CFO Leaders: TCS And The Talent Cloud
In the last six months, while the world was being shut down by a deadly virus, India’s Tata Consultancy Services Ltd. was busy turning necessity into virtue and virtue into a client pitch.
You and I call it ‘Work From Home’. India’s largest IT company calls it ‘Secure Borderless Workspaces’. (They even trademarked it)
And while we don’t know when we’ll return to our offices and resume our pre-Covid routines, TCS is working to ensure its 4,48,464 employees don’t all return to office nor resume their pre-Covid routine.
“We believe that by 2025, only 25% of our associates will need to work out of our facilities at any point of time; and every associate will be able to realize their potential without spending more than 25% of their time in a TCS office.”
—Rajesh Gopinath, CEO and MD, TCS
This new mission has the potential to transform work culture at one of India’s largest employers — narrow costs, widen the talent pool, improve employee work-life balance are among its many internal impacts. If followed by several others in the industry, it could also significantly alter city traffic patterns, real estate demand, environmental pollution, among other externalities.
‘Ramki’, as he’s referred to by those who know him well, is a dyed-in-the-wool Tata man. In his 35-year career he’s been with TCS for 20 years, starting 1999, and before that with Tata Elxsi and Tata Motors. Appointed CFO in 2017, his term was extended by one more year in February. His predecessor Rajesh Gopinath is now managing director and chief executive officer at the IT behemoth.
In this edition of CFO Leaders, Ramki talks about coping with Covid and adapting to a post-pandemic world.
Chief Firefighting Officer? No.
The pandemic-led disruption has been described by businesses as catastrophic, paralysing, chaotic. At TCS it was “pretty smooth with a few rough edges,” says Ramki, while insisting he’s not being boastful.
He offers as simple illustration the ability to stick to a board meeting and annual general meeting fixed almost a year in advance. “ So when the lockdown happened in India on March 22, the immediate question was, we have mentally thought of April 16 so are we going ahead with the board meeting? We did. So, that was also a vindication of how we have to be as normal as possible. We do all 50 subsidiaries’ audits and got that done. Similarly, we had fixed up the AGM for June 11. In both cases; we were the first off the block in the country.”
By March end, close to 90% of TCS employees working in India and 95% of those outside India were able to work from home. That’s no mean task for a $22 billion company, operating in over 50 countries with over 1,000 enterprise customers. Ramki attributes the relative ease with which TCS made the shift to a few key elements that have been worked on for years, since 2002.
- Digitisation and data-based decisions.
- A single instance ERP running across the company, across all 50 subsidiaries.
- A common reporting and MIS.
2008 was an inflection point, he says.
We virtualised and created business groups, and these business groups, they had to have end to end responsibility from managing the business to managing the deliveries, their folks. They have their own finance units, HR and marketing – of course the finance folks will have a business leader as well as the functional leader to work with. These are mini TCSs.
Of course, the shutdowns in the Asia offices started in January and slowly spread across operations over the next three months giving the company time to plan. But these business groups helped ensure even the shutdowns ran in a “very programmatic manner”, says Ramki.
The Talent Cloud
TCS has been running a Location-Independent Agile model for a few years — a distributed work model. So when the pandemic hit, scaling that up to the entire organisation was expensive yes, but an extension of a tried and tested effort.
Now, TCS would like to make that change permanent with the 25%-25% 2025 goal.
“...many projects which we do for customers, if there are 100 people in that project let us say they're working from four locations; so you had four locations and hundred people. Today, that same thing is hundred locations, hundred people. Maybe over a period of time the hundred locations may not be there and it can come down to 90 locations or whatever it is, but the model is the same. So, the physical location is going to be less.”
The benefits are many, for employer, employees and cities — ranging from reducing urban congestion and pollution to improving work-life balance, expanding the talent pool, and even saving costs. Though, Ramki says, that’s not quite the goal. For instance, if revenue is 100, the profit margin is 25, people costs are about 55. The savings on office infrastructure may amout to a fraction of the remaining 20. And, that may be somewhat offset by higher communication costs.
As I said earlier, it’s not as much a cost saving thing which we are doing — there are obvious advantages, some of them I talked about. But more important is that you will have a talent cloud.
And yet, as large Silicon Valley firms discuss similar changes to the workplace, experts worry about the impact on employees. Facebook, for instance has indicated the pay of remote workers will be tied to where they work. Smaller towns, lower wages.
Noted economist Tyler Cowen argued in a recent column that, “In essence, without a local workplace ethos, it is easier to commoditize labor, view workers as interchangeable and fire people. The distinction between protected full-time employees and outsourced, freelance and contract workers weakens. A company can make the offer of, “If you hand in your project, we pay you,” to virtually any worker around the world, many of whom might accept lower wages for remote roles.”
