The Road to the Corner Office

• 1987 Natarajan Chandrasekaran, 24, joins TCS as a trainee programmer.
• 1989-92 Works with a 100-member team in Stockholm.
• 1994-97 Grows a UK-based telecom customer account into TCS’ top 5. New CEO S Ramadorai spots Chandra.
• 1997-99 Ramadorai takes Chandra under his wing, appoints him as Executive Assistant at TCS headquarters.
• 1999 Starts e-business unit, which grows to $500 million in less than five years. Begins work on the GE account.
• 2002 Becomes Head, Global Sales. Sets up centres in Uruguay, Mexico and China. Bags a $100 million GE deal.
• 2003 TCS becomes first Indian IT company to clock $1 billion in revenues.
• 2004 TCS goes public—India’s largest listing ever.
• 2005 Appointed Head of Global Sales and Operations.
• 2007 Appointed COO in September, is seen as the next CEO. TCS crosses 100,000 employee mark.
• 2008 Dismantles geography-based structure in favour of business lines.
• 2009 TCS crosses $6 billion in revenues. Chandra takes over as CEO.

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Chandra's Big Bets

• Full Services: It’s a capability that Chandra has personally developed in the company. A few years ago, TCS was largely an application development and maintenance player. Today, it also offers infrastructure and BPO services. The acquisition of the life insurance & pension businesses of the UK-based Pearl Group in 2005 and that of Citigroup Global Services in 2008 are credited to Chandra. TCS announced that it had won three full-services deals in the last quarter. Company officials insist these deals are just the tip of the iceberg. The real action lies in the fact that customers continue to adopt more and more of its recently added offerings. Today, of the top 400-odd clients, about 40-50 clients are using all three services. About 100 clients are on two services.
• Platform BPO And SMB: Created in April 2008, TCS’ platform BPO unit is its big bet to break its linearity of revenues. “Both ‘platform BPO’ and ‘small and medium business’ (SMB) are in the lab,” says Chandra. “We will continue to watch for proof points in these areas in the next 18-24 months,” he adds. Market watchers feel that platform-based BPO is one area where TCS is ahead of both Infosys and Wipro. TCS is also creating new platforms in areas like finance and accounting and procurement. The company is also betting on the SMB segment. Edelweiss Research believes that if TCS were to just tap the Indian market, the annual revenues from this market would be $200 million by 2013. If the company manages to replicate it outside the country, revenues can go up to $300 million.
• TCS’ global model: Among peers, TCS is known for its investments for the future. It has invested in sales and marketing capacity, 86 international offices and 24 global delivery centres. Some of these bets are starting to pay off. Take the case of its South American operations. The company began building capacity in that region in 2002. TCS did not approach the geography as just a near-shore delivery centre for the US, but as a standalone market in itself. In the last quarter, the South American centre accounted for 5% of the company’s revenues. “We have over 10,000 people in emerging markets. Each of these centres has between 600-700 and 1,300-1,400 people. The number of employees is expected to go up to 2,000-3,000 and another three to four centres may come up,” says Chandra.

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It is Monday, the beginning of only the third week of Natarajan Chandrasekaran’s life as the CEO and Managing Director of Tata Consultancy Services (TCS), India’s largest software company, but not the most profitable one. It is a Diwali holiday and TCS House on Raveline Street, Mumbai, is deserted. It is his first quiet day at work, his first real chance to get away from the spotlight...finally, an opportunity to let it all sink in. That makes it a perfect setting to get him to open up. But, two hour-long interviews—each on either side of his lunch date with his wife Lalitha—is not enough to pry open his mind on some big organisational changes in the making. The key unanswered question: who is going to be the next chief operating officer, the role he just vacated? Or, will it be more than one COO? The latter seems highly likely. “What you write will be debated by over 143,000 employees. I don’t want that to happen,” he says. “I want them to hear it first.”

At the end of the interviews, it is apparent that Chandra, as he is generally called within the company, does not want to rock the boat. Mind you, we are talking about a rather big boat here—143,761 employees from 67 nationalities, Rs 27,813 crore (roughly $6 billion) in revenues, Rs 5,311 crore in net profit, and Rs 1,26,000 crore in market capitalisation. But don’t make the mistake of assuming that nothing much is going to change as the 46-year TCS lifer takes over the reins. Everything is going to change…everything.

