Forbes India 15th Anniversary Special

Rajesh Gopinathan's TCS exit: A story of unintended consequences and lingering questions

Talks are on for CEO and MD Rajesh Gopinathan to remain within the Tata Group after he hands the corner office to Krithi Krithivasan

Harichandan Arakali
Published: Mar 21, 2023 01:10:40 PM IST
Updated: Mar 21, 2023 07:27:35 PM IST

Rajesh Gopinathan's TCS exit: A story of unintended consequences and lingering questionsRajesh Gopinathan resigned on March 16 as the CEO of Tata Consultancy Services (TCS)
Image: Mexy Xavier

 
Three months ago, Nandan Nilekani, chairman of Infosys, said something about CEO Salil Parekh. This was at the company’s famous compact auditorium at its Bengaluru headquarters. Founder NR Narayana Murthy and other co-founders were also present, for a short presentation, a bit of reminiscence, and a Q&A session with reporters.
The occasion was the 40th anniversary of the IT services company.

“One of the things I like about Salil is, he will drop everything and catch a flight to Greenland, if necessary,” Nilekani had said.

At larger rival Tata Consultancy Services (TCS), after CEO Rajesh Gopinathan resigned on March 16, shocking even insiders, a narrative has emerged that his style was more laid back, compared with the bags-always-packed-and-ready attitude of executives such as Parekh. And Gopinathan’s own comments at a press meet on March 17, repeatedly underlining his ennui with the whole cycle of quarterly accountability to everyone from institutional investors to rookie reporters, doesn’t help. “I can’t tell you how happy and light I feel,” he told reporters.

TCS, India’s biggest IT services company, announced the surprise change at the top to the stock exchanges after markets on March 16, and issued a press release. The company’s board named K Krithivasan, another company veteran, as CEO designate, and added that Gopinathan would help with the transition through September 15.

“I was surprised, a little shocked, we all were… but I believe it was coming to this,” one source said, in one of the company’s biggest markets. The person saw several customer-facing people quit last year after soldiering on under new mandates due to a reorganisation. Sales folks were asked to sell across verticals, for example, “instead of focusing on their domain strengths that was built over many years,” the person said.

And a new grouping—it comprises a Relationship Incubation Group (RIG), an Enterprise Growth Group (EGG) and a Business Transformation Group (BTG)—resulted in unintended consequences. The concept isn’t new and has been tried before at other multinational organisations, including TCS’s rivals. At TCS, “their intention was noble, as it was thought to create new roles, more promotions… but what actually happened was everyone wanted to align themselves with BTG or at best EGG,” the person said. RIG, whose very mandate was to strike new relationships and nurture them, was born an orphan. “No one wanted to go there.”

Therefore, “they had the sales engine going through multiple experiments, combined with RIG, and these two were to bring new clients and drive new growth.” And even as some competitors picked up pace, TCS didn’t lead or even keep up, because “they were all in experiment mode internally for almost three to four quarters,” the person added.

As to selling outside one’s area of expertise, “being TCSers, they never said no, they tried their best, and are still trying,” the person added. And when some of the customer-facing sales leaders quit, “they were allowed to go… that was something we used to talk about, that TCS was not like that, TCS would not let its people go. And all of a sudden, we started seeing that, hey, TCS doesn't mind; if you want to go, go.”

Also read: TCS growth engines firing up, game on with Accenture, say analysts


The person estimates that at least 20 percent of what is called “major markets tribe”, within TCS’s sales engine in their largest market, left within 12 to 15 months of the restructuring. This person and others that Forbes India spoke with asked not to be identified, as they all have long-standing relationships with the company, both as employees, and in the industry.

The matter was exacerbated by the banking, financial services and insurance (BFSI) unit refusing to accept the new structure, the person said. BFSI, led by Krithivasan, is about 32 percent of the company’s $25.7 billion (FY22) business. All this created a sense of disconnect with a big part of the company, and some also saw it as a signal that the top leadership was not aligned on the matter, the person said.

