Business India, June 7-20, 2004
India’s software leader continues to be innovative
Wordsmiths are grateful to Saddam Hussein for providing that colourful phrase ‘mother of all...’ to describe all sorts of things irreverently. So while IT historians may hail T C S as the ‘mother of all Indian software’, Dalal Street awaits the ‘mother of all Indian IPOs’. The billion-dollar IPO could happen anytime (those with long memories might accuse us of saying the same thing for the last four years!). The market was expecting it in April. And then came the elections and turbulence in the stock market. Once the market stabilises, many expect the money being pulled out of PSU stocks to pour into a good tech offer like TCS. Bombay House, the headquarters of the Tata Group, is keeping its cards close to its chest. The company has officially gone into a cooling-off period and executives are not available for comments or interviews, or even photo shoots. Group chairman Ratan Tata and Tata Sons finance director Ishaat Hussain have both gone abroad.
But the prospectus is ready to be filed any time now and soon everyone will be talking about the TCS IPO. It is one of the most successful Indian companies, with branches in 32 countries with over 800 foreign nationals working for it and serving clients round the world. A true Indian MNC.
Business India has been following the company for decades now and started doing this particular story almost a year back. We found that the company is set for a quantum leap. Many of the quotes are from interviews done several months ago.
Starting with four people in 1968, TCS has grown into a giant of 28,000 software engineers, adding 3,000–5,000 people (the size of a medium-sized company) every year. At any time about 10,000 engineers are abroad and some of them are working at global delivery centres in Australia, Canada, China, Hungary, Japan, the UK, Uruguay, and the US. How does TCS manage all this growth in a highly competitive business environment that is constantly changing in terms of technology?
An apt term to describe TCS is ‘software factory’. The analytical framework and terminology that senior management uses in dealing with various aspects of TCS are clearly those of the manufacturing sector. They talk about managing the supply chain of TCS recruits, the same way as Toyota or Ford do. They talk of inventory management of its engineers, logistics of deploying them in a way Dell would be proud of. They talk of enterprise resource planning to deliver their software, the way Reliance or Tata Steel would do with petrochemicals or steel. Ironically, it sounds like the revenge of the manufacturing nerds on the services industry! But in terms of management theory, this is a truly remarkable framework that untangles the spaghetti of managing a services company.
Interestingly, T C S starts its ‘raw material scouting’ and ‘vendor development’ right at the college level. It takes it seriously enough to assign more than 50 senior executives to interact with academic institutions. At these institutions TCS funds many academic events like conferences and seminars, and also gets involved in improving teaching and curricula, establishing fellowships, and exchanging expertise through visiting faculty programmes, etc. They top it with an annual retreat with over a hundred top academics in Trivandrum, the training hub of TCS.
According to H. Kesavan at the University of Waterloo, Canada, who headed the electrical engineering department of IIT Kanpur in the 1960s, not many people know that TCS took an active role in building the computer science department at IIT Kanpur. Similarly, according to Juzer Vasi of IIT Bombay, the chip designing community owes a lot to TCS, which sponsored an entire M-Tech programme in VLSI design at IIT Bombay. IIT Madras too has a TCS-sponsored programme in mathematical modelling.
“TCS is extending the relationship to several universities abroad as well. It has sponsored projects at M I T, Harvard, the Kellogg School, Carnegie Mellon, University of Waterloo, and institutions in Japan, Australia, China, and Singapore,” says executive vice-president S. Padmanabhan.
As an industry leader TCS has played a premier role in the creation of infrastructure for IT education in India. And all that spadework does not hurt TCS when it goes recruiting to these institutions. Moreover, the way TCS conducted itself during the downturn has enhanced its brand equity in academic institutions. To recap, several companies, including some IT blue chips, did not honour their offer letters given to campus recruits in 2002, citing the downturn in business as the reason. But TCS did.
Moulding the recruits is a very important activity and a large centre at Trivandrum’s I T park is exclusively engaged in this. “The training in TCS is no doubt excellent, and that is why everybody tries to lure a TCS engineer,” says Radha Krishnan, CEO of Innova Solutions, a Silicon Valley software services company.
