Won’t forego margins for growth: TCS CEO-designate K Kirthivasan

The 58-year old executive said the company is “comfortable” with its business model and not perturbed by smaller rival Infosys adding more net business over the last few quarters despite being almost half in size. Reacting to recent criticism about TCS’s slower growth, he reiterated his company’s focus on maintaining strong margins.

Afterreporting margins of 24.5% in Q4 of the 2023 fiscal year, TCS has set a target of 26-28% in the long term while Infosys reported margins of 21% for the fourth quarter, at the lower end of its guided range. He also said that the new operating structure may require a few tweaks, but won’t be definetly overhauled to iron out a few rough edges. A Tata group veteran who has spent 34 years in the company, Krithivasan will focus on strengthening relationships with large customers who form a bulk of TCS’ revenues, he told ET’s Romita Majumdar & Surabhi Agarwal in a wide-ranging interview.

Edited Excerpts..

TCS has been criticised for growing slower than Infosys despite being almost twice the size. How do you react to this?

We are very comfortable with our business model. Our model is going to be primarily asset light. We are focused on particular margins and aspirations, so we will work towards that. Of course, the data is right. I cannot contest the data that if somebody has grown faster over a period of time. Yes, the board will be watching how we do but all of us are comfortable with our business model. We believe we don’t have to sacrifice margins. We delivered 24.5% margins in Q4, there were attrition headwinds. Once these headwinds clear, I believe that it is reasonable for us to aspire for the 26-28% range. Everybody has an operating model that they are comfortable with and our model will continue to be like this.

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So, you are saying that you will not forego margins for growth?

Our model will continue to be like this. Do you feel that the timing of your takeover at this uncertain time will make the transition more challenging?

When I take up (this role) is not my choice. We need to do our best. Situation is uncertain, but I won’t even call it challenging. I don’t look at this as a major crisis at all. To me, this is something shorter lived, things will pan out to be normal, I hope. We have had tougher times in the past, like during the financial crisis or the beginning of the pandemic. The thing to focus on is to stay close to customers, stay relevant to them and offer them with new solutions. And every time a crisis hits actually, I personally believe we have come out stronger, it has actually provided another impetus for our growth every year. It’s a long term positive and we will have accelerated growth.

There has been some criticism of the recent restructuring exercise, do you feel it needs to be tweaked to make it work better for your clients or your employees?

There are many opportunities for me to improve, I’m not perfect, right? Same goes for the organisation. Organisations are made up of people. On one hand there is a business structure. But when situations change there are opportunities for tweaking to run faster. So, if I say that we are perfect, and everything is working fine, that would be a lie. But the question is, does the situation call for an overhaul? Or does it call for just a tweak? We believe that there will be some tweaks. I will be meeting our customers and associates. We will implement whatever tweaks are required and there will always be opportunities.

What is your strategy to continue growing in such uncertain times?

During uncertain times. customers are focused on controlling and reducing costs. So, it’s important to go to them and tell them proactively, if you do ( this) your spend will reduce and that could be spent on your transformation. So, our teams should and will go to the customers and say- these are the opportunities we see, where you can optimise and save and then enrich. That’s always been the approach. You will see more optimization projects for the short term before clients start investing or transformation.

What is your long term vision for TCS?

I’m not going to give you any grand statement because our focus has always been culture and values which will not change. The fundamental pillars are going to be our customers and our associates. From my immediate priority perspective for the next couple of months, I will meet all our customers, or at least the critical ones, most importantly, the non-BFSI ones who I have not been in touch with. And I need to talk to associates to understand their challenges, if any.

If you look at our overall portfolio, it’s primarily weighted in favour of our large accounts. And in those larger accounts, anything adverse has a multiplier effect. So, it’s important for us to strengthen the relationship on the personal level and in terms of our broad offerings. Our focus is to ensure that we double down on the new technology services. Ensure that our customers continue to get the value for their investments. The third is around enhancing the customer mind share. In parallel, we continue to focus on building a team for the future.

Our associates also have to be upskilled to provide enough opportunity for them to learn and develop competencies in new technologies. These are not just my own priorities but have been the organisation’s priorities for the longest time.

Do you think the macroeconomic crisis can deepen?

I am not an economist but I do not expect it to worsen. If you look at the fundamentals of the US market, unemployment is still low despite issues like tech layoffs. And as we saw in the case of Switzerland (Credit Suisse), governments will ensure that the banks don’t fail. That confidence is there.

And third, if you look at what happened, some of the large banks have been beneficiaries of these events as their deposits have increased. They are primarily our clients. So, they are actually in a better position, but we need to see how quickly they get the benefit of this shift.

From a BFSI industry perspective, how significant have the events of the past few weeks with these regional banks in the US and a large global bank collapsing been for the technology services industry?

The direct impact is not very high. From the events directly the impact on our books is immaterial, but it also spoiled the sentiment in the market. Like where many customers paused the spending efforts. That will continue for some time and it will take some time to recover. That’s what caused all the pausing.

Have you identified a leader to run the BFSI practice now that you have moved to a larger role?

I have some thoughts, obviously. We will finalise the candidate fairly quickly. We have a very deep leadership pool. We have always followed the principle of giving the first right of refusal to our internal candidates. So that’s the same process we will follow. We’ll look at all the internal candidates.

What is your view on employees returning to office?

Our stand was very clear on the way back- to- office. We want more and more people to come to work. We place a lot of emphasis and importance on what we call the TCS culture and TCS DNA. And we believe that when employees work together with their mentors and leaders they imbibe that knowledge. HR is working very hard. I think close to about 50% of folks are coming at least three days a week. We’ll take it up to 70-80%.