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 Rs122,187 crore in 2016/17. The profit rose 8.3 per cent to Rs26,357 crore. But in the first six months of this financial year, the income rose just over 2 per cent to Rs61,903 crore, while profit fell 4 per cent to Rs12,410 crore, mainly due to rupee appreciation and higher wages. The average market value of the company was Rs4.67 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 Rs16,000 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 Rs13,000 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 Asia-Pacific. 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 Rs30,000 crore. It is now over Rs1 lakh crore. Profits rose from Rs7,000 crore to Rs24,000 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.@nevinjl