And the change has already begun with the very construct of the boat. Chandrasekaran does not fancy the big monolithic structure that TCS has come to be. It is too heavy, too unwieldy, too burdened and too slow for the pace at which he wants to drive the company. And even before he became CEO, he has been gently and quietly breaking the mother ship into many, many, smaller boats. His vision is not to run one big ship. His vision is to create a swift, powerful armada of smaller, faster and more profitable ships, each with its own captain, but all sailing under one flag.

“He (Chandra) has one style. I have another. The methods we follow are different.”S Ramadorai, Vice-Chairman, TCS

S Ramadorai, former CEO and now its Vice-Chairman, built a giant company in his 13-year watch. His successor wants to disaggregate TCS into many smaller units, each with its own CEO, CFO and HR head. “There are now 23 companies within this one big company,” says Ramadorai, who is backing his protégé on the new plan. “A young set of leaders (or CEOs), led by Chandra, are coming into place. This has unleashed tremendous energy levels,” he adds.

“We have over 20 people managing their own profit and loss accounts, each with complete ownership,” says Chandrasekaran. “If we are doing well in the last two quarters, it is because of them.” (TCS’ net profits grew by 29%, year-on-year in the second quarter. Revenues grew 7%.) “We wanted to break down the problem of growth to a manageable size, so that there are different people running after the targets,” he adds. “One wishes TCS had done this earlier,” says Viju George, Senior VP, Edelweiss Research. “This will help TCS act faster, get closer to its customers and add a layer of customer intimacy that was much needed,” he adds.

Top IT companies are in various stages of doing what TCS is attempting. Cognizant Technology Solutions, the youngest and the most diverse organisation of the lot, is perhaps the most entrepreneurial. HCL used to be that way, but things have dulled a bit recently. Earlier, HCL used to call itself a “fractal organisation”. Founder Shiv Nadar wanted to create a federation of companies. Employees were encouraged to come up with business ideas. Some of these grew into full-fledged companies. NIIT, Comnet and Frontline are classic examples. Wipro is a process-oriented organisation and was among the first to adopt the Six Sigma principles. Decision-making is not centralised, but it doesn’t percolate down beyond senior or mid-management level. Infosys, however, is still centralised, but not bureaucratic like TCS.

Managers To Entrepreneurs

TCS created the Indian IT services industry in 1968, pretty much out of thin air. At that time, it was a small outfit and was very much an entrepreneurial organisation. But as the company grew, the entrepreneurial DNA was preserved only at the top, and more managerial talent was developed at the lower levels. Under Ramadorai, TCS was a company with an entrepreneurial mindset at the top, and hundreds of excellent managers at the middle and below. In the earlier business environment, where IT companies could grow as fast as they could hire new programmers, this model served TCS well.

“We will decentralise. But we will still be a company, not a venture capital firm.”S Mahalingam, Chief Financial Officer, TCS

Employees grew from 6,000 in 1996 to over 143,000 in 2009. This was a linear model of growth, funded by customers who were willing to pay IT companies on the basis of man hours they put into every project. You could run an IT company with an excel sheet—employees in one column, revenues in another and the resulting profit in the third.

But, the global financial meltdown and the recession is forcing a rethink. Customers no longer want to pay IT service providers based on the man hours they spend. They want outcome-based pricing. They want IT vendors to share their risks and rewards.

Chandrasekaran knew this will work for the company too. And he believed that a managerial organisation could not cope with this change. The company had to become entrepreneurial at all levels. And so, he set about reengineering TCS’ DNA. He wants to turn the efficient managers into entrepreneurs. That is why he has carved the company into 23 business units, and anointed an entrepreneurial ‘CEO’ for each.

Welcome to Chandra’s ‘CEO’ factory. This whole concept of CEO-level entrepreneurial freedom to business heads has gained momentum only in the last two quarters, say company sources. In April 2008, Chandrasekaran had announced the dismantling of geography-based structures in favour of business-oriented groups. But now, he is taking decentralisation to a new, higher level. It is still a closely guarded secret. He will not even share the names of the 23 CEOs, many of whom he has picked and groomed.

Every CEO runs a business unit that today makes not more than $250 million in revenues and employs about 3,000-5,000 people. The plan is to give the CEO full entrepreneurial freedom to grow this to $1 billion. “The whole idea is to allow people the space to dream and to give them the opportunity to achieve their dreams,” says Chandrasekaran.

Each CEO is paired with a CFO. On the seventh of every month, every CEO gets a profit and loss account for his business. “There are some broad guidelines, and within those, each CEO is encouraged to exercise entrepreneurial judgment.

