Inside TCS’s transition led by CEO Rajesh Gopinathan

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Gold Silver Reports – Tata Consultancy Services Ltd’s (TCS’s) chief executive officer (CEO) Rajesh Gopinathan likens his role at India’s biggest software services company to that of a conductor leading a musical ensemble.

“It is more an orchestra kind of situation. There is a conductor. Each of the participants knows the score. You change the tempo to bring in your own signature, but technically everybody knows the score or everyone is a virtuoso in their own area,” Gopinathan, 45, said in a recent interview. 

“And you may emphasize or de-emphasize. You have the power, but you exercise it very lightly. The orchestra is trained to follow the conductor. But it is not dependent on the conductor,” he said.

Gopinathan had big boots to fill at TCS, which ended with $17.6 billion in revenue in the year to 31 March.

Less than three months after the Tata group holding company, Tata Sons Ltd, sacked Cyrus Mistry as chairman on 24 October 2016, Gopinathan was named CEO of TCS.

Gopinathan, who was chief financial officer (CFO) and vice-president, replaced Natarajan Chandrasekaran, under whom TCS generated $1 billion in incremental revenue each year since 2011; Chandrasekaran was named chairman of the $100-billion group, with interests ranging from automobiles to aviation and tea to telecom.

Gopinathan’s approach towards his job at the helm underscores an important leadership trait: respect for the team.

“You need to understand your own teams and you need to respect them. Respect them from the bottom of the heart, and they will respect you. It is this mutual respect that is the key to get extended teams to work together,” he said.

His approach—of building a strong rapport with both customers and employees—underlines why TCS has retained all its senior executives even as business continues uninterrupted, calming the worst fears voiced by analysts after Chandrasekaran left the company, where he spent three decades, to occupy the most senior role available at the Tata group.

Understandably, the consensus view now is that this has been one of the smoothest management transitions at an Indian corporate entity.

“The approach reflects a mature leader who understands not only their internal environment but also the external requirements. We, too, often live in a short-term, quarter-to-quarter world that lacks a long view. Rajesh has started on a good note,” said Ray Wang, founder of Constellation Research, a technology research and advisory firm.

Typically, it takes 18-24 months to know for sure if a company has managed a successful CEO transition. So it will be premature to draw a conclusion now. But what cannot be argued is that Gopinathan has started on the right note by retaining the team his predecessor took a decade to assemble and nurture.

Retaining senior management is always challenging, and TCS’s two smaller Bengaluru-based rivals—Infosys Ltd and Wipro Ltd—have experienced this in the past.

In the six months leading up to Vishal Sikka’s appointment as the first non-founder CEO of Infosys in June 2014, and in the ensuing six months, Infosys saw the exit of at least a dozen executives, who reported to either the CEO or the chief operating officer (COO). Sikka quit in August this year after a battle between the company’s founders and the board.

Wipro, which managed a relatively better transition after appointing Abidali Neemuchwala (co-incidentally also a former colleague of Gopinathan at TCS) as CEO in February last year, too, saw the departure of three senior executives.

At TCS, only former digital business head, Satya Ramaswamy, left the company after the management decided to carve the digital unit into individual components to scale them up.

TCS has other virtuoso leaders like K. Krithivasan, president of the banking, financial services and insurance (BFSI) business unit. Krithivasan, who completed 27 years with TCS last year, has served the firm well: TCS now gets more business from banks than any other informational technology (IT) outsourcing firm, including Accenture Plc, which, although it is twice the size of TCS, gets less business from BFSI.

In the year to March, TCS earned $7.1 billion in revenue from the BFSI unit, which means, Krithivasan, along with three other leaders, run a business division that, if classified as a standalone company, will be India’s fourth largest IT firm (behind Wipro, which ended with $7.7 billion in revenue last year).

“All of us can tell you, he (Gopinathan) is a great guy to work with. He is a very objective guy,” said Krithivasan.

Why did Tata Sons zero in on Gopinathan to lead the company?

“From a CEO succession point of view, we did have a few candidates in mind. The board met each of the individual candidates, they met collectively, and then they decided. But it’ll be difficult to say what worked in his favour,” said Ajoyendra Mukherjee, executive vice-president and head of global human resources at TCS.

TCS won’t comment publicly, but one executive credits Gopinathan’s wide experience across different groups as one reason for his success.

