50% of our revenues will come from next-gen technologies by 2025: HCL CEO

If you look at HCL's history, we come from a product engineering background and over the years have created thousands of products for our customers, says HCL CEO Vijayakumar

India’s third-largest information technology (IT) services player was also the fastest-growing large global technology company for four consecutive years ended March 2020. C VIJAYAKUMAR, Chief Executive Officer, HCL Technologies, talks about the drivers of this growth, the company’s acquisitions and what the future looks like, in an interview to Shivani Shinde. Edited excerpts:

From becoming the third-largest IT services player to maintaining this growth consistently, what worked for HCL Technologies?

I would put down our success to a few simple factors — our Mode 1-2-3 strategy, our relentless focus on execution and our cultural fabric of “employees first” and customer-focused value-centricity.

Our Mode 1-2-3 strategy has laid down the seeds of our transformation from traditional services to digital services and specific product families. At its core is an emphasis on transforming traditional services to digital; creating a completely new line of business — products and platforms; and strengthening core businesses such as IT infrastructure, engineering and application outsourcing. This multi-pronged concurrent focus gave us a lot of momentum in both existing and emerging market opportunities, making HCL the fastest-growing large global technology company for the last four consecutive years.

FY20 was one of the most challenging years for the industry. How did it pan out for HCL?

Our response to the pandemic has been testimony to our remarkable resilience as an organisation and as a family, but the journey leading to that point was no less remarkable. As we closed the books on FY20, we emerged as the fastest-growing large technology company for the fourth consecutive year, with revenue and net income growth of 17 per cent and 9.3 per cent, respectively.

This momentum was led by our superior organic growth and acceleration of our Mode 2 and Mode 3 revenue — that is, revenue involving next-generation technologies such as digital and analytics, IoT (Internet of things), cloud native and cybersecurity, as well as new IPs (intellectual properties) and products — which helped deliver strong double-digit growth across all segments, geographies and verticals. Mode 2 and Mode 3 revenues for the year made up 33 per cent of total revenues, increasing from 28.4 per cent in FY19. We crossed the $10-billion revenue milestone in CY20 and delivered 3.6 per cent YoY (year-on-year) growth in constant currency with EBITDA (earnings before interest, tax, depreciation and amortisation) at 26.5 per cent and EBIT (earnings before interest and tax) at 21.5 per cent.

With these numbers, we also emerged as the highest-ranked India-headquartered company in Forbes’ “Best Places to Work” global list, industry leader in CSAT, and received an “A” rating from the world-renowned governance practices body, ISS.

How has the Mode 1-2-3 strategy created a differentiator for HCL Tech?

The strategy’s concurrent focus on core, emerging and future segments has resulted in not only further solidifying our traditional businesses but ensuring that we have a first-mover advantage in emerging growth avenues. Also, our focus on Mode 3 enabled us to create a billion-dollar product business, which is emerging as another strong differentiator for us in the industry. We now look at our entire organisational value chain also from the lens of Mode 1-2-3 — what is core, emerging and future — be it supply chain practices, people processes or transformational programmes.

What was the idea behind the $1.8bn acquisition of IBM’s product offerings? How has it amplified HCL Tech’s offering and what has been its impact so far?

If you look at HCL’s history, we come from a product engineering background and over the years have created thousands of products for our customers, contributing to a part of their market cap increase of more than $100 billion so far. Our aspiration to enter the products business was stoked by this rich capability. The global enterprise software space is, however, a massive $400 billion market with very large players already in the theatre. There were two choices in front of us to create permission to play in this market — one, create our own products, which by the way we have already done in the IT infrastructure business in automation and service management; and two, create a quicker and wider door through inorganic means. Our acquisition of select IBM products falls in this bucket.

As a result of this acquisition, we have now set up a phenomenal stage in the products business in terms of clients, sales team, domain expertise and geographical footprint. It is a solid platform which we can now further build upon and become a significant product player in the global landscape.

It’s only been one and a half years since we have done this acquisition, and the numbers are already speaking for themselves. We are very happy with the results. The strategic intent of acquiring this business has definitely been achieved and it’s delivering better than the business case we had created for it. We remain very excited about the opportunities that the product business will bring for us in the future.

Unlike your peers, HCL Tech has been aggressive in the M&A space. What has been the impact in numbers so far, and will we continue to see this as a focus area?

While I cannot call out the specific financial impact, suffice to say that most of our acquisitions have performed better than our expectations. We will continue to look out for specific acquisition opportunities that fall in our sweet spot of geographical, domain or digital service capability enhancement.

How has Mode 1-2-3 changed the total addressable market for HCL Tech?
 

Tremendously! It has not only widened the opportunity perimeter in our existing business lines but also given us access to whole new playgrounds in emerging arenas under Mode 2 as well as net new arenas in Mode 3. Today we play a significant role in markets that are likely to be $3 trillion in the next four to five years and are the fastest growing tech segments.

How much of the double-digital growth is sustainable?

Our strong pipeline and good order book keep me optimistic about our growth trajectory. We have a uniquely differentiated value proposition reflecting a combination of solutions and services, strong client relationships, digital thought leadership and an entrepreneurial DNA. All of this will help us gain significantly from the increased market activity and the momentum that we are seeing.

Where do you see HCL Tech in the next five years?

I am very optimistic about the future. I believe that our industry will grow faster in the next five years than it has done so far. As for HCL, I am confident that 50 per cent of our revenues will come from next-gen technologies and businesses by 2025, and we will continue to grow handsomely in all our chosen businesses and segments.