Pricing a contract is one example. Even earlier, business unit heads were equipped with ‘pricing calculators’ that would help them bid for projects. But, they would still have to go back to the central corporate finance before they bid. “Now, they no longer need to consult us. They take their calls after consulting their CFOs,” says S Mahalingam, CFO, TCS. “This kind of pushing it down to the individual level is new to us. But it is bringing in more agility and energy to the company.”

Chandrasekaran outlines many reasons for taking this route. First, TCS wanted sharp accountability for every customer. The buck stops with each CEO. He also wanted agility, and small units with sufficient scale. Next, he wanted to create a lot of leadership positions within the company. Lastly, he wanted to break growth into a manageable size. “We didn’t want to look only at the big picture, we wanted to disaggregate it,” he says.

But TCS will still remain as one large company, and grow bigger. At the centre of the armada will be one big mother ship. This will focus on a set of shared services. Foreign exchange management, corporate governance, investor relations, disclosures and leadership development, among others, are examples of some functions that will be managed by the HQ. Everything else will be decentralised. “We have created a structure where we retain the power of largeness and the nimbleness of a smaller entity, and we have sharper accountability to clients,” adds Chandrasekaran.

Chandra’s vision is to create an armada of smaller, faster and more profitable ships, each with its own captain, but sailing under one flag.

Though he has been working on this model for many months now, it is far from perfect yet. “What TCS is trying is akin to a jumbo jet refuelling in mid-air,” says a top executive at a rival firm. Given the earlier managerial culture, neither the company nor the selected CEO leaders are fully prepared for the change. “Most of these CEOs have been with TCS for a long time. They have all risen through the ranks. No one is totally new in that sense,” says Mahalingam. That is both good and bad. Good because these people know TCS inside out; bad because they will take longer to move to an entrepreneurial mindset. “Many of them have been suddenly pitch-forked into a CEO role. They need to be challenged more in order to qualify as entrepreneurs,” he adds. They still have a lot to learn. “As a CEO you can quote aggressively to get a contract, but later on it is going to muck up your financials,"adds Mahalingam.

While they make the transition, the company too will do the same. TCS’ incentive structure takes three things into account: company performance, business unit performance and individual performance. But it is now overweight on the first. “In some sense, though not much, our incentives are disconnected with the performance of the individual unit a CEO is heading,” says Mahalingam. But, this will be corrected now. The message is clear: if CEOs are expected to take entrepreneurial decisions, they can expect entrepreneurial rewards. But, only one in the 23 CEO roles is a non-Indian. Considering that 8% of TCS’s workforce is not Indian, the global representation needs to be higher.

Leading By Example

In early-October, Ramadorai gave up his office at TCS House, and moved across the city to the 22-acre Banyan Park campus in Andheri. “I quite like it here,” he says in an obvious reference to the greenery all around. The campus is complete with over 2,000 rare fruit-eating bats that nest prolifically on two large trees behind Ramadorai’s new apartment-sized office. “The commute (from his Malabar Hill residence in South Mumbai) is not a problem,” he says.

Even as Ramadorai enjoys the green serenity of his new workplace, the implications are not lost on the rest of the company: follow Chandra. He is the man in charge now.

Ramadorai first spotted Chandrasekaran in 1993 when the latter was working on a project in the US. By then, Chandrasekaran had spent six years in TCS, having joined the firm straight out of Regional Engineering College, Trichy, in 1987. The highlight of his early life in TCS was a stint in Stockholm, where he worked with a team of 100.

In the Limelight: TCS House is turning into a factory that is churning out top leadership talent.

Ramadorai inducted him into his office in 1996 and the two have worked closely ever since. Even early on, he demonstrated the ability to grow businesses. He started the e-business unit in 1999 and grew it to $500 million in less than five years. “Chandra is a tremendous account manager. He grew the GE account from a million dollars to one of TCS’ largest. As the head for e-business, he snagged the Indian IT industry’s first $100 million deal from GE in 2002,” says a former TCS marketing executive who worked with Chandra during that period. In the mid-nineties, he worked with a telecom client in the UK and turned it into one of TCS’ top five global clients.

“Chandra has outworked everybody else to the top. He is a workaholic and has no vices,” says a TCS insider. He is both intelligent and hardworking. To really understand that combination, you need to look at his interests beyond business. His two loves—long-distance running and chess—are a contrasting blend of brawn and brain.

He first tried running on March 31, 2007. In three quarters, he would complete the Mumbai marathon—among the most arduous marathons in the world. Today, he trains regularly, keeping a daily log of his progress. Chandra also revels in the game of kings and bishops. On his foreign trips, he often duels with a grandmaster-level player at a client’s office.
It is this combination of smarts and grit that helped him rise in an organisation like TCS.