“He has seen the broadest view of TCS among all of us,” said Debashis Ghosh, president of the manufacturing, life sciences and energy practice at TCS.

Chandrasekaran hired Gopinathan from Tata Industries Ltd in 2001 and, together, the two are credited with building TCS’ e-Business practice into a $500-million unit in five years. In 2005, Chandrasekaran again got Gopinathan to help him run TCS’s strategy office for two years. Later, Gopinathan moved into the business finance division, before taking over as CFO in 2013.

Another executive attributes his ascension to Gopinathan’s razor-sharp focus on execution. “TCS is not a company which will do something radically different. Rajesh is a very meticulous and articulate guy. Above all, Chandra trusts him completely and so will rely on him to execute his vision. After all, he, having been a part of review meetings for five years, knows the business so much that it came as no surprise to anyone of us,” said a TCS executive on condition of anonymity.

Gopinathan’s focus on execution is something that would be appreciated by Nandan Nilekani, non-executive chairman of Infosys which is still searching for a replacement to Sikka.

“Let me tell you that you should not underestimate execution. That is what business is all about,” Nilekani told reporters in October, after being quizzed on what Infosys will focus on.

Gopinathan is not a flashy, gregarious personality like Sikka. He also does not possess the easy charm of someone like Francisco D’Souza, CEO of Cognizant Technology Solutions Corp., to impress a client. Gopinathan is a soft-spoken man, who rarely lets down his guard.

Still, Gopinathan’s financial acumen is in no doubt. Large outsourcing deals are becoming more complicated, with elements of new-age technologies such as data analytics, artificial intelligence and cloud computing increasingly becoming part of a business that traditionally depended on work like application maintenance and infrastructure management for its bread and butter. Any IT vendor needs financial judgement to agree to work with a client at a fixed price.

“We have always done business having good client relationships and then working on delivery side of software. But with Rajesh, financial discipline is one thing I have learnt,” said Ghosh of TCS.

Gopinathan, under the tutelage of Chandrasekaran, and support offered by the senior management team, relies the most on data when it comes to making decisions.

“So, say if the team in data analytics in the US needs more investments, Rajesh will approve of these only if the return on capital makes sense. Chandra would come to a decision with both his experience and data playing equal parts,” said an executive on the condition of anonymity.

At 45, Gopinathan is younger by a couple of months than Chandrasekaran was when he occupied the corner office at TCS in 2009.

Senior executives at TCS have a reason for sticking with the firm and working with a man who is still early into his journey of building client relationships.

“Most of us joined this company as trainees. We all were from ordinary middle-class backgrounds, and we all have grown based on performance. The company has allowed us to make mistakes. Whatever we are is purely because of the company,” said Krithivasan.

“Now there is lot of respect for Chandra. And when I look back, he (Chandrasekaran) was an elder brother to the team. Rajesh, too, gives us as much independence as Chandra. You don’t make friends over one meeting. Personal relationship with clients is also part of a journey and does not happen overnight,” added Krithivasan.

Gopinathan maintains TCS will build both technologies and talent rather than buy it from outside. This approach is fraught with risks as this takes time, and for this reason, TCS’s insular approach has started eroding the firm’s growth. TCS managed a 6.2% dollar revenue growth last year, slower than 7.1% in the previous year, and less than half the 15% growth reported in 2014-15.

Read More: What is Reliance Jio’s Share of the Telecom Market?

Globally, firms across industries are cutting spends on legacy work such as application maintenance, and ploughing the savings into newer projects in areas such as data analytics and cyber security solutions. This means companies like TCS now have to deploy tools such as automation and data analytics platforms to help clients run their businesses more efficiently. TCS’s build-everything approach contrasts with Accenture Plc’s strategy of buying companies and hiring executives as it makes itself future-ready by investing in newer technologies.

Accenture spent $1.7 billion to buy 37 firms last year, with these acquisitions helping it improve its dollar revenue growth to 6% (from 3.5% in 2015-16) to end with $34.9 billion in revenue in the year to August.

Gopinathan remains unfazed.

“I agree, it is a risk,” he said. “(But) we are betting on our people that this culture is the more robust and resilient culture which will allow us to go over multiple cycles of technology. Otherwise, I am merely a financial investment engine,” he said. – Neal Bhai Reports