Tech Mahindra interview: Gaurav Gupta on changing company focus
Image credit: Pininfarina
India’s major systems company Tech Mahindra is changing its approach to product design through key recent acquisitions including Italian automotive legend Pininfarina. Senior vice president Gaurav Gupta explains.
One of the biggest technology success stories to come out of India in the past few decades is the global systems integration company Tech Mahindra. The name may not ring many bells outside the IT and telecoms sector, but with its recent acquisition of Italian automotive engineering designer Pininfarina, that is about to change. Sitting in the company’s London offices, senior vice president Gaurav Gupta describes how the company has changed in response to market forces. Where once Tech Mahindra delivered grand-scale digital logistics for its telecom clients, today it’s just as likely to design and engineer a top-of-the-market car – or rather, driving experience – for you.
Gupta describes Tech Mahindra as the “flagship engineering and IT company of the Mahindra Group of more than 100 companies, all managed and listed independently”. With an annual turnover of $4.5bn (compared with the overall group turnover of $17bn), and with around 110,000 employees, the technical subsidiary is one of India’s largest systems integrators. Gupta explains that one-third of the organisation’s business is in Europe, “which is a healthy balance if you look at the industry overall”. Corporate governance, he says, is down to the individual companies. “It’s not just down to one shareholder controlling the purse-strings and the vision of the company,” he says. The group is what “connects us together, and the philosophy is ‘what does Mahindra want to be in India and globally?’ The stated vision is to be one of the top 50 brands in the next five years. It’s all about creating a recall for Mahindra as a brand.”
This year marks 30 years since the company, now called Tech Mahindra, rose from comparatively humble origins. Mahindra BT was initially set up as a technology resource to assist British Telecom in entering the Indian market. “Right from those days, it wasn’t just a case of partnership for offshoring. It was to become a platform to enter a new market and create joint value,” says Gupta. This relationship continued for 15 years, growing slowly with niche acquisitions. The game-changer came in 2009 when the company acquired Satyam Computer Services after being given the green light from the Bombay and National stock exchanges. At the time, there were significant problems with Satyam’s corporate governance, and the Indian government, considering the struggling IT giant to be ‘too big to fail’, stepped in to avoid a colossal negative impact on the national corporate sector (informally “India Inc”).
This resulted in what Gupta calls effectively a blind acquisition. “We did not know what we were taking on board, what the books read like, who we had to pay, how many employees there were or what customers would stay with us. We had to support the corporate world, and because we are well known in India, we had to support the government, too.” There were only two industrial companies on the sub-continent at the time capable of saving Satyam. The other was Tata, but Tech Mahindra was more technologically compatible. “It was a logical extension from our point of view. We were only operating in the telecom domain and we didn’t have any other verticals. The government couldn’t mandate us to step in, but the responsibility was to save India Inc.”
From an unpromising start to the acquisition, the balance sheets of the intervening years have shown the emerging company to be “consistently over-performing. Yes, we have hit a bit of a rough passage in terms of pressure on profits, currency, Brexit, the US elections and all these things. But if you read the last quarter results, we are still the fastest-growing IT services and engineering company in India. Satyam happened, and that is the big story in terms of mergers and acquisitions for us. But then in the past few years we realised that the commoditised market – especially in engineering – was quickly running out. People just don’t want commoditised engineering from a major player like us anymore. They can go to a corner shop and pretty much get a similar set of services at a third of the price. And they can get it tomorrow. They don’t have to wait for someone to come along with a fancy slide-show of a complex model of engagement. People aren’t interested in that approach anymore.”
Gupta says that the sweet spot for Indian business in the past 25 years has been at the point where technology – whether telecoms or IT – has already been defined in Europe or the US. “Then we take the second half of the development lifecycle and take it to fruition. We can do this well, and we can do it quickly because we have loads of people to put on it.” Yet the moment the customer asks for a contribution to the first half of the lifecycle, there are problems. “This is because I can’t just put inexperienced young engineers on product development in terms of conceptual thinking or detailed design analysis, when the guys in the West have been doing this for a living for the past 30 years.”
This is an opportunity in the company’s business strategy that Gupta recognised early: “Yes, we wanted to move up. But to do that you need to address the gaps in competencies. I can’t go to BAE Systems and tell them I can design a new head-up display for the Harrier, when my strength is software testing in India. I wouldn’t be credible. How do I bridge that gap? The answer is to be present locally or to draft talent locally.”
