed the performance of others. That’s the natural progression. If you take a longer view, different companies have (taken the mantle within the Tata group). And still they’ve managed to run the portfolio and expand it. Today, the seeding that is happening on digital, maybe 20 years later, they will be the ones who will be the leaders.

Financial services can be the other possibility, or is there some big movement into renewable energy?

I feel pharma is under-exploited in India. The Covid-19 pandemic has shown that local problems can be solved locally, which means the market is wide open. Pharma is again a major area, and I don’t think we have done justice to the companies that are currently there.

The issue with your bird analogy is that it is difficult to see how any other company can match TCS…

When I joined in the 1990s, Tata Steel and Telco (Tata Motors now) were leading. Who would have thought that it would be TCS now? So, I have seen when others had the same position that we have.

What role is TCS playing in the Tata group’s digital initiative?

We have a trusted role internally, but from our development and technology partner perspective, they are also becoming more and more self-sufficient, especially with new acquisitions. Now they’re more standalone. In the early days, we were a larger partner.

In February, you will complete five years as CEO. Have you achieved what you set out to do?

These five years have been a roller coaster (ride). The first year was all about making sure that we stabilize both internally as well as manage perception. A lot of our time was spent just making sure that we met the customers and gave them the confidence that nothing had changed. This is just a leadership change (taking over from N Chandrasekaran, who became chairman of Tata Sons). Then the last year and a half/ two years has been this (pandemic). We have also managed to keep things moving. One of the reasons is that we have built on what we have been doing (for long). While it was a big change for me and NG Subramaniam (chief operating officer), the bulk of the team was constant. Their work was constant. By keeping the strategy linked tightly to what they’ve been doing, and then moving it forward, the level of disruption was minimized to zero. On the business side, we are increasing the focus on the non-CIO organization, staying very grounded about who we are, but attacking the adjacencies so that we rebalance our portfolio.

With vaccinations gathering pace, when will you see people come back to the office in large numbers? You had articulated the 25/25 vision last year
The intent of the 25/25 model was to get feedback from customers and from internal stakeholders. The feedback is very positive. We are right now less than 5% (of employees) in the office. We expect that towards the end of the calendar year or early next year, we will get back to 70-80% in the office. The first target will be to get to 50% of the people (from office) and the rest (remotely). The important point is that we do not intend to segregate our workforce into work from home and work from the office. Everybody will have to come into the office for a period of time and can have the flexibility to work from home.

Will it be a concern if the Covid-19 wave accelerates in the United States?

Our expectation is that it’s more of a hiccup rather than a major listing because it’s unlikely that it will result in the kind of healthcare scare that the others had. Most of the companies that we work with are also making vaccination mandatory or quasi-mandatory, and they’re putting so many restrictions around it, that vaccination will happen. So, the ecosystem in which we operate it, I think, will insulate itself.

You had alluded in the past about getting into consulting. Will this increase your margins?

There is nothing in history that says consulting is a highly profitable industry. Everybody seems to think that somehow this is a high value add. It is not from a margin perspective, but from making sure that our relevance to the customer keeps increasing. Today, we have 50 plus customers with whom we make more than $100 million revenue, yet strategic customers. It is important that we try to address as many of their needs as possible. We have to keep on reinventing ourselves, keep on staying with where their current set of problems are. If we do that, and as we increase wallet share with the customer, that automatically will come into profitability… it is strategically important for us to keep on increasing our revenue and also be margin accretive.

In the last several quarters, the growth rate of Infosys has picked up. Is that something you keep an eye on or worries you?

It is a market-facing metric that we keep a watch on but not something that worries us. It is a good competition that has benefited both of us. It also helps us stay on our toes… So, for us, we have had sustained growth, we have not had any major hiccups. We have the scale, and the question is, what is the next boundary to push through? This growth and transmission boundary is an important barrier to push through and not to take an easy task of trying to buy something and bolt it on, but to be able to do this transformation internally, is a big boundary to get through. If we do that, the addressable market changes manifold. We have been benefiting from a big theme that will continue for many years, which is that technology components in every industry are increasing. So, automatically the technology budget of every industry increases but as we have seen with some of our larger competitors, we are currently selling into a single point inside the enterprise, by being able to expand beyond that, we can unlock a lot more of it. It will also make us more resilient because if for whatever reason, there is a hiccup on this path, having a broader portfolio and a broader customer relationship will make us more resilient.

