Challenges Will Spawn New Opportunities

The current economic environment is extremely challenging as we journey through a recession that has diffused from being client-specific to industry-generic, spread from the US to the rest of the world with varying degrees of intensity and risen from the business pages to the front pages of the world’s newspapers. If anything has surpassed the intensity of the recession, it is the speed at which things are groaning to a virtual halt. Just a year ago we were concerned about how to improve our global delivery capabilities better to serve growing global demand but today, the focus has shifted from growth to efficiency and from expansion to consolidation. With budgets under stress, global corporations are conserving cash (if they have it) and reducing debt and this is having an impact on their overall spending patterns, including on IT. In such a short timeframe, companies like Tata Consultancy Services (TCS) have had to reorient their mindsets rapidly to adjust to the new economic realities. From being focused on hectic growth, to one where great emphasis is being laid on business optimization, internal efficiencies and increased customer satisfaction. However, we are still fortunate, for India along with China, continue to remain the few islands of growth in a world awash with recession. Countries with large internal markets and not leveraged will continue to grow, but the prognosis for many industries in the developed world is more pain for 2009, at least. A straw poll among the people I met in Davos in January talked about 2009 being the worst year of the recession and that things would get back on track sometime during 2010, though some pushed the date of a strong recovery upto 2011. However, by March-end, more people reckoned that the beginning of the recovery will only come in 2011. The Indian IT industry being a global export-focused industry has also suffered from the downturn. Sales cycles have become longer and many customers are themselves under severe financial strain. Although our business model is actually primed for situations like these as it provides value for companies and allows customers to cut costs and remain competitive, I foresee pressure from multiple points will remain for the next 18-24 months for the industry.[PAGE BREAK]

However, some optimists do say that this is too good a recession to waste and I would tend to agree with the statement. The recession has given us an opportunity to take a hard look at our operations and improve our efficiencies. With unbridled growth, inefficiencies creep in which need to be shed – and what better time than now! Whether it’s wages, people, pricing or productivity, companies will have to lean on all these levers to extract the maximum efficiencies. We may need to see an environment where the hiring is more attuned to actual demand. I believe, this recession will do to services what the recession in the mid-nineties did for the Indian manufacturing sector which has become leaner and more efficient by ridding itself of flab and becoming innovative. The current situation will force the same of the Indian services industry.
Government & IT sector
Thus far, India’s central and state governments have tended to follow a silo approach to e-governance - some implementation has taken place but has tended to be piecemeal and disjointed and, consequently, has had little impact. This has prevented the necessity for the benefits of IT to percolate to the grass-roots level and has left the disjointed silos ineffective and (relatively) unused.
What is required at this stage for the rapid evolution of India’s e-governance sector is a strategic shift from the commodity-based IT approach to a mature solution or services-based approach. The government sector needs to start looking at IT services rather than pro-curing hardware and software. Within this new approach, the IT-related needs of government organisations can be addressed in conjunction with an IT partner after a thorough consultation process. This public-private-partnership (PPP) model for man-aged services enables government to concentrate on core, mission critical value-adding activities while moving the technology-related requirements to IT professionals (IT partner).[PAGE BREAK]

Good Corporate Governance
A lot of concerns have been raised in the wake of the Satyam incident including on the quality of corporate governance standards of Indian IT companies. But the fact is that Indian IT companies are more transparent and disclose much more information than many of their multinational counter-parts, showing explicitly through metrics how they run their businesses. We are amongst the early firms to declare audited results and also provide numbers in multiple accounting formats. Now, it is again our collective duty to put these facts in front of investors and customers alike to reiterate the high standards of governance which have been the norm for some time now.
In the best traditions of the Tata group, TCS has always upheld highest standards of corporate governance. We believe we are in the game for long haul and hence don’t wish to compromise our long-term vision for any short-term gains. We will continue to invest in the business for long-term sustainability.
Future Steps
We foresee the current economic environment challenging and also full of opportunity. Once the dust begins to settle, we foresee increased opportunity from higher levels of compliance requirement and integration of IT assets following mergers and acquisitions. Our services and offerings are attuned for times like these which would help customers cut costs. Unlike the last major downturn in 2001, IT is now perceived as a solution to the problem and integral to business success. To come out of this recession in a competitive fashion, entire industries will need to rethink their business models and cost structures. Technology will play a significant part in this transformation. While it is true that overall IT bud-get may shrink, there is likely to be increased thrust on offshoring as this would allow companies to maximise their IT spends. Although decision-making has slowed as clients grapple with bigger issues on hand, we are beginning to notice the signs of paralysis among managers easing.  And even in these tough times, there are opportunities for growth. Companies are trying to look at anything for reducing cost. Any offering and idea around [PAGE BREAK]

cost reduction by bringing in operational efficiencies, greater productivity, improved business processes, infrastructure consolidation is being actively considered. We are trying to achieve this by simplification of business processes, infrastructure, IT application landscape by consolidation, re-engineering, virtualization, workload management.
Industries like healthcare including infrastructure like nationally linked patient record databases, agriculture and agro-based industries, infrastructure and utilities including clean energy projects will see more investments. This presents opportunities and we are building capabilities around them. We are focusing on new areas like Green IT, Mobility Solutions, web 2.0, Analytics, as well as learning and development as an organisation.