“How to keep track of our assets – our people, their current competencies and skill sets, where they are deployed, who is finishing one project and is ready to be deployed in a new one, and so on – is a key issue in our business. We have brought in digitization of this whole process, which has led to efficient use of our resources. At times it is the key to delivery of the solution to the client in time,” says global practice director (manufacturing and process industries) Ravi Gopinath.
“In TCS we have an important global systems integrator partner that can be trusted to deliver. They combine deep domain and technical knowledge with a global delivery model that brings tremendous value to our customers.” --Bill Gates, Chairman, Microsoft
“Senior consultants give inputs and brainstorm about changes in technology and likely demand for new skill sets in the near future, so that we can plan our recruitment and training programmes accordingly,” he adds. Thus digitisation acts as an ERP package for TCS.
Companies like Oracle claim that such internal ERP implementations have led to savings to the tune of a billion dollars. What would the monetary gain of digitisation of TCS be? “In terms of pre-project planning and delivery times one can use metrics (engineers’ jargon for ways to measure something), and we see a lot of gain. However in terms of opportunity costs it is difficult to monetise what we have gained,” says Gopinath.
TCS is a rare services company to have a decent-sized R&D. “We spend about 2 per cent of our sales on R&D,” says Ramadorai. “Our R&D is different from the blue sky research done in universities. It has to show its effect on our consulting practice in terms of products or tools and methodologies,” he adds. TCS has outstanding academics like M. Vidyasagar from the University of Waterloo, Canada, Kesav Nori from IIT Kanpur, and Mathai Joseph from the University of Warwick, UK, in its R&D ranks.
In fact TCS was way ahead of its times when it established TRDDC (Tata Research, Design and Development Centre) in Pune in 1981. Today R&D is more decentralised and advanced R&D is being done in Hyderabad, Chennai, and Bangalore as well.
The graphic which traces the history of IT brings out one point clearly — that when TCS came into being in 1968, Microsoft, Apple, Sun, Accenture, Cisco, Dell, Compaq, Sapient, Oracle, Novell, SAS, SAP, and Siebel did not exist. Neither were technologies like Unix, C, Java, Microprocessor, PC, LAN, Internet, Linux, and the World Wide Web invented. That shows the prescience of pioneers like F.C. Kohli and entrepreneurs like J.R.D. Tata in venturing into new territory.
“Tata Sons pumped in Rs35 lakh in 1969. The company made a loss of Rs20 lakh,” says F.C. Kohli, a power engineer who was roped in by JRD to build TCS. “Nobody could believe that computer services could be done out of India. I was a director of the prestigious IEEE (Institute of Electrical and Electronics Engineers). I used to flash my IEEE visiting card and use my old contacts from MIT to get people to listen to my pitch. Nobody dared question my ability to deliver software solutions. If they had, I would have been in trouble. We had only ideas and a can-do attitude, but no track record,” reminisced Kohli, when Business India profiled him as one of the 50 path breakers of India in a special issue on the occasion of the golden jubilee of India’s independence.
“We cold-called and persisted, and built it brick by brick. There was nobody to help. The government was hindering us and nobody knew about India,” recalls Ramadorai. Today encomiums about the pathbreaking role of TCS are plenty.
“Thirty years ago when I came to Canada, people would ask me, ‘do you have an elephant in your home in India?’ Now the pendulum has swung the other way around and the world thinks that everyone in India is a math wiz and an expert computer programmer. The patient and steady efforts of TCS have contributed significantly to brand India globally,” says Desh Deshpande, chairman of Sycamore Networks.
Other Indian software honchos too are generous in their praise. Satyam chairman Ramalinga Raju says, “TCS helped lay the foundation for the growth of the IT industry.”
Infosys CEO Nandan Nilekani elaborates, “TCS pioneered the Indian software industry and has played a seminal role in the global acceptance of Indian software capabilities.”