Ramki agrees that the longer-term impact of this structural shift will have to be better understood. It may be easier to maintain work relationships and trust for colleagues who have previously worked together in an office, tougher for those who have hardly ever met, he points out. But it may not have a sustained impact on wages.
I don’t think it will depress wages across the board, but locational, like you quoted an example, could happen.
Watch the first part of the CFO Leaders discussion with V Ramakrishnan here...
Menaka Doshi: The other day on Twitter I saw a CFO describe himself as Chief Firefighting Officer. Apt for the last 3 months. Ramki how have the last three months changed you as a finance professional, changed your view of finance and your view of leadership?
Ramki: I think you started off with saying is this Chief Firefighting Officer? I don't think it is. It may sound a little boastful but I think if you look back on the last three months, it has been pretty smooth with a few rough edges. If I just look back from a finance perspective, some of the important things which have to happen are -- the first thing is we’ve always been highly digitised in our operations, we are a 50 year old company but in the last 15 years the level of digitisation has been significant in terms of whether it touches the customers or employees or vendors, partners-- the level of digitisation is very significant. And data and analytics play a very important part in how we manage things.
So one of the things which we have been always doing is day one close - which is, on the last day of the period, which is a month or quarter, we have the view on the financial performance.
We fix dates for our board meetings, AGM etc almost a year in advance. Of course, we don't announce it to the public till it’s closer to the day, but the board etc. know exactly when these dates happen.
So when the lockdown happened in India on March, 22, the immediate question was, we have mentally thought of April 16 so are we going ahead with the board meeting? We did. So, that was also a vindication of how we have to be as normal as possible. We do all 50 subsidiaries’ audits and got that done. Similarly, we had fixed up the AGM for June 11. In both cases; we were the first to get off the block in the country.
This year we started doing integrated reporting. So our annual report is around 340 pages or so, which brings together work from multiple groups and multiple units in the company...to do all that in a completely virtual mode where nobody is in sitting in an office.
Apart from that, all the other routine operations across 50 countries, we probably must be running about 100 payrolls. So all those payrolls happened like clockwork, vendors got paid, all that happened.
So how did this all happen? You can’t plan for this on day one and do it. There have been a lot of things which have been done over the last 15 years, a large part of it is from 2008, but going back a little bit to even 2002. What are the key things?
One, I definitely talked about digitisation and the value placed on data and data based decisions. But more importantly, I have a single instance ERP running across the company, across all 50 subsidiaries.
The second, which will resonate with folks who have managed finances, is that there is no difference between the reporting and the MIS. So it is all from one same system. So a transaction is recorded only once and then from there, you can slice, dice, you can take all sorts of (views), whichever way you want to look at it and for business performance, business monitoring, everything - it's the same as from the reporting. So this is another thing which is very important.
The other important one is, 2008 was an inflection point as we reorganised the way we run our businesses. We virtualised and created business groups, and these business groups, they had to have end-to-end responsibility, from managing the business to managing the deliveries, their folks... They have their own finance units, HR and marketing - of course the finance folks will have a business leader as well as the functional leader to work with. These are mini TCSes.
So if you ask me the leadership quotient in this, this is exactly one of them because these things have happened over the period of years and we have stayed the course. In fact, over the years we have only been improving on it and fine tuning it. So much so that it ran like clockwork.
In the Asia Pacific region we started earlier actions-- in January, February itself, travel was stopped and a lot of social distancing, sanitisation in the offices etc. started. But in India and the western world etc., we really started only after March 13. Since these business groups were there to make sure that many of these things which are run on a very programmatic manner became quite easy.
Menaka Doshi: Disruption also creates opportunity. You devised Secure Borderless Workspaces (SBWS) and that is now a line of business for you. Talk us through the logistics of this.
Ramki: I wouldn't be able to generalise but we work with banks and banks have to keep their operations running. Insurance companies, for instance, especially in many countries, the number of claims have gone up. So we are managing that, especially in the U.K. we do a lot of transformation work with all the major insurance companies, and that's based on our own platform where we are managing most around 20 million policies - so these policyholders, suddenly their claims go up. In the U.S., we work with some of the state governments for their unemployment insurance programmes, managing and reengineering some of the systems. Again all the claims and also taking money to the hands of the employees etc., so there were increasing levels of activity amidst this. For instance in India, we do a lot of financial inclusion work. The backbone has been extremely useful especially when the money has to reach the hands of whom it is intended for. So, these are mission critical activities which you (we) run.
Menaka Doshi: You expect by 2025, only 25% of TCS staff will need to work from an office, and only for 25% of the time that they work. It's a very big shift, it's a transformation in how a people-driven company works. What are the challenges that you see in being able to implement something like that.