To be sure, through individuals’ lenses, problems can seem magnified, and in hindsight, the best intentions of everyone involved can be found to have shortcomings. TCS didn’t immediately offer any comments for this story. The mandatory silent period is kicking in on March 21, ahead of the company’s earnings results announcements planned for April 12.

A senior executive in the industry added that “they may also be concerned that any official comment at this point will fuel more speculation”. The executive, who has been briefed by TCS, said that BFSI was left out given its size, and because it had its own go-to-market strategy. The person didn’t want to be named, as the briefing was private.

With Krithivasan keeping BFSI, the rest of the company’s services lines across practices such as retail, manufacturing and so on, were overlaid with RIG (sub-$5 million customers), led by Susheel Vasudevan, EGG ($5 million to $500 million), which is where most customers fall, led by Krishnan Ramanujam, and BTG (above $500 million, with some 20 top customers), led by Debashis Ghosh.

“The reason for the reorganisation was to provide customers with high-touch support based on where they were in the customer lifecycle,” with respect to TCS, the executive briefed by the company said. “It was like a relay.” This also meant that when a customer moved from one group to the next, while the existing client partner would remain, new specialists and consultants, equipped to help the customer on the next leg of growth, would also come on board, the executive said. “The unrest towards the reorganisation wasn’t untoward. If anything, people were jealous that Krithi [meaning BFSI] was out of it,” the executive added.

Economic Times, on March 20, reported that Gopinathan did have support from all stakeholders, including Tata group’s top boss N Chandrasekaran, and TCS’s board of directors. Moneycontrol reported on March 19 that a trifecta of reasons eventually precipitated Gopinathan’s resignation: The reorganisation, slowing growth, and Chandrasekaran’s unhappiness over TCS’s performance.

Chandrasekaran, who is also chairman of TCS, is widely acknowledged as Gopinathan’s mentor. The person briefed by TCS added that the company denies there is any rancour between the two. “Chandra wants Rajesh to stay on in the group and they are talking about it,” the person said.

TCS has, indeed, grown slower than Infosys, for example, which emerged from the Covid-19 pandemic outpacing all the top Indian IT companies. But on whether this was a potent enough reason for a TCS CEO to resign abruptly, the jury is out. Most of those who spoke with Forbes India for this story, agree that the company’s financial performance is still good.

Also read: Inside TCS's cloud strategy: How the IT giant is consolidating its hyperscaler alliances to tap an 'unbounded opportunity'

Why not just reverse it?

“The reorganisation definitely seems to have created some push-back. What we do know is that there was internal discomfort and some external confusion over this,” said one person who has longstanding connects across India’s IT sector. “Now, why he would need to resign over that is a little unclear. You would think you can just reverse it,” the person pointed out.

Another source echoed this exact line of reasoning: “Now, if the restructuring was the issue, we’ll see if they reverse it in some time,” the person said. This source also added that TCS’s clients were not affected, and in general such reorganisations among vendors have limited impact on clients. And in TCS’s case, this is a well-oiled machine at the scale of more than $25 billion, with upwards of 610,000 employees, and there were no signs that anything was seriously wrong with execution or delivery, the person said.

The strategy behind the reorganisation “works well when you are having growth everywhere… it doesn't matter”, said one person who has relationships with TCS’s financial customers in the US. For example, coming out of Covid-19, there was a massive build-up of demand for IT services. to the extent that the supply could barely match it. Now, “as soon as you start seeing the economy slowing down, with recessionary fears, these models don't work really well,” the person said.

This all still doesn’t answer why Gopinathan had to quit, instead of reversing or easing the changes.

He pointed out himself that the company had added $10 billion in incremental revenues on his watch and its market capitalisation had increased by more than $70 billion in the six years that he was CEO.

Rajesh Gopinathan's TCS exit: A story of unintended consequences and lingering questionsKrithi Krithivasan, CEO, TCS

CFO versus P&L owner

Krithivasan’s appointment, elevating the head of the company’s biggest unit to CEO, has given birth to another aspect of the narrative. Gopinathan was a CFO who became CEO, whereas Krithi, as everyone in the company calls him, is a more client-facing “P&L owner”, the reasoning goes.