Cosmopolitan: TCS has 24 global delivery centres. And foreigners make up about 8% of the company’s workforce.

There were other contenders for the top job like former TCS North America Head Arup Gupta, TCS’ former Head of Manufacturing Practice Ravi Gopinath, IBM VP and General Manager, Global, Rajesh Nambiar. All of them dropped out of the race, even as Chandra rose up the ranks. The last was drafted into IBM boss’ Sam Palmisano’s global core tech team in 2007.

Despite years of working with Ramadorai, Chandrasekaran’s management style is different from that of his mentor. “Ram was congenial and had a paternal attitude. People felt comfortable and gravitated towards him naturally. Chandra has a very American style of functioning. He is effusive in his praise, but when you get on the wrong foot with him, the outcome is unpleasant,” says a top-ranking TCS employee who works out of the US.

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Size is TCS’ Strength

Company	Income (Rs cr)	PBIDTA/ Total income (%)	PAT (Rs cr)	Revenue*	P/E (times)	Market cap (Rs cr)
Infosys Technologies	21,693	33.16	5,988	25.27	20.71	1,30,357
Tata Consultancy Services	27,813	24.24	5,311	19.35	27.03	1,26,153
Wipro **	22,621	18.48	3,874	23.13	23.74	86,697

*Per employee in Rs lakh; **Income represents IT&IT services segment

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“Chandra is all about high speed and action. Sometimes, he does not take everyone on board with him. Ram was measured and relied more on consensus,” says another TCS manager. Ramadorai too admits to these differences. “He (Chandra) has one style. I have another. The methods we follow are different. But, we are all focused on the outcomes for the company,” says Ramadorai. “The difference between us is that he is young and will behave his age. And that describes everything,” he adds with a chuckle.

Outsiders feel Chandrasekaran is more aggressive. The perception exists because Chandrasekaran is more entrepreneurial and more risk-taking. “Ram was understated in his demeanour. But, that does not mean that he was not aggressive,” says Mahalingam who has worked closely with both the CEOs.

Ramadorai publicly set a revenue target of $10 billion when the company was not even $1 billion. “Ram’s numbers were aggressive,” says Chandra, guffawing. “If you define aggression as hunger for business, it was not absent earlier,” Mahalingam adds. But, the difference is this: Ramadorai built a managerial model, Chandrasekaran is building an entrepreneurial company. Both are appropriate for their times.

The beauty of this transition is that Ramadorai appreciates the need to be entrepreneurial as much as Chandrasekaran and has thrown his weight behind his protégé’s plans. “One of the strategic decisions that was always worrying us was how large do we grow?” recalls Ramadorai. The discussions between him, Chandrasekaran and the rest of the top management reached some kind of tipping point when TCS crossed the 100,000 employee mark in October 2007.

It also became evident that growth cannot become linear to the number of people employed. “At 143,000 people or at 200,000, one CEO and one COO is not enough. People will wonder ‘what’s in it for me?’ Those were the dialogues we had when we created the 23 leadership positions,” he adds.

Ramadorai says that the number may go up or come down, but this is TCS’ new philosophy. Identifying the 23 CEOs was not an easy job. “The toughest decision was to pick one guy from five good guys,” says Ramadorai. To fully appreciate that statement, one needs to look at TCS’ middle-management breadth—it has 93 vice-presidents and 386 principal consultants.

He admits having many doubts. Am I creating a problem? Will people be upset? This was indeed a tricky exercise. “Chandra would not want any exits. If he indeed announces a multiple COO hierarchy, he will have to do it carefully,” says a Mumbai-based analyst with a leading research firm. TCS is not the greatest paymaster. “What works for the company is the Tata culture. So, he would be very careful about not rocking the boat,” adds the analyst.

The CEO Factory

Chandrasekaran is making a difference. “Youthful leaders are clearly rallying around him. The old guard, which would want multiple conference calls to decide on everything, is not,” says a company insider. “Chandra’s message is clear,” says a US-based manager. “Bring on the new ideas, baby!”

Two things are important if Chandrasekaran’s vision of an entrepreneurial TCS is to succeed. First, it needs to be able to consistently spot and groom leadership talent. Historically, TCS has been good at this and Chandrasekaran has been even better. Second, even as it decentralises, TCS will need to maintain a few strong central processes.

