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Rajesh Gopinathan Bets Big on Organic Growth for TCS

Rajesh Gopinathan Bets Big on Organic Growth for TCS

Rajesh Gopinathan, CEO and MD of Tata Consultancy Services, believes growth has to be organic and profitable. And the only way to do that is to constantly reinvent

ASTUTE BATSMAN: Rajesh Gopinathan, CEO  and MD, Tata Consultancy Services ASTUTE BATSMAN: Rajesh Gopinathan, CEO and MD, Tata Consultancy Services

Cricket is the most popular game in India by a mile. While you will have the fan rattling off numbers with remarkable levels of accuracy, there is another set that is fascinated by the skills, strategies and what have you. Rajesh Gopinathan, CEO & MD of Tata Consultancy Services (TCS), falls in the latter and easily draws an analogy to his own business. “We are masters at playing the ball, but we also are good at leaving the ball that doesn’t make sense to us. In that sense, we know where our outcome is and we will cover for it. There is logic in waiting for the opportunity and then getting the best out of it,” explains Gopinathan.

The point TCS’s boss makes is how a product-based company needs to anticipate changes and take a forward call of five to 10 years ahead. That said, for those that are consulting-oriented, that timeline is a year or, at best, two. “If you are looking at a player in technology services, it needs to be even closer. Based on the business model and your own strategy, you play in the space you need to play or, rather, play the ball in front of you and not think about what the ball will be,” he says with a smile.

Obviously, this approach has worked rather well and the numbers tell a tale. TCS’s market capitalisation touched $200 billion in September 2021, doubling from $100 billion in April 2018. That’s only one part. In the five years that Gopinathan has been at the helm of affairs, its $50 million-plus clients have shot up by 25.5 per cent, while the growth rate for $100 million-plus is up by a more impressive 56.75 per cent. Little wonder, Gopinathan finds himself the winner in the Super Large Companies category of the BT-PwC India’s Best CEOs ranking.

The right buttons were pressed in time and a case in point is how digital was starting to become a major disruptor. He and TCS’s senior management figured it was a skillset that could be picked up internally. “We enabled a learning platform for the team and scaled it up to about 250,000 by 2017,” he says. Then, it was time to look at new ways to be more relevant to the customer. “The velocity of transformation at his end was increasing. It was not just about technology but the overall business as well. Our skill lay in a deep understanding of where they are currently placed apart from knowing which technologies they will leverage during this journey of transformation.”

LAYING THE FOUNDATION

As a company, TCS, with its massive revenue base of $26 billion and leadership across industries and service lines, was well-placed. Still, there was work to be done. The right capabilities had to be built and this is where contextual masters step in. Here, the strategy is to bet big on its employees or identify people in-house, who have the knowledge “and then give them the means to articulate, contextualise and to push things forward”. Gopinathan says this has been a huge success with over 50,000 contextual masters who have been identified and are now going through various forms of grooming. “It provides us the core foundation to build on our transformational journey,” he emphasises. The other part is the growth and transformation strategy with the intention being to broadbase the offerings to both—meaning the cost and optimisation side of the customer’s needs, as well as growth transformation and innovation. “That is now starting to bear fruit and is the dimension on which a lot of our future growth and change will come,” he says. It has been an effective way to not just retain people but get in fresh talent. Small wonder then that TCS’s employee strength is up at almost 557,000 during the last calendar year; the corresponding number in 2017 was 391,000.

Analysts remain bullish on TCS’s business model and how the pieces have come together. “Their disciplined approach towards investments in building capability organically, making the early investments in emerging technologies, a strong talent pool, a stable management team, and returning 80-100 per cent of free cash flow to shareholders make it quite unique,” points out Gaurav Dua, Head-Capital Market Strategy, Sharekhan by BNP Paribas. To him, from an investment point of view, factors such as “strong cash flow generation, industry leading margins, lowest attrition rate and superior return ratios” are big pluses.

ORGANIC GROWTH STORY

Stepping into the big shoes of N. Chandrasekaran (who is now Chairman of the Tata group), Gopinathan continued to follow the company’s principles—‘growth is a source of our energy’ and ‘live our values, realise your potential’. The former, in particular, struck a chord since growth, to him, has multiple aspects. In fact, he dwells more on organic growth. “To us, it is also about organic talent development. We are asking our people to be on their toes when it comes to what the customer wants next. That keeps the organisation young at heart because you are constantly learning and also trying out new things,” he explains. It is not as if TCS is not kicked about making that big buyout. With a smile, he says people keep asking him why TCS is always talking about organic growth. He has a pretty straight answer: “We are not against inorganic growth, but isn’t organic growth the measure of health? Everything else can be added on top of that and that is really the history to it.”

Neerav Dalal, Research Analyst, MIB Securities India, elaborates on this strategy. “TCS has done the least acquisitions within the IT services peers, be it Indian or global. In reality, it has not done any, and announcements of acquisition of business carve-outs are really a part of large deals such as acquiring Postbank Systems from Deutsche AG or Pramerica Technology Services from Prudential Financial. It is just re-badging of employees from client rolls to its own rolls,” he says. Meanwhile, Dua of Sharekhan is of the view that TCS has been very conservative on inorganic growth.

“The management looks at it as a once-in-a-decade opportunity and looks at economic downturns as probably the best time for this, since there are fewer buyers. The approach has instead been to look at capability enhancement and market access through the inorganic route, which in turn can lead to growth.”

HOLDING IT TOGETHER

In a dynamic environment as one sees today, Gopinathan believes it is critical to demonstrate high levels of agility on business planning. That means having a clear mind and knowing the key anchors on which the business is based. “For us, the primary anchor is the customer and our own talent. I joke internally that we bring in a third angle called investors,” Gopinathan elaborates. Connecting all three is high retention, which brings to the table a big advantage. “You cut back on churn and keep moving forward. The focus is on the customer and employee, and you constantly invest to stay ahead,” explains Gopinathan. That leads to little impact when change takes place. “You don’t need to be too far ahead of the curve in terms of trying to predict what the future is going to be. You just need to be agile enough to move with it,” he says. That is a lot of simple thought, but one that ensures the company stands apart.