“I remember the first Burroughs computer TCS imported in 1974. I was a junior officer at Citibank. One never knew that it was going to be the acorn that subsequently grew into the mighty oak of TCS— and in fact of India’s IT industry. I still get goose pimples knowing that I was there at the beginning, even if only in a peripheral role,” says Jerry Rao, chairman of MphasiS– BFL.
However, it is sometimes said that while TCS was surely a pioneer, it has been slow in growth. They cite the fact that while TCS crossed a billion dollars in revenue in June
2003, 35 years after its founding, the newer companies like Infosys and Wipro also joined the club a year later.
But this misses the point. A true path breaker always has to struggle to clear the undergrowth in a jungle and then others follow with great alacrity.
The result of this is clearly seen in the mathematical modelling used in improving manufacturing processes or in connecting the process control at the shop floor level to the enterprise software and so on. The R&D has come out with product suites like Master- Craft and Bio-Suite. The former is used to translate the specifications for a programme into code. Such tools are called CASEpac (computer aided software engineering pack). They greatly accelerate code-writing or converting the code written for one platform to another. Bio-Suite is a product developed in collaboration with CSIR to help pharma companies and genetics laboratories to efficiently extract useful information from vast amounts of genetic data. TCS has a bouquet of about 30 patents for products and processes by now.
In fact the evolution of some automation tools like CASE pac can be traced to highly intelligent engineers being forced to do mundane code conversion way back in the 1970s. The result was an intelligent solution, why not automate this conversion? TCS engineers developed a tool called the ‘data dictionary’ to illustrate these ideas. The tool was used in several projects in the 1980s. “The whole idea of software engineering is to change the programming from an individual-centred artisan-like process with its inherent stamp of individuality and hence non-standardisation to an industrial one, where others can easily understand and debug the programmes written by somebody else. Creating components which can be used repeatedly in different projects, thereby reducing time and manpower required for a project, is another feature of software engineering,” says Kesav Nori, EVP.
Another example of successfully applying manufacturing strategies in software development is how TCS dealt with Y2K projects. It developed appropriate tools to automate the task of finding and changing the ‘date field’ in any programme from two digits to four digits. Once the task was thus simplified, an ‘assembly line’ was setup in Chennai and personnel were outsourced from local software companies.
Quality assurance systems are another important aspect of modern factory life. TCS has been at it for a very long time. So much so that not only are a large number of its establishments certified at Level 5, the highest such standard, but they have contributed to the evolution of the CMM system itself. “We started quality initiatives quite early as members of IEEE standards group. They involved hardware interfaces, programme management, importance of peer review, code review, etc. We have worked with Carnegie Mellon University’s Software Engineering Institute (SEI) and recently we presented a paper on integrated quality management systems at the chartered engineers conference. We are also founder members of the Internet Security Alliance,” says Ramadorai.
Has the software factory approach led to dehumanisation of human resource (H R) development? Is HR using PeopleSoft and forgetting that you are dealing with soft people? These questions constantly trouble Ramadorai and his senior colleagues. Their quest for the human touch is being partly fulfilled by a new initiative headed by Mala Ramadorai and other ‘TCS wives’, who have formed an organisation called Maitree (friendship). How is it different from the generals’ wives doing their bit in the Army Wives Association? “It’s not an organisation where someone does something for somebody but a network and support group for TCS families spread all over the globe. Through Maitree we help each other relocate, find appropriate schools, doctors, housing, and so on. We organize numerous activities for TCS families from trekking and adventure sports to origami and classes in ballroom dancing and theatre workshops,” says Mrs. Ramadorai.
Not much is known about Ramadorai. He is a techie to the core, but then so is much of TCS. The problem -solver’s approach of an engineer comes through all the time. When the markets crashed by 25 per cent in two days after the recent general election results, one would have thought that Ramadorai was worried sick about his company’s IPO. Instead he was pointing out to a visitor that both BSE and NSE had withstood the stress test. As a postscript he also added that the systems at both BSE and NSE had been built by TCS engineers.
