Vineet Nayar:" We are taking business away from the global players"

At a time when everybody is reporting bad news HCL Tech has announced big orders and acquisitions. How is HCL Tech bucking the trend?
We have done four acquisitions in the last 12 months when everyone is frozen to death.

This is our time. When the rest are growing negatively and you are growing 7.6 percent quarter on quarter, the world notices. When everyone else is growing by 30 percent who cares? If there is a time for your management to be noticed, this is it, if there is a time for the business model to be noticed, this is it. You don’t get noticed in recessionary times, if you have a contrarian view and if you are doing well in recession, go against the tide.

What were the changes in the business model when you took over in 2005?
There were two things happening in 2005 — the going was extremely good for Indian IT companies. Nobody was thinking of changing the business model. We were fortunate that way. Second is that the mother of all battles were with the HP, EDS, and Accentures of the world. It was an IT outsourcing battle and none of us were participating in that battle. We were fighting in small pieces of ADM, but those companies were growing and they were getting larger and larger. The second thing that bothered me was that the whole legacy application on which the entire industry is built was going to die. With the advent of standard applications like SAP, Oracle, and so on, the descent would start soon. Standard applications were going to come in very soon and who dominates the standard application business were the transformational vendors — it requires understanding of business processes which we lacked. Most customers said that the large vendors did not demonstrate flexibility, trust, and everybody was very contractual. So we thought can we create a blue ocean in this space? Indian companies were focused on a different business model, so if we were to create a blue ocean in that business model we would win.

Recession period has been a proof of [the success of] our business model, but I am not celebrating success now, it is premature. I still believe that the real story will be told between 2010 and 2015. 

Are you also gaining market share at the expense of your Indian IT peers?
You must understand that we have a very large number of high quality Indian IT companies, Infosys, Wipro, TCS, Tech Mahindra, Genpact, each one of them is focused on a particular business model, however all of us constitute a very small percentage of the total IT budget, it is true that we have gained in market share, but that is not by taking business away from them. We have gained — because our business model is focused more on global business IT services companies, and taking business away from global IT services companies. At a time when the total IT spending is coming down we are taking business away from the global players, and therefore we are growing our size and increasing our market share in that market.

Analysts refer to your model as a horizontal way of selling; and they see that model as commoditised. As opposed to if you were selling vertical solutions, say a mortgage origination platform, or a procurement platform in manufacturing where the vendor can charge a premium? This is the way the other companies are headed.
You don’t follow a business model because you believe that the other business model is right, I believe our business model is right. By their logic this model should have commoditised in recession. Take business intelligence — we are saying there is so much data today and we want to extract the value of that so you can mine your customer better and sell him an intelligent product. Will that get commoditised? They must be out of their mind when they say that. People have forgotten that there are alternate approaches to a market. By no means or imagination am I saying that the vertical approach is wrong, we also approach the market in a vertical way. There is an added element in our selling and that is we sharply focus everybody who wants a data warehousing solution, so I am sharper shooter than everyone else. But I also take rifle shots and that is what horizontal selling is all about.

So then your margins should follow your strategy. You are still trailing behind all the Tier-1 players.
I think margins is a different story, it is a reflection of what it is that you want to be. You will see that we have only expanded our margin — you will see that in the whole industry we are the only company that has expanded margins dramatically. I do not want to be a 30 percent margin company because I don’t think it is sustainable. Whatever extra margin we make we are investing in cloud computing, in acquisitions of Axon etc. We believe that 2005-2010 is not about expanding margins, we are happy with the margins we make. I am happy, this is my business model, we make 18-20 percent margins. So the moment you draw a competitive landscape, you have the markets you address — the value proposition, and the margins you keep. By only having few markets and one proposition you can drive margins higher, I want to be in all markets, I want to be an integrated service provider and hence I want to be a 20 percent margin player, these are conscious choices we have made. They are not results — they are choices we have made because we want to have a business model. So others will find it difficult to copy because they have a 30 percent business model. IBM, EDS, Accenture do not make 30 percent margins in this business.

The perception about this company is that transparency was lacking. There are lots of stories about unethical practices.
The answer to that question is that you are absolutely right. What happens is that somebody takes a higher moral ground of ethics, and then everybody has to prove that you are also on the same ground. Instead of doing that you become very internal focused because you are an engineering company, you think you are great, you are inward focused, and you stop communicating. People start forming their own impressions. There are very few companies like this today. We didn’t have a communications department for many years. I have been here from 1985, we would not meet the media, we would go to technology conferences, meet customers, the missteps in communicating our vision, telling people what we are, allowing people to come inside resulted in those huge kinds of stories and perceptions being created. And those perceptions were not rightly handled.

From 2005, just to get over that perception we have started printing quarterly results which run in 40-50 pages, we are pushing the envelope now.

How satisfied are you with your second layer of leadership? There are concerns on that front the changes at HCL Tech are too CEO focussed.
There are 40 colleagues of mine who meet investors on a quarterly basis, more than any other company ever in the world. There were three challenges we were facing — our performance was lower than our peers, our business model was obsolete and our brand and image were poorer than our competitors. The third job is my job, therefore I am at WEF, I am at G-100, I am at Fortune, and I am everywhere!

2010 onwards you will not see me doing this because there is a massive shift in brand. I am hoping that the next CEO of the company will be a lot less relevant than I am.

What about life beyond HCL tech?
I have started an NGO called Sampark and it is what I dedicate my life to. I was doing it with a couple of my friends. It is something that I do quite a lot and some particular time, it will be my full job. I am very invested in HCL, I have a big stake in the company and nobody should have any concerns.