In this interview to CIO, Jaithirth (Jerry) Rao, chairman of MphasiS,
looks at the future of domestic outsourcing and warns companies
of inevitable death if they don’t give their CIOs a voice
in the boardroom. His certainty seems to spring from the conviction
that IT has a defining role in creating and sustaining business,
and he wants CIOs off the benches.
CIO: Forrester is pitching for the idea of ‘business
technology’ to replace IT. What’s your take on this?
Jerry Rao: Whether technology is a means to an end in business or
whether technology itself can define the contours of business is
a fairly important debate that we’ve been having for at least
two decades. Till now, we have seen technology define the constraints
of a business. In the last few years, we’ve been looking at
technology in its role in defining the opportunities of a business.
Companies such as Amazon and Google have shown that.
We tend to underestimate what some traditional industries have
done. Airlines, for instance, now allow customers to print their
own boarding passes. I don’t see business and technology as
two separate yet intersecting circles, but as one complex ellipse
in and of itself.
How should other CXOs look at this?
I think it varies from industry to industry and from company to
company. But if you aren’t even asking the question in your
boardroom, then it's likely that you are missing out on something
— and one day somebody will redefine your business in such
a way that technology will no longer be a tool but a central piece
itself. When that happens, you’re not going to be ready.
So, there's no one macro prescription for all CXOs, but there's
certainly a need to engage and grapple with this.
Can you illustrate how technology will take
such a defining role?
Think of the music industry and the whole idea of what intellectual
If every single song — from Beethoven to The Beatles —
costs 99 cents, it's not technology but business that's been redefined.
The nature of IP in music has been redefined. And so has the value
of a label, a group and a singer.
Turn to our own industry — IT services — for instance.
We should pay more attention to the possibility that objects are
being created, which, like building blocks, are mass manufactured,
thereby reducing the need for customized software, which is our
bread and butter. Closing in on the other side, programming is becoming
simpler. So maybe, customers who give us programming jobs today
may want to do it themselves.
This may still be five years away, but it’s something that
changes the nature of business itself and we need to keep tabs on
it. No longer is technology a lever; technology is something that
redefines the whole constraint and opportunity matrix.
Given these changes, what should CIOs tell their
CIOs should do an honest job of stating where things are, particularly
in an existing company. If you have a whole set of legacy platforms
and technologies, be very clear about what it costs to run and why
it doesn’t make sense to change all of it. You can’t
get off one horse mid-course and get on another.
This is not to say that you shouldn’t invest in changing
legacy technologies over a three-year period — that would
be a mistake. CIOs have to get that across to management.
What you need is a parallel process, a two-track process for new
deployments and fixing legacy systems. You need a sinking fund with
a program on how hardware and software will be exited. The sinking
fund cannot come from an annual budget, or it could lead to budget
cuts that, in two years, will make a company even more rigid. Every
quarter, CIOs must present how many apps they've closed down and
how many new releases and functionalities they’ve added.
One of our customers, a large investment bank, has such a system
This isn’t necessarily in the context
No, this has nothing to do with outsourcing. We are talking about
deployments. Just like good CFOs increasingly share how the street
is looking at their companies and how analysts view them, good CIOs
need to share what others think of a company.
I haven’t seen many people do serious inventory of the current
landscapes to figure out what they have, what they need, where the
constraints are, and where opportunities lie.
That clout comes from being on the board. Should
CIOs be part of top management?
That’s a non-question. If you don’t have CIOs as a part
of top management in this day and age, you will have backward organizations.
Essentially, you will have organizations that will die. I don’t
know how many CIOs in India are directors on boards, but they should
Very few, in our experience.
Well, companies that don’t have CIOs in top management —
not necessarily as directors — are going to run into trouble
sooner are later. With growth and competition, they are going to
But there’s a perception that CIOs are
twice removed from end customers…
They aren’t anymore. They have a lot of interaction with customers
and their systems are interacting with customers all the time. So,
they should be out there helping make business decisions. Today,
at most financial companies, the largest channel for acquisition
of customers is the Web, and the CIO runs the company’s Internet
So, the CIO has a strategic role, more than
The individual defines his job. There isn’t a simple formula.