Ram, as S. Ramadorai, is simply known within TCS, is a good listener. He speaks little and when he does, it is clear that he has thought the subject through. He is also very candid, circumspect, and self-critical, a quality one rarely sees in a sector otherwise characterised by hubris.
His father served in the accounts and audit service of the Government of India, so Ram’s childhood was spent in Delhi. He graduated from Delhi University with a BSc (Hons) in physics and then studied electronics and telecommunications at Indian Institute of Science, Bangalore, which incidentally awarded him the distinguished achievement award for 2001. In the 1960s computer science was just shaping up as an independent subject and Ram graduated with a master’s from the University of California at Los Angeles in 1970. UCLA was a hotspot for computer networking in those days. In fact, much of modern data networking developed at UCLA under Len Kleinrock’s leadership.
Soon after UCLA Ram had a short stint with NCR, which was one of the big three computer manufacturers of the times. But soon he joined the fledgling TCS in 1972.
In those days TCS was forging a relationship with Burroughs and, along with his
mentor F.C. Kohli, Ram played a key role in the ensuing saga that brought state-of the art mainframe computer technology to India. Since then he has not looked back.
Today he is one of the most traveled executives in India. Does he enjoy it? “What lies at the end of the travel is relationship-building, which is the heart of consulting,” says Ram. “Travel is not something one looks forward to, but there is no option. My travel started in 1981–82. Those days it was mostly to the US.” In the last 6–7 years he has been to all parts of the world. “I spend about 45 per cent of my time with customers, the same with employees, and the balance with stakeholders and analysts, and in board meetings,” he adds.
Ram’s passions are reading, classical music, and golf, in that order. Of course
having a wife who is an accomplished Hindustani vocalist of the Gwalior gharana helps. “I spend time in a lot of things other than technology: reading on a range of subjects. My favourites are: New York Times’ science supplement every Tuesday, which covers a wide range of topics like biotech, archaeology, and anthropology, similarly, New Yorker, The Economist (especially the surveys), novels in Tamil, and so on.
He likes playing golf. “I play more when I am travelling. I like the golf ranges in California and Scotland.” What about deals — are they made on golf ranges? “Rarely. After all, one plays with one’s friends. If we talk business, it would be ‘insider trading’. However, a lot of deals are made outside the office in informal settings, in the club, while traveling together. People invariably want to work with those they trust,” Ram adds.
If there is one word to describe Ramadorai, it is ‘underplay’. For those who have seen the flamboyance of neweconomy poster boys like Michel Dell, Steve Jobs, or Larry Ellison, the chief of India’s biggest software play is a far cry from all that. Having been in the shadow of F.C. Kohli for most of his career, little is known about Ram. But he has delivered when entrusted with responsibility to lead the company. TCS has grown more than 14 times in revenue in eight years, from Rs.500 crore in 1996, when Ram took over as CEO, to an estimated Rs7,000 crore this year, growing at a compounded rate of 40 per cent a year.
Not bad for an underplay.
Software can be a stressful profession with long hours of separation between husbands and wives. Then there are problems of adjustment in different environments and cultures at different client sites. Maitree is trying to mitigate these chronic issues and bring in that human touch to HR, though it is not a part of HR.
What are the strengths of TCS? One acknowledged one is building longterm relationships with clients. “Everywhere we have gone in, it has been a long relationship — Amex 27 years, SEGA 13 years, and so on. In fact most of the big accounts have been with us for a minimum of 10 years,” says Padmanabhan.
We are our own model
There are enough people in India and the West (mostly in Silicon Valley) who would give gyaan about what is wrong with India. When they see islands of excellence, like the Indian software industry, they often engage in clichés like ‘body shopping’ and low-end coding vs. consulting and ‘high-end’ work. The names that are frequently mentioned as role models in this regard are Accenture, EDS, Cap Gemini, and so on.