The rise in market capitalization should be really satisfying to the extent that it is a validation of your model

At various points in time, the market has doubted us – whether we will adapt to different shifts in technologies. Every time that myth has been broken, you have seen this movement on the markets. When automation came, there was a lot of coverage that automation is going to be the death knell of the industry. When digital came, (commentators said) digital is going to wipe us out. So, each time you’re able to demonstrate that, you know we are resilient and not just resilient, we can ride the wave rather than get disrupted…

Would you look at significant acquisitions?

It is a question of what is significant. It is not that we’re not been acquisitive in the past. We have expanded in markets such as Europe and Latin America with acquisitions and joint ventures. In 2008, we acquired Citi’s back-office business for $ 500 million, when we were smaller, and the market was much smaller. Our consumer banking product came out of an acquisition of FNS in Australia. We have a good history of doing it. We are not as prolific…but the right asset has to come at the right price.

Do you look at a big overseas acquisition to significantly increase the size of the company?

I don’t see that because if you look at the available universe, there’s nothing greatly attractive (for us). There was a point in our history when maybe that would have been an option. Today, a short answer to that is ‘unlikely’. You’re more focused on market access to segments where we’re not present, or capability access, and that we do on an ongoing basis. We have been priced off the market for some time. We’re just too conservative for today’s market. So, our market cap might be high, but when it comes to paying out cash, we’re conservative. We like to play like (Rahul) Dravid. By the time the innings goes through, the later half of the innings, everything starts coming together.

Are there any significant savings from work from home?

Currently, we are not giving up any real estate. In the short term, it’ll only be costlier as we need to rejig our offices to be open collaboration zones. In the new offices, we are trying to bring these principles. The real benefit comes from thinking of people as being one common talent cloud. Because of (our) work practices, we think of teams as being location-dependent. You know, a Bangalore project versus a Mumbai project versus a Chennai project… So, we optimize projects based on the location that has its own friction in a company like ours. If you consider talent as a common pool, then the leverage of the talent becomes significantly higher. You can start off projects faster. In the model that we’re thinking of, you will actually know it will get flipped for travel because we’ll have to win the collaboration itself and we’ll be flying people in and will be paying for the hotels.

If somebody had told you that you will be able to function relatively normally with over 90% of the workforce, not in the office, would you have imagined that was possible? How did you pull it off?

Absolutely not. In January 2020, if anybody had said that, come March, you’re going to shut down the whole work environment, and we’re going to shift remote, both the fact that it can be done, as well as more importantly, the speed at which it got done, I think it was beyond anything that we thought of. We never thought of a risk scenario like that. We model various scenarios. We model a city outage.

But almost 100% of our capacity in India going off and then the distributed capacity globally, I never imagined it. I don’t think any organization would have thought that that transition could have been made as seamlessly as it actually happened. But when you look back, multiple things had been going on in the background, which all came together to help. We have been investing in digital collaboration tool sets for a long time.

We had shifted to agile as a means of a primary methodology and using agile principles in almost all of our projects. What agile does is it’s a high-touch work environment, where it lends itself well to digital collaboration. But the customer trust was quite high, and almost 90% of our customers let us take the lead. What the pandemic did was it suddenly removed all the risk perception related to it because each of them has their own responses – should we do it, should we not? Is it worth it? Suddenly, the event changed the risk perception.

So, everything got a green flag, kind of a work forward approval, saying let’s do it and then we will see what happens. That attitude shift was the biggest enabler. Once you started working, many of the fears turned out to be unfounded. That changed the approach and incrementally kept on tightening and modifying it.

scroll to top