The suggestion is that the client-facing CEO is a better option than the CFO-became-CEO. There’s one small flaw with this view, specific to Gopinathan’s case. His tenure as CEO was renewed only a year ago, after the first five years that everyone at the time called a big success. Therefore, on Gopinathan suddenly being cast in poorer light, “I find that hard to believe… I tend to discount that”, said the person who has extensive connects across India’s IT services sector.

“He may not have been as accessible as Chandra [Chandrasekaran], maybe, but things were going well for them,” the person pointed out. TCS is currently on the brink of winning its next mega deal, for example, according to multiple media reports. “Maybe he hasn't been out meeting with clients, so I think typically you want your CEO to be external-facing and to have high visibility in the industry. But quite honestly, they were doing well underneath him. They still are doing well.”

Krithivasan was a contender in 2016-17, according to Moneycontrol, but the board chose Gopinathan. And the source who said clients aren’t generally affected by vendors’ internal reorganisations, also pointed out that at TCS’s scale, “it takes a lot more than just a client-facing CEO”.

One person in the US said, “perhaps the board was looking for a practitioner”, in choosing Krithivasan, but also added that there is no evidence at all that customers had suffered because of a reorganisation and so on. In fact, “customers we spoke to are happy… they are seeking more innovation.”

As for Krithivasan (59), he represents the “TCS gold culture”, said the person who has relationships with financial clients. “We have never seen him do mega shows or do marketing spiels or be very flamboyant,” the person said. “He's always been, ‘I’ll show you what the business is, what great work we are doing’. It's always been that and very down to earth; again, a very true TCS culture person. I would say he is one of them.”

On the flip side, at the March 17 press conference, there were also questions around Krithivasan’s age—he is the oldest of all TCS CEOs. S Ramadorai was 51, Chandrasekaran was 45 and Gopinathan was 46 when they were handed the top job.

Krithivasan as CEO will have a shorter runway, but his 34-year experience at TCS, and as head of BFSI, will help the company continue to do well, analysts at Motilal Oswal, a well-known Mumbai brokerage said in a note to clients on March 17. They have a ‘Buy’ rating on the stock.

TCS’s shares didn’t move much on the news of the CEO change, but shares of India’s top IT companies are lower in the last couple of days on global economic trends.

Gopinathan also dismissed some queries around the age of the incoming CEO. “At this point in time,” the board decided that Krithivasan was the best choice, he said. Krithivasan’s appointment is for five years, Gopinathan confirmed, with executive directors’ tenure at the Tata Group companies being 65.

He will lead the company in the backdrop of two important factors. First, in the near term, there is a global economic slowdown and fears of a recession in the US, the world’s biggest technology market. JPMorgan Chase pointed out recently that TCS and Infosys are the most exposed among India’s top IT companies to the US financial sector. Second, there is the stated ambition of getting TCS to $50 billion in revenues by 2030 that Gopinathan has previously articulated.

Krithivasan joined TCS in 1989. He is also a member of the board of directors of TCS Iberoamerica, TCS Ireland and the supervisory board of TCS Technology Solutions AG, according to the company’s press release. He holds a bachelor’s degree in mechanical engineering from the University of Madras and a master’s degree in industrial and management engineering from IIT Kanpur.

And at the press conference, the CEO-designate reiterated that one shouldn’t expect a brand-new strategy because there was a new CEO.

Also read: TCS hits $25 billion after Q3, but smaller rival Infosys is growing faster


Culture eats strategy

And that image of unruffled continuity that TCS projected externally, more than anything, is what seems to have been hit by Gopinathan’s resignation. That right there, might hold a clue to what might have transpired. The TCS culture that Gopinathan was seeking to change. Perhaps he tried to change it too fast?

For example, in Indian media, comparisons are often made with Accenture as the only rival that truly remains unbeaten by TCS. And in a very candid interview with Forbes India in August 2021, Gopinathan expressed his anguish over how TCSers love to tell clients about the elegance of their solutions, whereas the company must learn to play up the value it is delivering with respect to the complexity of the problem, and seek to charge accordingly as well.

Like how Accenture has a reputation with its history of leading with consulting. Gopinathan also led a massive rebranding at TCS in 2021, with a new motto “Building on belief”.