Many CIOs voluntarily say, ‘Hey I am not a business person.’
That contradicts a need for CIOs to have a strategic
Companies that don’t encourage their CIOs to be business-savvy
and take strategic decisions will not do well in the long run. They
will lose market share.
What's the business case for Indian companies
The business case in India is actually stronger than it is in the
US because companies here find it hard to attract and retain talent.
If you were a talented software engineer, why would you work at
a manufacturing firm, when an IT company could give you better pay,
bonuses and a better career plan?
CIOs of Indian companies will only get second-rate talent. It seems
to me like it's a case for talent rather than cost.
How should Indian CIOs view outsourcing?
They should leverage outsourcing from a talent stand and not cost.
Many Indian companies also have the advantage of not having legacy
problems that their American counterparts face, so they can actually
have very dynamic IT.
In the financial services sector, for instance, there are areas
where India is ahead of the US. We have T+1 settlement. From what
I hear, ICICI Direct has one of the busiest sites in the sector
anywhere in the world.
Do you pursue contracts with Indian companies?
We have started. In the last two years, we have had a small measure
of success: an airline, a bank and a telecom firm.
But aren’t margins lower?
Gross margins are definitely lower, but selling expenses are also
lower, so operational margins — while being definitely lower
than with the American customers — aren’t that far off.
Return on capital is roughly the same to slightly lower if you take
away tax arbitrage because, with Indian businesses, we don’t
need to invest in capital intensive telecom, etcetera.
So, why haven’t Indian IT services made
inroads at home?
Indian IT spend as a percentage of GDP is small. India is still
backward in this; we leverage our IT talent to boost other people’s
productivity and not our own. But this will change. If the fastest
growing cell phone company in the world is in India today, change
Will the West account for the bulk of revenues
in the next decade?
Yes. Growth and the sheer dollar volumes there are higher.
How do you view your CIO’s role in expanding
EDS’s business in India?
It's a tremendous role. Unless he gets our actions vis-à-vis
the domestic market right, and gets us reliable and consistent systems
and comes up with new ideas, we aren’t going to be able to
crack the domestic market. Re-treading what we did in the US won’t
Give us two examples of ideas he’s given
Abnash Singh, MphasiS’s CIO, has come up with clever ways
of keeping control of costs, while ensuring an archival and retrieval
ability we need while recording calls in our BPO business. He's
also brought in real-time monitoring technologies and processes
into our network operation centers, which will be very useful as
we grow the remote infrastructure management business.
What’s your interaction with the group
CIO of EDS?
First, I am a vendor to him. When he's creating a new generation
of infrastructure management software, which is the bread and butter
business of EDS, I am trying to be a vendor to him. Two, we've begun
giving him ideas of new technologies, platforms and an open system
he could use.
I read about the number of patents Microsoft files from India in
a newspaper. I want to send EDS’s CIO that clipping and tell
him that in the next three to five years, India must play a prominent
role in EDS’s IP creation. That's the kind of dialogue I want
What do you think of software as a service?
It’s fascinating. If you look at the models of companies like
Salesforce.com, you turn on a switch and you expect the lights to
come on. Can we do on-demand software of that variety for inventory
control and so on? It's early days, but it's a major business opportunity.
We are doing something in the area of tax return. We've built software,
which our US customers use to prepare their tax returns. The software
belongs to us and we charge them per return. We have started doing
something, but still haven’t got very far.
Isn't this a threat to offshoring?
Of course, self-help is a threat to offshoring! But there's so much
work now that it’s not an immediate threat. In five years,
What would you like improved at MphasiS?
Our biggest problem: we are a Rs 900-crore top-line company. But
we still operate with the non-integrated systems of a company half
that size. Our challenge is to migrate our internal billing and
time management systems and dashboards, so that they are integrated
and run in real-time.