“We’ve been able to identify good people in their first 7-8 years in the company. We give them a lot of mobility across projects, clients and continents,” says Mahalingam. Much of the talent spotting happens on informal lines. “Sometimes, clients tell me good things about a person. I always take note and mention it to Chandra or Maha,” says Ramadorai. Now, the plan is to institutionalise this, without losing the informality. TCS has to become a leadership factory. Ramadorai is active on Facebook and encourages employees to connect with him there. In his new role, he is looking forward to mentoring more young leaders.

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Linear Growth Model

Year	Revenue (Rs cr)	Headcount	Revenue per employee
1999	1,690	12,100	13.97
2000	2,115	14,300	14.79
2001	3,142	16,800	18.70
2002	4,187	19,000	22.03
2003	5,012	22,000	22.78
2004	7,122	30,000	23.74
2005	9,727	45,714	21.28
2006	13,252	66,480	19.93
2007	18,633	89,419	20.83
2008	22,861	111,407	20.52
2009	27,813	143,761	19.35

*in Rs lakh      Source: Company

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“Chandra inspires loyalty. He always backs the guys he picks. Chandra’s people always got rewarded, but then, they always performed,” says a former Chandra report pointing out to Abid Ali Neemuchwala (global head BPO practice), AS Lakshminarayanan (head of UK geography), Ravi Viswanathan (head of telecom practice) and Girish Ramachandran (Europe head) who have reported to Chandra for a long time and are now among the front-runners for the COO jobs. Another insider talks about a joke that regularly does the rounds in the company: “TCS stands for ‘Till Chandra Sees’. You work is recognised only when Chandra sees and recognises it. Chandra has a hawk’s eye for talent. Most of the leaders he picks succeed.”

Company sources say that over 50 people in TCS report to Chandrasekaran directly. His interactions with them tend to be quite intense. Weekly, and sometimes, even daily meeting schedules are not uncommon. They see this as a weakness that may well hurt growth. TCS disagrees.

“Jack Welch did not believe in span of control,” argues Mahalingam. With many reports, you cannot micro-manage. GE was run as a portfolio of businesses, where every leader was an entrepreneur. “TCS won’t be all that different,” he adds. “If these people are true leaders with P&L responsibilities, the need to connect with them will be minimal,” adds Ramadorai in Chandra’s defence.

Some strong central processes will need to be maintained. “We will still be a company, not a venture capital firm,” says Mahalingam. Individual CEOs will have to fight for the company’s resources. They may want to buy a company in order to grow. But, they have to earn that right. They will not be allowed to borrow money to fund their businesses. This is where a seasoned Mahalingam might temper Chandrasekaran’s inclination to
empower leaders more.

Baptism By Fire

The formal announcement that Chandrasekaran would be the next CEO was made in May 2009. It came as no surprise, but the timing seemed inopportune for him. A month earlier, TCS had just announced poor results in the aftermath of the slowdown. Revenues declined by 1.45%, the first such drop since TCS was listed in August 2004, and profits dropped 2.1%.

Officially, Chandrasekaran has taken charge only now. But he has been managing the business on a daily basis for one year now. It is showing. TCS has started growing again in the last two quarters. A week after formally taking charge, Chandrasekaran announced a 7% growth in revenues and a 29% rise in profits for the September quarter. “In the last two quarters, Chandra has shown that he can make the elephant dance,” concedes a top level executive at a competing firm. “The Pearl acquisition has been digested well. The Citi BPO (acquired in October 2008) is doing well. And even though it earns 15% of its revenues from emerging markets, TCS is managing its profit margins well. Now, Chandra has to bring more predictability in to TCS’ earnings,” he adds.

Edelweiss Research, in a recent report, states that it expects TCS (and Wipro) to double stock returns in the next 12-18 months, and narrow the valuation gap
to Infosys.

“In the past few years, TCS has been investing substantially in non-linearity models like platform BPO, ensuring breadth of delivery presence and in sales offices, personnel, senior folks with the right depth of domain experience etc. In that aspect, it’s ahead of Infosys,” says Edelweiss’ George, who considers Chandra to be “a man who is decisive and quick to act.”

Chandrasekaran was put through the furnace during the recent slowdown and has emerged unscathed. His performance in the last 12 months has earned him the organisation’s respect and he will be starting his innings with a lot of confidence. “I’ve seen him say no to clients and walk out of deals when the client plays multiple vendors to squeeze pricing,” says a TCS manager. “There is an aura around the manner in which he handles clients. Everyone in the company respects him for that.”

But he, more than anyone else, will know he has just taken the first steps in what will be a gruelling marathon. This one will be harder than the Mumbai, Stockholm and Prague marathons he has completed in the last two years.

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With inputs from Nandita Datta