“TCS came from a heritage of disciplined offshore outsourcing, whereas Accenture came from the background of consulting,” said the person with the extensive industry network, adding a small anecdote from a CIO who does business with both: “Look, when I want a problem [solved], when I want to go to the whiteboard, I go to use Accenture. When I want to go to the keyboard, I go to TCS.”

“Accenture’s been doing this for much longer; TCS has started to broaden its appeal… it's going to take some time,” the person said.

There is also a difference in the approach to talent. TCS is seen as very methodical, disciplined and engineering focussed. The company hires freshers in India with the intent of showing them that a career at TCS will be “like a mutual fund”, as Gopinathan told us 18 months ago—not a depiction that will get your heart racing, but one that appealed to generations of Indians before the millennials and the Gen-Z and so on.

Accenture routinely recruits from the top business schools in the US. TCS does too, but perhaps not in the same way. The source was at pains to emphasise that this doesn’t make one better than the other… just that it all goes to reinforce existing perceptions.

“And optics matter,” said a senior industry figure who has friends within TCS’s leadership. “If you go look at anyone at vice president or higher [positions] in TCS, you won’t find a single gora [white person].” The person was exaggerating to make a point, but by and large that’s true. There are very senior locals in the US or Europe on TCS’s consulting team—people who are managing partners with decades of experience. Not so much on the bread-and-butter IT services side.

‘Jab mann ub jaaye’

It’s all for Krithivasan to grapple with now. As for as optics go, he was comfortable enough to say he loved Hindi so much that he wouldn’t abuse it by speaking it. He also joked that leaving Chennai behind and shifting to Mumbai would be the bigger challenge versus running TCS and that may not be entirely a joke. “Those who know it will understand,” he added.

As to Gopinathan, he was palpably relaxed and offered responses to reporters that were far more open—at times tinged with hints of sarcasm and irony—than the careful remarks he would make from one quarter to the next.

While he spoke in English almost throughout, perhaps his most evocative response came out in Hindi, in answering a question from a reporter who asked him to speak in the language. The CEO is the son of an Indian Railways engineer, and grew up in railway quarters in Lucknow.

The response revealed his command over the language—with a bit of slang and a tinge of his South Indian accent—but also offered a glimpse into one aspect of the thought process behind his decision. “Ek baath ka dhrid nishchay tha, ki jis din mann ub jaaye, usi din nikaljaaneka hai, [one thing was certain, that the day your mind’s not in it is the day to leave]. Ek minute bhi iss kam mein nahin rehna agar puri tarah se dil se nahin karna [You shouldn’t tarry even a minute if you can’t do this work with all your heart].”

He switched back to English to add that, “this is not the seat to sit and think about my future plans. This is the seat to sit and think about TCS's future. And the moment my future starts becoming part of the thinking process, I think it is appropriate that I step away and put somebody else here.”

“After a stellar career of over 22 years with Tata Consultancy Services, and a successful stint as Managing Director and CEO during the last six years, Rajesh Gopinathan has decided to step down from the company to pursue his other interests,” the company said in its March 16 press release. Overall, he’s been with Tata group for 27 years. Gopinathan “has laid the foundation for the next phase of TCS’ growth with significant investments in cloud, agile and automation to help clients accelerate their transformation,” Chandrasekaran said in the release.

The timing of the announcement, just four weeks shy of the company’s quarterly and full-fiscal-year results announcement, was another question that continued to nag many. “The only thing that rankled me was, why couldn’t they have done it at that time… played it as a smooth transition at the end of the fiscal year,” mused the senior industry figure.

In time, more questions might be answered. But the pressure from the treadmill of quarterly performance was also definitely on—something that, after 40 quarters of it, Gopinathan didn’t want more of. “The pressure was certainly on,” said the person briefed by TCS.

“I have been harbouring a few ideas on what I want to do in the next phase of my life,” Gopinathan said in the press release. He didn’t elaborate at the press conference. After helping with the transition to Krithivasan by September, his first priority would be to take some well-earned downtime, he said.
Beyond that, “I’ve no clue what I’ll do,” he added.


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