What’s The Tech Transformation TCS CEO Rajesh Gopinathan Is Talking About
Tata Consultancy Services Ltd. surprised the street as its earnings rose in the second quarter and margin jumped to the highest in two years. That, according to chief Rajesh Gopinathan, was led by a “multi-year technology transformation cycle”.
What’s that exactly?
Gopinathan, managing director and chief executive officer at TCS, attributes it to technology leverage—using technology to deliver more value with same or less resources. And that, he said, cuts across all industries.
“It’s not a very widely available capability, and requires not just understanding of the technology layers, which demands significant investments, which we have been doing ahead of the curve, but also the current technology estate (or infrastructure),” the TCS CEO said during an interview with BloombergQuint. “Clients need to understand the current technology they have, and what they need to migrate to in derisked manner.”
Gopinathan expects this to bring more opportunities for TCS, which saw all its verticals—especially banking, financial services and insurance, and consumer retail and healthcare—fire on all cylinders in the three months to Sept. 30. But he cautioned: “We are not out of the woods and we need to be very careful.”
The New Tech Paradigm
India's IT bellwether has been for many years investing in new technologies, such as cloud computing and machine learning.
“The technologies that we are talking about have existed for many years now,” Gopinathan said, adding that new technologies always face a challenge from a fully depreciated technology stack. “If you take cloud at its very basic level, the functionality that it delivers is not very different from what your existing infrastructure will deliver. It (cloud) delivers security, higher resiliency, higher flexibility, but it’s not easy to value that in a situation.”
But the pandemic changed it all.
This crisis has put a value to that resilience because companies that had the (cloud) infrastructure were up and running faster than those who were scrambling to survive from this sudden shock, he said. Businesses and management took decision in favour business continuity.
“Suddenly the business value becomes more apparent and the decision becomes easier and that forces that jump [from the traditional to new technology]. That’s what the pandemic has done. It has forced that jump.”
And that’s where further opportunities come in.
“The jump lands you in a new space which delivers resilience but not further functionality,” Gopinathan said. “To get to the real future benefit of that new space, you (clients) need to be able to consume a lot of the new capabilities (apps, services and platforms created by IT firms). That consumption can happen on an incremental basis. Once you have written off your old estate to the new estate, you have done that investment to shift there. After that it is incremental investment and that is easier for companies to consume.”
Flight To Quality
The value of operational excellence, resilience and quality tends to be underplayed in a stable operating environment, according to Gopinathan.
“The real value of quality comes when the road gets bumpy and it is when you really start testing what you have,” he said. “For many of our customers, value of services is lot more visible now and that is why we are seeing this flight to quality. That’s the driver to [vendor] consolidation.”
As clients build out newer services on the new technology platform, there will be demand. That, Gopinathan said, will prompt more client spending. “I do believe that there will be higher client spending for multi-years.”
The company added $8.6 billion of contracts to its order book in the second quarter.
Besides, TCS net hired 9,864 employees in the second quarter, and announced salary hikes effective Oct. 1.
“Everything is significantly technology leveraged, that’s where the confidence comes from, “said Gopinathan. “What we are doing on our part is taking a forward call on that. We are betting on that in terms of investments we are doing, and to build on our intellectual assets, we are doubling down on our key partnerships, investing in our employees training and upskilling, as well as hiring. We are well-positioned to meet the demand that we foresee.”