The result of this observation was that Tech Mahindra started to install ‘near-shore’ centres to provide an alternative to the previous approach of “the either on-site or offshore mix. We either provided our services by sitting in your office or by shipping the project back to India. We never had the capability in between. We set up a facility in Hamburg and Toulouse. We now have facilities in Frankfurt, Stockholm and London. But we don’t want to use these office spaces to import Indian labour. We want to attract the sort of talent that is not available in India.” He goes on to explain the position as a natural evolution after the acquisition of Satyam that came with multiple verticals. “That was fine, but then we had to decide how to go up the value chain through the near-shore centres and investment in technology.” What this meant was the company was forced to invest in internal frameworks, a fresh strategy for Tech Mahindra, only “it was a new territory that we were not very familiar with at all”.
Gupta is one of the new generation of engineering manager in that he is qualified by degree in both disciplines. “I did all my engineering qualifications in India in electrical and electronics.” The reason he went into engineering wasn’t “to learn technology and then apply it to a product at some point. I always had the point of view that engineering was essential for me in order to manage and think logically: to think like an engineer, but behave like a manager. You don’t want an engineer running a company because it will never work. The drive was always to be on the commercial side of things, but with the ability to understand the technology. This is the biggest disconnect in tech companies today. Management is so far away from the shop floor and they can never relate.” Gupta recalls how, when he joined Tech Mahindra two decades ago, it was an engineering services company with a turnover in low single digits. “In five years, we were almost touching triple digits, just through conventional engineering with the same set of delivery people and support staff.”
Meanwhile, back at Tech Mahindra, what happened next was a change in product ownership development. This is the mutation, says Gupta, in the mindset when the customer no longer buys, for example a car, but the concept of mobility. “Yet the end customer is somebody I don’t know. The manufacturer doesn’t know who the customer is. But the dealers do. How do you get closer to the mobility market without disrupting the dealer relationship?
“The second question we needed to address was how to produce more with the same infrastructure. I don’t want to invest a billion dollars in capital expenditure to create another assembly line to produce 3,000 more cars. I want to produce another thousand from the same set-up. We’re looking for an increase in operational efficiency. We talked about IT being converted into OT (operational technology). But as a company we were completely out of this. This wasn’t a language we were used to talking in. Then we needed to address how we would change from an IT company to a technology, digital or operational design company. What we’re looking at is the digital transformation of an organisation, which is where we are today.”
It was this change in strategic outlook that led to the key acquisitions of Bio, to increase the group’s digital portfolio, as well as a controlling stake in the Italian automotive and industrial design brand Pininfarina. “The model has completely changed. But if you go back 18 months, you could not have predicted that Elon Musk would come along, with no automotive background, and create one of the most successful vehicle platforms in the world. Because of the sense in which product ownership and usage is completely changing, a lot of unconventional players are getting access to conventional sectors. Then overlap this to what we are doing. I said that product development per se simply wasn’t working. What used to keep us going was core product development engineering, where what sold our product five or six years ago was quality and functionality.”
Today, however, what sells a product is “simply user experience. You wouldn’t buy the same iPhone if it were branded as something else.” On the other hand, the reason that iPhone sales are decreasing, says Gupta, is that “the product hasn’t changed for the past three years. You can change the operating system, but when you hold it in your hand there is no difference from the previous models. The product is staying still and so that means it is going backwards in the user’s mind. It is not evolving in the way you would want technology to anticipate your personal experience. The only thing that is personalised right now on the iPhone is the screen. There has been no form factor change over the past few years. That is why we are seeing it decline.”
The future of design, says Gupta, will revolve around “a manner that people recognise. When you hold a Coke bottle you know you are holding a Coke bottle. When you see a Ferrari, even without the prancing horse, you know it is a Ferrari. So, first we need to design a user-based experience product, and more personalisation is coming into that space, which is where Pininfarina comes in. Second, there needs to be more digital content, which is where Bio comes in too.”
These two recent acquisitions represent step-changes for Tech Mahindra, allowing the company to bring in form factor change on the one hand, with digital enhancement on the other. In other words, “when you see a car and it looks good, you want to buy it. Once you sit inside it, the traditional Tech Mahindra kicks in and gives you a cockpit full of the electronics systems you’d expect in a modern car.”
Pininfarina fits into the corporate mix well “because it gives us the opportunity to create a form factor that is desirable, almost like an independent design house, which very few companies have today. It doesn’t end there because we have the ability to change the conceptual creativity into an actual product by engineering it. Pininfarina is seen by the world as a fancy Italian design house, but half of the work that we do is not in design, but engineering.
“That’s how the company connects with Tech Mahindra. I’ve got 3,500 people in Tech Mahindra doing automotive engineering and that makes me happy. Yet not one of them can go to BMW and say that they can design a car for them. The Indian market doesn’t have those skills. If you look at the Ferrari, yes it looks nice, but somebody’s got to engineer it. That’s completely done by Pininfarina. When you see the BMW 7 Series, the 5 Series or the Clubman, these are completely done by Pininfarina. And when I say completely, I mean end-to-end: engineered, designed, prototyped and tested.”