Baru S Rao | We shouldn’t lose our focus on cost and quality

Baru S Rao | We shouldn’t lose our focus on cost and quality

Hyderabad: When Baru S. Rao joined Capgemini SA in April 2003, the Paris-based information technology (IT), consulting and outsourcing company had 450 employees in India out of a global headcount of 90,000. As chief executive officer of Capgemini India, the 27-year veteran of the IT industry helped expand the Indian unit into a business with 33,500 people, out of a total of 112,000 employees worldwide, before being transferred to Paris as chief operating officer, application services, continental Europe.

A key turning point was the 2006 acquisition of US-based Kanbay International Inc., which had most of its 6,500 employees based in India. In an interview on 26 May in Hyderabad, preparing to relocate to Paris, the alumnus of Indian Institute of Technology-Kharagpur spoke about the Indian experience of Capgemini, which earned €8.7 billion in revenue last year and has a presence in 40 countries. Indian outsourcers cannot afford to ignore cost efficiency if they are to remain competitive, Rao said.

On the acquisition of Kanbay:

Kanbay was a very good story. Because of our European origins we were very strong in Europe—public, retail, telecom, these things. The weak spot where we didn’t have too much of expertise was North America and financial services. Kanbay kind of fitted like a T because it happened to be extremely strong in financial services, especially in North America. The acquisition has done very well for us. In fact, while we started our North American operations, we integrated all other entities of financial services under one roof, which is... kind of centred in India in terms of its strength.

On his transfer to Paris:

In 2011 January, I had done this CEO job for 7 years. I was also getting little bit restless... I said that, look, probably I should do something different and the group also felt the same thing... I have been moved as the COO for continental Europe, application services. The continental business unit today has about 23,000 people. We operate out of 24 countries.

My job involves the delivery of large deals, risk management portfolios, transformation of the company in terms of a non-linear business model, building up an industrial delivery platform, overall utilization, productivity improvement of people; you can say it’s an all-encompassing role. It’s very interesting.

For the first time I realised how different Europe is from what is typically perceived if we sit in India or North America. The challenges, the cultural issues, the way in which business is conducted, the language that we have to understand... you can find out how different Norway is from Sweden, how business is conducted in Finland as opposed to Denmark. What are the kind of issues you have in Germany?

On offshore centres:

India is not going to be the only offshore centre for us. Today, we have offshore centres in Argentina, where we do Spanish-based work; we do a lot of multi-lingual work from Poland.

In the IT industry, when you are running an infrastructure management, research kind of service, especially for European customers, the calls can come in German, French, English, Romanian, Dutch... Poland is one of the countries where people speak multiple languages. There is an operator who can pick up a phone and respond in any of five languages. We have operations in Morocco—it’s a French centre for us. We have small centres in Eastern Europe, we also have a centre in Vietnam. All these are the enhanced ecosystem of our offshore (business).Of course, we have 33,000 people in India, and in all these (other) centres combined we have approximately 10,000 people. So, India still forms the bulk...

On the transformation of the Indian operation:

I would say it was (led by) two or three things. The first and foremost thing, I would say, is the commitment of the management. The vision of the CEO (Paul Hermelin). In fact, he is called Mr. India in France. He comes to India almost every three months.

I think he realised (the potential of India) as early as when Capgemini acquired Ernst & Young in 2000. At the time the acquisition happened, he came here and realised the potential of India being the hub for offshore development... So, first of all, I would say the vision and commitment of the management.

I would consider the journey in three steps. The first step is the journey of creating the belief. For example, we were not very greedy. We said, look, we will start reasonably sized projects and we will deliver the work. In fact, the key KPI (key performance indicator) was based on the level-of-delivery quality and level-of-people quality. So we said, first deliver quality, attract and retain the good talent. We recruited a lot of people who understand the offshore delivery model. We delivered the initial projects extremely well.

The second question is, are you competitive enough? After the first 2-3 years of the journey was over, the next three years of journey, probably after 2006 or 2007, was the journey of benchmarking ourselves in cost parameters... I think we established a very high degree of confidence that we are not only running good operations but we are also running effective operations. Effective and efficient—that was the one that defined the second period of our journey.

The third phase was the phase where you said, look now we are 10,000 people..., now we will actually need to tell what we are missing by not embarking on the Indian journey. I would say the Kanbay acquisition was one of the first steps because Kanbay as an organisation was based out of India. It was working like a Tata, it was working like (an) Infosys, where the management was located in India. We acquired it and they led the way to show as to how this kind of a work can be done.

Then, Kanbay came from an extraordinary financial services perspective. Then we said that, look, what kind of templates can be built from India, what kind of value-added services can come from India, what kind of architectures can be done from India? India has no dearth of good people as long as we believe in ourselves.

A lot of continental Europe is still a little bit hesitant in terms of going the whole hog... in terms of offshoring business, but they can see the value of it... Look at Norway and Sweden—they are extremely aggressive in terms of offshoring. Because first and foremost, even though they have four different languages, a lot of people speak fluent English. For example, (home-furnishing retailer) Ikea, based out of Sweden, and (mobile phone maker) Nokia, based out of Finland—those companies have done purchasing from low-cost countries and have had operations of selling and buying in countries like India. It’s a lot more easy to sell the software to them. That also coincided, fortunately.

In fact, for one of the European countries, the pension fund scheme in the defence work is being done out of India by us. Defence work, where the facility is completely scrutinised to European data security standards.

On the future growth of Indian business:

I am now restricted to continental Europe, I don’t represent India, but I can certainly (say) it could be the integrated hub of best practices... We expect the Indian (employee) pool to be ready for global management positions as we grow.

The number of Indians in the top management pool is likely to increase. India will continue to be a talent pool. We will have to demonstrate our abilities, our values at every step... I wouldn’t be surprised if a few years from now India would be 50% of overall company population. So I see the possibility of that growth. We have the talent. The only thing is, we should not become complacent and we should not lose focus on the cost and quality.

On likely acquisitions:

We are always open. In fact, six months ago, we acquired small niche company Thesys (Technologies Pvt. Ltd), we acquired a reasonably sized company in Brazil. In fact, we did almost five acquisitions last year. I wouldn’t say we are on the prowl but we are always on the lookout.

On speculation in 2007 of a merger between Infosys Ltd and Capgemini:

Absolutely no truth in it. There was never ever any such conversation between us. At least not to my knowledge. I think it doesn’t make any sense. In my humble opinion, I don’t think Indian companies are ready to acquire and integrate a more than $10 billion company. It needs a lot more management strength.

On India’s cost-competitiveness as an offshore technology centre:

There are choices, and unless you are providing the right value at the right cost, I don’t think you will be able to compete... We have been lucky that a lot of the impact of the cost rise has, in fact, been absorbed in (exchange rate) fluctuation. You will remember a dollar being 7, today it is 46... But we cannot play the game too long now, with the currency stabilising. We have to now move up the value chain far more quickly.

I think it’s a myth to say people will come to India (in the absence of a cost advantage)... We are not God’s gift to mankind. You should see the Russian engineers working in Romania. Outstandingly brilliant people. Brilliant. You should look at a help desk guy who will switch from Romanian to Dutch to French to Deutsche. Five-six languages, being able to take call after call.

In India, you have to employ six people for doing the same job assuming that these six people are good in each of these languages... I think we still don’t do complex work. How many of the complex ERP (enterprise resource planning) implementations of global rollouts, of complex systems integration, come to Indian companies?

I think we should never lose focus on efficiency.