Ramki: For the last few years, we have already been on something called a Location Independent Agile model which means you can actually do a lot of work in a very distributed model. So you don't have to be co-located in one place. In an Agile environment, what happens is the product owner or the person or group for which you are developing something, as well as the developer, the tester, the business analysts-- everybody sits together, they can be in multiple locations, but they are all working simultaneously. So, this Agile without co-location itself has been in the works for quite some time. The SBWS is actually an extension of that.
If you look at it, many projects which we do for customers, if there are 100 people in that project let us say they’re working from four locations; so you had four locations and hundred people. Today, that same thing is hundred locations, hundred people. Maybe over a period of time the hundred locations may not be there and it can come down to 90 locations or whatever it is, but the model is the same.
That's why we were the first off the block, putting this in context. Rather than say work from home etc, to say that by 2025, our expectation and goal is that only 25% of a person's time one has to spend in the office. The rest can actually work from remote locations. And, only 25% of the workforce has to be in an office. So, it doesn't mean it's the same 25%, but everyone will definitely work in office for some time. This can have multiple advantages.
One, it can actually ease the pressure on some of our cities because people can actually be in tier two, tier three cities. Today, while there is a lot of emphasis on developing some of those cities, still the preference is for being in the larger cities. Now people can be there, they can telecommute or you can have clusters. You can have larger participation of people who were otherwise going out of employment after a certain stage because of family reasons etc. You can have much more inclusion. Definitely, the benefit it will have on avoiding contribution to global warming. People can save on commute times. So, there are a lot of advantages.
Now I'm seeing that virtually every organisation, at least in the tech sector everybody is talking of different numbers, but everybody is saying that this is possible. So, we are glad that we were first off the block to say this very emphatically. And, we believe that this is possible and doable and a lot of things are happening in that direction.
Menaka Doshi: How does it change your cost structure?
Ramki: So this is not really from a cost saving perspective. It will have (an impact) over a period of time. It will take (cost) away from real estate to some extent, travel can come down.
Menaka Doshi: You run large facilities - thousands of people in these offices. The cost of canteens, commuting, air conditioning. I'm sure you've modelled it, give me a picture of what it looks like?
Ramki: One thing the pandemic has taught us is - don’t trust models. Honestly speaking, that exercise to work out those numbers doesn't seem to be a priority at this point.
Menaka Doshi: Is it that you haven't worked them out or that you don't necessarily want to share them publicly?
Ramki: These are numbers I don’t want to share with that level of specificity. But we also have to factor in that you'll have things like communication costs etc going up, so it will be balanced.
If you're only talking about infrastructure in the offices, even if 25% of people are going to work in an office you have to still have that infrastructure. Today you have these offices for which there are leases etc. You're not in a rush to go and close those leases.
If I just put it in perspective, today if 100 is revenue our operating margin is somewhere around 25%. So out of the 75, roughly 55 or so is people costs. So then the balance 20 - what you do for projects, etc. is probably another about 5%. 15% is all your selling, general administration, everything put together. So some portion of that 15 will definitely get saved. But there will be some compensating factors. As I said earlier, it's not as much a cost saving thing which we are doing - there are obvious advantages, some of them I talked about. But more important is that you will have a talent cloud.
For instance, one of the things which we did a couple of years back, is we democratised recruitment of freshers from the universities. Earlier, If you have been familiar, the practice was campus day one recruitment and you go to X number , a finite number of campuses one year in advance and then go and have the interviews and take the people, and then they join and then you put them through three-four months of training, etc. Things have completely changed. We started a TCS national qualifier test, which can be taken by students anywhere in the country. So we are not restricted to those campuses only where we were hitherto going. That has democratised the process, so we have a much larger pool. And, what used to happen is, we are going to say, 300 colleges - the 301st college will have maybe four very bright students who always missed the opportunity to join. Now, they can take the qualifier test and join. The second thing is we now don't wait for people to join the company before they start the training. Because typically what happens is, people complete their exams in February, March, and then they wait for the results till June. In those three months itself if they are going to join the company, they start their training online, modules etc. So, you cut the time. All these things are happening.
Now, these things are not just done with a cost-saving view. It is improving and increasing your talent pool. It is also enriching for the employees. It's a huge plus for people-- they become productive on day one. People who were not able to get those opportunities, today they have an opportunity. We are really attracting some phenomenal people who would have otherwise not got that opportunity.
Menaka Doshi: There are transformational impacts of all of this. Some of the negative impacts being discussed today, as Silicon Valley considers the same changes, is whether this commoditises people. Economist Tyler Cowen just wrote a piece questioning if remote working de-identifies people? Does it take them away from the ability to co-work, learn together and the entire experience that a workplace brings? Does it commoditise people?
