Shiv Nadar, Founder HCL, Chairman & CEO HCL Technologies


Q: How has HCL Technologies—a company with roots in the IT hardware space—been able to leverage this expertise and strength to get ahead in the software domain? How has your knowledge of “technology” helped in capturing greater market share and customers?

A: When we started HCL in 1976, 3 decades ago India was a closed economy, import substitution was prevailing mantra, and there were no open standards. At that time when the industry worked in an era of proprietary products primarily HCL focused on inventing and innovating technology – operating systems, hardware and software, relational data base etc. In 1978, with deep knowledge of hardware and R&D, we developed the first indigenous micro-computer at the same time as Apple and 3 years before IBM's PC. This gave us enormous leverage to build expertise in the software domain later on.

HCL is on the cusp of a significant transformation. We are now a $2.7 billion (Rs.12,000 cr) enterprise with two listed companies, the parent company from which HCL originated, HCL Infosystems, is a domestic hardware, manufacturing, and technology distribution power house. We are India’s No.1 PC company for several years running. We see continued growth in our Indian market operations fuelled by high Indian GDP growth and a great Indian appetite for technology product and services absorption. The relative strength of the rupee will make import of technology products especially hardware and components very competitive. Our recent initiatives such as the Rs.10,000 ($230 ) PC is an example of how we would drive growth.

HCL Technologies was born after the path breaking 1999 IPO, and is a relative new comer in the IT Services space. Our DNA with roots in our past has been around inventing and creating products especially when the industry was in its embryonic stages. We had to do this to survive especially in a closed economy like India was in that era. Product Engineering and Technology Services therefore are a core part of our DNA and where we are still leaders. In remote Infrastructure Management we are number 1. In BPO our intrepid move in 2001 to partner with British Telecom in a JV in Belfast, Northern Ireland (UK) made us the first to develop a global delivery model, before the term became fashionable from an Indian IT Services company standpoint. It also helped us to leap frog into becoming the No.3 player in BPO as per NASSCOM’s ranking. In all other services we are in the top 5 despite our relative new comer status.

In summary HCL’s balanced portfolio approach, core strengths, and our DNA give us an edge which I think no other global IT enterprise anchored in India possesses.

Q: How difficult was it for a predominantly technology company to foray into the enterprise space? What were the strengths you had to develop and what role did mergers and acquisitions play in expanding your turf?

A: HCL’s key differentiator is its ability to leverage its 30 year lineage as a creator and inventor of technology. Leveraging this into “The Enterprise and Application Space” made the task easier for us. However, as you correctly pointed out the mere understanding of technology and applications is not enough to ensure customer wins and providing them the right solutions. Since HCL Technologies, the global IT Services Company of HCL is relatively a new comer, being born only after 1999 IPO, it partnered with key global firms through joint ventures to build domain expertise. Two examples stand out:

HCL (Capital Market Services), the erstwhile DSL (Deutsche Software Ltd.) which has over 3000 highly specialized people, the largest by an Indian Company. Today this business is a beach head practice for us and virtually replicates a bank’s IT and operations back office.
HCL BPO which bought a 90% stake in British Telecom’s Belfast, Northern Ireland (UK), BPO Center in 2001 not only made HCL the largest IT company in terms of local employment but also propelled us into the No. 3 NASSCOM ranking of third party BPO players.
Q: What would you say are the reasons why Indian IT services companies have confined themselves predominantly to the custom application development and maintenance and application outsourcing arena, which represent just two out of 10 IT services segments? How important is it for Indian IT services companies to move up the value chain?

A: In the past the Y2K wave drove most companies into an area of low end but nevertheless a significant era of penetrative growth. However, the Indian companies have matured substantially and since then are doing cutting edge work in many areas. Our people specialize in product technology and product engineering services, remote infrastructure management etc. Remember as of now only around 10% of the addressable global IT service offshoring market has been captured. Though, India is a prominent player contributing more than half of it we are only scratching the surface of the opportunity today.

There is a shift in the way services are rendered to the customers by globally dispersed models. The customer now seeks value-centricity in service offerings and not just cost arbitrage. This is creating demand for additional competencies which can lead to transformational work. From migrating legacy systems to newer ones or consolidation of complete business process and re-engineering. Customers are demanding innovative and transformational work from service providers and the service providers who have only been providing efficiency related value will find it difficult to service customer’s demand and grow in today’s environment.

The approach to this market has to change with more integrated offerings supported by output based pricing, where you are compensated for the quality and results of the wok you do and not the quantum of work measured on a man-hour basis.

Q: Going forward, what are some of the emerging segments within the IT services market that can be tapped? How is HCL Technologies addressing these segments?

A: There are several important trends that are visible, some obvious and some dormant. Since these trends have been well articulated by Gartner, IDC, Forrester and NASSCOM, I will instead take a different route in answering this question. I believe the biggest opportunity will be in the ‘Business Transformation Services’ that Indian firms like HCL shall provide. This will mean working with customers in understanding their domain, understanding the heartbeat of each technology used, diving deep into the future products, Product Engineering and high end BPO services (what is today being referred to as KPO) and Remote Infrastructure and Management Services.

HCL is fully geared up for the opportunities and challenges as the global IT market moves to a new cycle of growth. We are investing substantially in human capital, physical infrastructure and developing unique and integrated value propositions for our customers.

Q: How would you describe HCL Technologies’ service line orientation? What is the strategy HCL Technologies has adopted to scale into the higher-end of the IT services spectrum. The company is among the handful of Indian players to address the top-of-the-line software consulting, product development, design and integration segments?

A: HCL’s offerings straddle across service lines like Product Engineering, Application and Enterprise Consulting Services, Infrastructure Management and BPO. HCL is the only Indian Company to be in the Top 5 across its entire service portfolio.

HCL has developed a unique vertical model (industry domain practices) overlayed on our strong horizontal practices (lines of business). This is falling into place quite nicely. Today we do cutting edge work for global customers in domains such as Aerospace, Semiconductors, Consumer & Retail, BFS, Life Sciences, Media Publishing & Entertainment, Telecom, etc. with our deep knowledge of practices in Technology, Applications, Infrastructure, and BPO

Traditionally, India’s IT Services exports have primarily comprised custom application development and application outsourcing. However, over the last few years, clients have been increasingly seeking value-centricity in service offerings and not just cost arbitrage. Pre-empting this change in demand, HCL and a few Indian vendors are now moving up the value chain and have already started expanding the breadth of their service offerings to include segments like IT consulting and package software implementation, R&D engineering, Embedded Software and Systems, systems integration and network management.

HCL has been making investments, quietly though, over the years in service capability, vertical readiness and unique partnerships that strengthen our capability and market standing. These along with the fundamental strengths of HCL have led us to a very unique position in the market based on high-value and innovation driven by boutique capabilities. In a market where there is a visible shift towards value centricity from the utility model, we believe HCL is well positioned to meet the inflexion point where the value-volume proportionality will disappear.

HCL’s unique and internationally recognized model creates enterprise value by monetizing partner “non core-non revenue generating” processes and departments by carving them out into a joint venture and providing a visible exit to all partners. This is over and above the conventional outsourcing revenue savings.