The challenges ahead for TCS and new CEO Rajesh Gopinathan
With cloud-computing providers, automation and artificial intelligence threatening the business of outsourcing companies, incoming CEO Gopinathan has his work cut out
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No one individual has done more business with Natarajan Chandrasekaran than Mitchell Habib, who, in a career spanning a quarter century, has worked at General Electric Co., Citigroup Inc. and Nielsen Holdings Plc.
“Chandra and I have done more than $4 billion in business in over a decade we have known (each other),” Habib said days after Chandrasekaran, the chief executive officer (CEO) of Tata Consultancy Services Ltd (TCS) was appointed chairman of Tata Sons Ltd.
Put simply, over the years, Chandrasekaran got 66-year-old Habib to give TCS as much business as India’s fifth largest outsourcing company, Tech Mahindra Ltd, earned in revenue last year—$4.04 billion.
TCS ended last year with $16.5 billion in revenue.
“I remember once while I was COO (chief operating officer) at Nielsen, we had some trouble with two very important clients, P&G (Procter and Gamble Co.) and Kraft (Foods Group Inc.),” said Habib, who now runs his own consulting firm, FCM. “P&G believed that they did not need Nielsen as a provider because we were perceived to be not a technology leader. I had a discussion around this with Chandra, and he flew with our CEO and me to Cincinnati, to meet the CIO (chief information officer) of P&G. Chandra personally assured P&G and gave his personal commitment, under which he promised to have oversight, and provided TCS’s resources to an industry-changing project. We retained P&G with his support and leadership. But had we lost P&G, it would have had a huge impact on us. So, this is the kind of commitment that underlines the importance Chandra gives to its (TCS’s) customers.”
Chandrasekaran’s focus on building client engagement is one benchmark CEOs, including his successor Rajesh Gopinathan, will find impossible to match.
Gopinathan, who is currently the chief financial officer, will take over as boss from 21 February. However, TCS executives believe that building client engagements will be the least of the worries for Gopinathan in the coming 12-24 months.
“Chandra will not let go of TCS. So, he will be there to mentor and help Gopinathan,” said the first executive.
Even by the outsourcing industry’s penny-pinching ways, Gopinathan stands out.
When most of TCS’s rivals are seeing a drop in profitability, Gopinathan has managed to make TCS, with a 26% operating margin, the most profitable outsourcing company globally.
Yet, Gopinathan takes over a very different TCS than the one Chandrasekaran inherited in 2009.
At 45, Gopinathan is only a year younger than Chandrasekaran when the latter took over TCS’s helm in 2009.
TCS then was a 142,000-strong company, which had crossed $6 billion in revenue.
Eight years later, in 2017, TCS is the country’s largest private-sector employer with over 378,000 employees. Managing a ship of this scale is not easy. Then TCS still had a lot of business to make from deploying engineers to write software codes and roll out ERP (enterprise resource planning software such as SAP), provide customer support, and maintain data centres for Fortune 1000 companies.
Now, cloud-computing providers such as Amazon Web Services are eating into the business of TCS and other outsourcing companies. Automation and artificial intelligence technologies pose an existential threat to the way traditional outsourcing companies have done business.
Finally, newer technologies such as block chain mean hundreds of thousands of engineers at TCS need to learn, build and offer solutions quickly to its clients.
That Gopinathan will have his task cut out is an understatement.
According to executives and analysts, how Gopinathan does on three challenges—retaining talent, winning contract rebids, and execution—in the two years should eventually decide the success of the decision to elevate him to the top at TCS.