Ramki: It is a very valid point. I don't know whether it will commoditise - but just imagine, all of us have been working in organisations and you have a set of colleagues, you have a set of people with whom you have built relationships. So today, even if you're working remotely, those relationships come very handy because you know if you are talking to X, you have a certain mental picture of what X’s capabilities are or how they would react to certain situations. Tomorrow, if you're going to get a completely new set of people in your team who have not had the advantage of working in that environment in which we all have been accustomed to, it's not going to be easy. So will you have the same trust and confidence in that individual? I mean, it is mutual. So these are questions which are definitely going to come up.
That's why I said, working from home is not going to be an easy walk for everybody. For instance in this industry, we have a large millennial group. Our average age is thirty-one but that's because we have been here for 50 years. But a large part of the group of people is 24-25-26. Many of them come from small towns, villages, etc. and when they are working in the large cities they are in shared accommodation. Now if you say SBWS - go and work from home, we may still have to have (work) clusters in cities where they can actually live. If you have a shared accommodation with four or six people sharing an apartment and these six people are working for six different companies and three of them are competitors and two of them are customers and all that, it's not going to be so easy. So I think what you said is very valid.
These I think will evolve over a period of time. That's why we said, this is a goal, this is an objective, this is doable. But we'll have to figure out some of these things.
Menaka Doshi: Cowen argues that “This move away from workplace morale as a motivator will help self-starter employees, but it may not be good for tech labor overall. In essence, without a local workplace ethos, it is easier to commoditize labor, view workers as interchangeable and fire people. The distinction between protected full-time employees and outsourced, freelance and contract workers weakens. A company can make the offer of, “If you hand in your project, we pay you,” to virtually any worker around the world, many of whom might accept lower wages for remote roles.” Do you see the shift to work-from-home, as one that might depress wages or salaries over the course of the next several years?
Ramki: I think if you look at all of us as only a set of skills, some technology skills which are fungible, I have a particular technology skill which I can just go and hawk anywhere, then some of this commoditisation would happen.
Actually, the thing is far beyond that because it's not just a combination of skills that you have. It's also a deep contextual knowledge of what you are doing is relevant for that particular customer and in that particular application, then also a lot of domain knowledge and a lot of specialist knowledge comes in. So over a period of time that body of knowledge, both domain, technology, as well as the contextual knowledge, is what makes it rich for the customer and for us to be able to actually work with the customers to see how they can actually transform some of the offerings and businesses.
Menaka Doshi: But wouldn’t that be maybe 20-30% of the work that you do? A bulk of the work that you or companies like yours do maybe standardised that can be accomplished by a large number of people that have a basic set of skills right?
Ramki: No, it's the other way around. 80-20 would be more like it. Because see the maturity curve. You become more valuable, you become less commoditisable if you actually gain that contextual knowledge and you are able to apply that in the situation; if you're able to get more and more technology skills and gather enough domain expertise. So, it's in the interest of the employee, if the employee chooses to learn only one technology and try and do that all the time you are a widget.
Menaka Doshi: Do you think this will have a deep impact on salaries and wages over a period of time, not necessarily at TCS, but just this entire shift to work-from-home?
Ramki: See, I think you mentioned about hiring and firing. Hiring and firing has been there in the industry. When they were co-located, was it any less? Companies were shedding jobs just like that. In our group as well as in our company, we are very clear that because of this, we are not going to shed jobs, at least TCS is very clear.
Menaka Doshi: For instance, Facebook has said that they would love to be able to employ people from other cities and towns, not necessarily just the Valley, but that might also be accompanied with lower pay. Is this is a trend?
Ramki: I think one has to see how it works out. Because obviously if you're taking from a tier three city and enabling that person to work...
But after a time, the mobility into projects, mobility into newer experiences will also play a part. You can’t expect that you will stay rooted in your home forever, unless you have those enriching opportunities coming by...
Menaka Doshi: So, you don’t think it will change wages or salaries over the next three to five years?
Ramki: On the other hand, if you are able to use this opportunity and be more productive, more helpful, you will command a premium. I don't think it will depress wages but how you're able to adapt to this and to make yourself valuable. How you keep yourself abreast because a lot of it will also come back to your own individual inclination and you’re ability to do that.
Today, we don't have a differentiation based on where the person is, it’s more from a role. For instance, somebody in a tier two city is not going to get less than what he's getting in a tier one city. There may be some minor differences, but it is more from a role. Of course there is a lot more work to be done there, but it's not a perfect science. I don't think this alone is going to depress wages, but a lot of these paradigms will get revisited, I am very sure about that.