We'll return to pre-Covid rhythm next year: TCS COO N Ganapathy Subramaniam

We are executing well, gaining market share in vendor consolidation and revenue will start coming in from next few quarters and we are actively participating in the growth and optimization deals

Tata Consultancy Services (TCS) bucked the trend in Q3FY23 by delivering revenue growth ahead of what the street was expecting. N Ganapathy Subramaniam, chief operating officer and executive director, in an interview with Shivani Shinde, talks about what worked this quarter, if the dip in hiring this quarter was an aberration, and the impact of tech like ChatGTP and Copilot on software engineers. Edited excerpts.

What worked for TCS in Q3 that made it deliver strong numbers?

It is different in different regions. Clients in continental Europe are cautious because of the situation they are in. In the UK, our client base has been progressive, forward-looking, and more decisive. This is represented in our UK growth, which was up 15.4 per cent year-on-year (YoY). The US too is similar.

Companies went on a hiring rampage over the last few quarters, paying exorbitant salaries, and now the time is to balance the cost they incurred. Hence we are seeing layoffs. This is not related to tech budgets.

From our perspective, two important things happened. First, globally there is vendor consolidation or optimisation efforts are taking place. Given that we have a larger presence in the account and larger set of services to offer, we have gained market share by winning such deals.

Two, in terms of growth and optimisation, customers have continued to accelerate the cloud agenda. Cloud deals kick in only when consumption starts. TCS is one of the largest drivers of consumption for the top two cloud hyperscalers globally.

Cloud, automation, algorithms are gaining ground; cost-optimisation deals are growing; and products and platforms are doing well.

The headcount dip was a surprise. TCS said it was the work of how the talent base had grown in the company. Is this sustainable?

We did not feel the requirement to hire more because we had excess capacity. There is no need to hire in a quarter when the billable days are few.

From next year we will be back to the rhythm of pre-pandemic operations, in terms of hiring, induction, etc.

Have growth and optimisation deals reduced in size?

We have large deals, especially in the vendor consolidation segment. These are multi-year deals spread over three-four years. Our qualified pipeline in this quarter is $7.8 billion and the total contract value (TCV) has gone up. There are significant opportunities and we will be closing some of them over the next few months.

Q4 looks strong?

Q4 is important because it provides an exit rate for next financial year. And that will decide if we are going to deliver double-digit growth rate or not. Some of the deals we are working on are interesting work.

How significant is demand in the cloud and is it over-riding growth and optimisation deals?

You have to see this differently. If you look at client budgets, 60-65 per cent is about “run the business”, and 30-35 per cent is “change”. This is what the traditional IT budget would look like. This ratio has flipped owing to technology change and innovation that tech is enabling. Sixty-sixty-five per cent is “change budget” and 30-35 per cent has became “run the business”. But in this 60-65 per cent, unlike earlier, clients do not want to spend all of it in one go. Earlier this constituted capex but now with cloud that changes. The cloud deals that were announced are getting into execution.

Recently Satya Nadella (Microsoft chairman) spoke of how ChatGPT and GitHub Copilot were changing the way coding was done and 80 per cent of coding now could be done by a machine. How do you see this trend impacting TCS and the subsequent impact on productivity?

We saw it coming at least four years ago. Internally, I had said 40-50 per cent of the work we did might not necessarily be done by humans. That led us to come up with a strategy called “machine-first-delivery-model” (MFDM). This fundamentally says “give technology the first right of refusal to solve a problem”. We are still working on it. It is integral to our execution today, and we do deploy such bots. Internally we are seeing “I should be able to automate my own job”. Anything I do repeatedly should be done by a bot and over a period of time that bot will know how I would function in a given scenario.

But there are issues as well. One, if you work with the ChatGPT kind of a model, these are open source codes. When we work with customers we have to guarantee certain things will work. Two, I have to make sure it is free of malware, infringements, copyrights, etc. It still needs to mature; we will see how it goes.

We need to hold ourselves accountable to what we deliver to customers if ChatGPT enables that then we will embrace it.

TCS has built Mastercraft. It allows 100 per cent code generation. Many of our customers use it and our product and platforms business is driven by MasterCraft.