So Business India looked at the financials of these would-be ‘role models’ and came up with surprising numbers. The big three are definitely impressive in revenue, with EDS leading the pack at over $20 billion and Accenture following it with $13 billion and Cap Gemini at nearly $7 billion. The last three years have been bad for technology consulting and hence either their revenues have not grown, as in the case of EDS and Accenture, or have actually declined by over 25 per cent, as in the case of Cap Gemini.
The largest Indian software house, TCS, crossed a billion dollars in 2002–3 and is estimated to have done $1.5 billion in 2003–4. At a CAGR of 40 per cent (TCS has grown at this rate in the last eight years), TCS will be a $11 billion company in 2009–10. By that time, of course, the big three might have pulled out of the last three years’ doldrums and gone much further ahead.
But the opposite could happen too.
Just look at their bottom lines. EDS had profits of $1.36 billion, a mere 6 per cent of its revenues in 2001, and dipped to a loss of $1.7 billion in 2003! Accenture’s profits were $1.05 billion in 2001, nearly 7 per cent of its revenues, and slipped to $500 million, less than 4 per cent of revenue, in 2003. Cap Gemini’s profits were 152 million in 2001, less than 2 per cent of its revenues. And these meagre profits fell to a loss of nearly 200 million in 2003.
TCS profits were Rs1,221 crore in 2001, a healthy 28 per cent of its turnover of Rs.4,163 crore. They dipped to Rs1,140 crore in 2002–3, but are expected to have reached over Rs1,700 crore on a turnover of Rs7,000 crore in 2003–4. (The company has not declared the revenue and profit figures for 2003–4. These figures are market expectations.)
As far as high-end consulting goes, earlier clients did not believe that work could be done offshore in a country of ‘snake charmers and elephants’, and neither did sophisticated telecom links exist, when TCS started offering its services abroad in the mid- 1970s. Most of the export work involved exporting consultants and programmers.
Things changed in the late 1980s. Telecom links improved and due to painstakingly built up reputation to deliver, clients started slowly recognising brand TCS. The first major project SEGA, the securities settlement system for the Swiss authorities, was done on a turnkey basis, from requirements to architecture. At the same time, 70 per cent of the work was done offshore in India. Thus was born the Indian model and has grown from strength to strength.
Indian companies have demonstrated their strength globally and have remained highly profitable (the good ones reporting PAT-to-sales ratios of 25–28 per cent). Do we still consider the giants with low profitability as role models? One wonders.
“TCS has been a valued GE partner for the past 14 years and has our largest global development centre (GDS) for software services. Their technical expertise, high quality processes, and global delivery capabilities in Hungary, China, and India have been vital to their success in developing missioncritical applications for GE,” says an effusive Scott Bayman, CEO of GE India.
“During the Internet boom we may not have grown fast enough compared to other companies because our people were already deployed in longterm contracts. But when the downturn came, the same long-term relationships helped us survive the bad days better than others,” says CFO
“Many people who worked on the clients’ side several years ago as junior or middle-level managers have grown to become CIOs and CEOs. We keep in touch. Nobody compromises in value and delivery, but the network helps. I don’t remember any client who started with us and then walked away from us. Of course they bring in other vendors, but you become a strategic partner. The senior management at TCS have been in the company for a long time and learned to take the ups and downs. They have the ability to convert uncertainty to small certainties. It helps in dealing with chaos. In a difficult year we call up their top people and tell them, ‘This is a difficult year for us — how will we structure the deal?’ They also do the same. Wining, dining, and partying is not our culture. Relations are built on mutual value and respect,” explains Padmanabhan.
TCS has been known to be strong in banking, financial services, and insurance (BFSI). More than 55 per cent of its revenue is estimated to come from this sector. Jay Dvivedi, CIO of Shinsei Bank, Japan, says: “TCS has a vast pool of highly skilled software engineers. I have extensively used them when I was in Citibank Japan and now at Shinsei Bank.” Mark Barton, vice-president of channels and alliances at Oracle Asia Pacific, adds: “As TCS conquers new markets in the world we are confident our mutual relationship will strengthen and grow.” After all, TCS championed relational databases when Oracle was still a fledgling company.
