How king of outsourcing plans to keep his crown

Nearly four decades after its founding, Tata Consultancy Services is one of the largest tech services company in the world. Every quarter, the company totes up revenue of more than $1 billion and new hires by the thousands. It's become one of the largest divisions of the sprawling Tata conglomerate, which also makes steel, trucks, tea, chemicals and luxury hotels.

Although TCS has largely grown through outsourcing, the company plans to expand into consulting and contract manufacturing, essentially serving as a full-service engineering conglomerate of its own.

Subramaniam Ramadorai joined the company in 1972 and became CEO in 1996, just as the Y2K bug was putting the Indian software industry on the map. Ramadorai sat down with CNET News.com to talk about technology in the emerging world, TCS's next moves, and what the company plans to do with those 30,000 people a year it's hiring.

Q: A lot of emerging countries have seen what India has accomplished and say they will try to replicate some of its success. What do they need to do?
Ramadorai: I think Rule No. 1 is that there should be no involvement of the government. The destinations that they have to set up in terms of export promotion zones are areas like Silicon Valley where free movement of people and ideas should be encouraged a lot. They've got to remove all the barriers and restrictions, and spell out what it mean in terms of tax simplifications or real estate.

Finally, countries have to invest seriously in their educational system. That's the most difficult part. Infrastructure can be created with money, but the educational system and transformation of the workforce, and with the passion for doing things beyond the call of duty, that's the most important dimension. That's what differentiates India from the others, or Silicon Valley. Nobody tells you to work extra hours. You are self-driven to a large extent here.

Revenue and income have been rising in the 40 to 50 percent range every quarter. How long can that continue?
Ramadorai: The whole idea is to make sure that your offerings are very well understood by the customers. We try to align our businesses with the businesses of our prospects, our customers, and try to showcase the value proposition where it has a revenue impact or cost impact. And when we can engage with them, we'll grow at 25 percent, 30 percent or 35 percent or 40 percent. We never give any future guidance but we must do better than the industry average.

But when people look at your business these days, I think they believe there has got to be a finite growth level somewhere. Corporations have already outsourced a lot of functions, so are you gaining customers from competitors or selling new services?
Ramadorai: It's a number of things. They want things like infrastructure and server consolidation. On a global basis, in manufacturing some customers may have 300 or 400 instances of ERP (enterprise resource planning). How do you consolidate that?

Those situations still exist?
Ramadorai: Yes. Some industries are very slow to transform or they want to combine operations and IT services together. After mergers and acquisitions, they may want to streamline to a single instance. If you take industries like the utilities industries, they are very much behind us.

TCS has been hiring large numbers of employees every year. You're at the point now where you're hiring the equivalent of a small town annually. How do you keep control of the process?
Ramadorai: We are hiring this year 30,000 (employees). The last quarter we took in at somewhere around 7,000 or 8,000. That's the biggest challenge for companies like us: when you have a diverse workforce from different parts of the world, how do you integrate them, how do you train them, how do you deploy them, how do you manage their culture? What kind of intervention is required, what is the mentoring that needs to take place?

Nobody tells you to work extra hours. You are self-driven to a large extent here.

That's been our biggest learning experience over the years. We started small, recruiting 100 people a year, then to 500 people, to 2,000 to 5,000 to 10,000 to 20,000 or whatever it is.

How many are based in India and how many are outside?
Ramadorai: Out of 83,000 (employees), 7,000-plus are international workforce. I think we will take it to about 10 percent of our workforce.

Speaking of utilities, energy consumption has become a big issue. Do IT managers raise it more than in the past?
Ramadorai: I think energy consumption is a big challenge, and you can look at server consolidation from an energy consumption reduction point of view. We have aligned with a start-up company called Cassatt, and worked together with them on consolidation.

I think climatic change, the implications, and the technology intervention systems are going to be significant issues. What kind of embedded systems or monitoring systems will be required to reduce consumption? We are getting into hardware, software integration. We are getting into engineering design. We are getting into design-to-manufacturing.

The (outsourcing) industry itself is just not coding, or programming, or only financial services or banking. It's going into areas of manufacturing, healthcare, retail, government, transportation, travel and hospitality, life sciences.

Why have you decided to emphasize things like embedded systems and hardware design? TCS has had a unit that designs cell phones, but a lot of companies in Taiwan already specialize in hardware design.

Ramadorai: It was an evolution over a period of time. We did some work in automotive embedded systems through the Tata Group. We did some work for the defense in India in embedded systems. Then we worked for the Space Research Organization onboard computers and telemetry systems. Then we bought a company from the government of India that was pretty strong in embedded systems, and then we looked at the market potential for engineering services and said that here is an area which the industry should get in.

But it's such a highly competitive field.
Ramadorai: It is, but with the sophistication of devices, with the sophistication of technology, with the integration of shop floor to the board room, it will require higher levels of integration. We have done a lot of work with the telecommunication companies like Nortel who have done a lot of work with Lucent. We have done with Ericsson, we have done with Nokia, we have done with Motorola, so these are all embedded systems essentially.

Some industries are very slow to transform.

Are you interested though in going to even beyond the next step to doing contract manufacturing?
Ramadorai: Yes. We had a company called Tata InfoTech, which we merged with TCS. They've got a manufacturing facility where they use to make printers. Within the Tata group itself, manufacturing base is very strong, so we may do the design or the software pieces and then get into manufacturing with one of the Tata companies.

How about consulting? TCS in the past has talked about becoming a stronger competitor to IBM and Accenture.
Ramadorai: Consulting is very appealing, but consulting within the information technology area--what kind of technology chain management do you need to put in? What are the technology implications? We don't go into strategy consulting like the McKinseys or the Boston Consultings. We stick to information technology and process-based consulting.

You just celebrated the 25th anniversary of the labs inside of TCS. What are some of the big scientific challenges they will be working on in the future?
Ramadorai: In the areas of data privacy and security, we're collaborating with Stanford. In the area of software testing, we're working with Georgia Tech. These are some areas that require an enormous amount of R&D in the future. Media and entertainment is another area which is going to see a lot of R&D. It will be focused on issues like content, content distribution, privacy, intellectual property protection, revenue sharing. We work with UCLA on some of these issues and with some of the studios in our lab in Burbank (California).

Are you doing anything in search?
Ramadorai: We're doing some search in the local languages in India, like Marathi or Tamil.

Are you also working on any other projects to bring down the cost of computing and thus bring it to the wider world?
Ramadorai: Yeah. There are a bunch of initiatives in India where they're trying to bring a 10,000 rupees PC. Ten thousand rupees is roughly $200. We also saw Negroponte's PC, $100 PC. Content is going to be the key. What are the tools that are available, which will enable a student or a kid or any community to learn quicker? The application in our opinion determines the ultimate usage, and if cell phone is currently growing at about 7 million cell phones a month, why not the cell phone? Is it the Internet as a medium or is it a BlackBerry type of a device? Is it a $100 PC or what is it? I don't think we have any answers, and that research will have to continue.