But the new avenue for business has been e-business, which has taken off like a rocket. Headed by young N. Chandrasekharan, 38, the e-biz division started modestly in 1999 with 10 people. In 2000 the division clocked $90 million and in 2003–4 it was expected to clock nearly half a billion dollars!
The turning point for the e-biz group came when it implemented a highly complex project for GE Medical in 30 countries. Recently Forrester, a well-known I T research group, rated TCS as having the best value proposition in customer relationship management (CRM) consulting. The field consisted of IBM, EDS, Accenture, Cap Gemini, Deloitte Consulting, Infosys, Bearing Point, and so on.
The manufacturing group headed by Ravi Gopinath too has made considerable inroads into the auto industry, working with Cummins in engine development, with G M in engineering and supply chain, with Johnson Controls in CRM, etc. In the case of process industries the modelling skills developed at TRDDC have helped in working with Alcoa, Lafarge, and the Indian cement industry, which also happens to be one of the most advanced in the world. The group is looking to develop oil & gas as a major growth area. It is also developing a special software package for powerplant maintenance along with BHEL.
The niche that T C S has become famous for is stock exchanges. It has built the systems not only for NSE and BSE in India but also for the Johannesburg Stock Exchange, the Canadian Depository System, and of course the Swiss SEGA.
The turning point in this business came with the planning and execution of SEGA. In fact the project, won against international competition in 1989, seems to have been one of the defining moments in TCS history. “It was like linking NSE, Stock Holding Corporation or NSDL, and RBI and member banks in India seamlessly. It was a complex and mission-critical system. The solution had to be very robust with multiple linkages to share registers, depositories, and cross-border entities, etc. We got it purely because we could deliver technically and our architecture could meet demands 10 years ahead. The selection process took nine months. The price was not an issue since it was mission- critical. It was developed from scratch. None of the clients spoke English. The deadline, announced two years in advance, was the first long weekend of October, when the Swiss financial community changes its system. We consistently met all the deadlines. That is when all the onsite and offshore methodologies were defined, communication links were established. The way Indian software companies were doing business changed with that project,” Padmanabhan recalls proudly.
Where is TCS headed now? “BPO is definitely the flavour of the month. We actually started as a BPO doing data-centre-based processing for banks, billing for Bombay telephones, examination processing, share accounting, custodial operations, and so on. Later we started offshore development centres. We have done everything but voice (call centres). So we are well equipped for that,” says Ramadorai.
But what about the backlash in the US against outsourcing? After all, TCS was its first Indian victim, when a contract of $15 million was cancelled by the Indiana government. “There has to be a short-term, medium-term, and long-term response to the backlash. In the short term we should take extra care in compliance with all regulatory issues. In the medium term we should be ready with our global delivery centres to finish our projects in case restrictions are put on visas and movement of our people. In the long term we should look at the potential of WTO negotiations for globalization of services,” says Ramadorai.
“As for future business opportunities we are looking at several. We are seriously developing engineering and design services capabilities. We have a joint venture with GE for aircraft engines, and offshore development centres with a couple of other companies. It is a growing chunk of business. We are beginning to get into chip design. In the 1980s we worked with Hewlett-Packard on chip design tools, verification and testing of chips. CMC has embedded software capabilities, besides expertise in port automation, automotive embedded systems, railway automation, Scada and powerline automation, and other real-time systems. The government is planning to spend Rs10,000 crore, so we are looking seriously at government projects also. We did a good engagement in Sri Lanka and we are looking at South Africa,” he adds.
“As for challenges that need innovative solutions, I see first of all people-building, secondly developing new business model for delivery of services. For example a citizen services portal, data, applications, etc, in a kiosk. Say I want a driver’s licence and I pay Rs100 and you say, fine. One has to build applications for that, and so on.”
And thus, folks, the engineers’ engineer keeps ticking, ably carrying on the legacy of his mentors F.C. Kohli and J.R.D. Tata.