‘Every business is a digital business’

Nitin Rakesh took over as the CEO of Bangalore-based IT company MphasiS earlier this year. He was earlier CEO and president of Syntel, and president, CEO and managing director of Motilal Oswal Asset Management Company, and chief executive of State Street Syntel Services, a joint venture between Syntel and State Street Bank. In this conversation with Knowledge@Wharton, Rakesh talks about the rapid growth of technology. It must be “bionic, rather than a debate between automation and human,” he says.

An edited transcript of the conversation follows.

Knowledge@Wharton: Everyone talks about how the world of technology is changing. In your role as the CEO of Mphasis, how do you see that happening? What challenges does this create for companies trying to grapple with digital transformation?

Rakesh: Let me give you some perspective of why we are seeing what we are seeing, and what is leading us to this point where disruption through technology, especially digital technology, appears to be immensely scary right now.

This hasn’t happened overnight. It started 40 years ago with what we now commonly know as Moore’s Law. One thing about technology is that the human mind thinks in a linear fashion but technology advancement is actually exponential. The reason is tied to what Gordon Moore said 40 years ago.

A congruence of many independent technologies that were on their own exponential paths — whether it’s semiconductors, cellphones or the ability to write software — came together when the iPhone was ‘discovered.’ Look at what is happening in genetics and genome mapping. Look at what is happening in solar power and the exponentiality that is brought into these options. The other thing about this exponential curve is that the capabilities rise exponentially and the price declines exponentially, because they go hand in hand. That has led to the congruence of all of these technologies around robotics, genetics, the ability of chips and microprocessors and nanotechnology.

Now we are on the cusp of what I call the next digital revolution. People are calling it Industrial Revolution 4.0. I mean you can call it what you want, but the reality of this is that every business today is a digital business; some just don’t know it yet.

The reason I say that is when you zoom out and look at what has happened in certain industries, the common thread that starts emerging is that any industry that has a consumer element, the end consumer element is the first to get disrupted, whether it was retail with Amazon or payments with PayPal and Square. Or if you start looking at retail lending, Lending Tree is a good example, as is SoFi.

The reason is that the center of the universe 20 years ago used to revolve around what your core systems could support. Businesses would go building around the core applications and the core systems. If you were an insurance company you had an underwriting system, a claims system and a policy admin system. That would determine how you ran your business. But over the last 10 years customers have started to drive — based on the rapid advancement in consumer-facing technology — what kind of service they want, when they want it and how they want it delivered. That has turned the whole model on its head. You’re starting to see this rapid Amazonization of the world, which is essentially a combination of all these things coming together.

Knowledge@Wharton: If you take three industries — say financial services, insurance and real estate — how has digital disruption impacted them? What are the biggest concerns that you hear from companies in these industries?

“Over the last 10 years customers have started to drive … what kind of service they want, when they want it and how they want it delivered. That has turned the whole model on its head.”

Rakesh: Let’s take financial services — retail financial services. Think of brokerage or wealth management. It wasn’t uncommon for you to pay 2% commissions 20 years ago, and you’re probably paying two or five basis points today. In that way the brokerage platform is lucky. The way you dealt with your broker was you picked up the phone and called him; the way you deal with a broker today is on an app or on an online platform. And that exponentiality has actually emerged.

So while volumes have gone up multifold because of scalability and the greater ability of people to access the market, prices have fallen exponentially as well. This means if you do not have the ability to be in front of your customer in any channel that they want to deal with you on, you’re going to start losing market share.

The same thing is going to start happening to wealth management. Yes, there is always going to be a human element, but 70% of the time a financial advisor today deals with administrative issues, not really advising customers. They’re probably doing it 30% of the time. In my view, that will flip pretty quickly, because of technology, especially automation and robotics; robo-advisors are a good example. This will actually give you that much more ability on the way [you interact with] the customer. If you do not focus on adding value, you will get commoditized and essentially lose market share.

Now look at another example of financial services — payments. The way you dealt with payments [was] mostly physical and plastic. Now it’s turned fairly heavily into digital wallets. The fastest-growing segment of the payment industry is digital wallets, contact lists, no swipe needed…. In many cases, it’s a tap on your phone.

Again, if you are not set up to deal with that, you are going to start seeing disintermediation. Think of all of the providers that didn’t exist but are now making billions of dollars in revenue. Where is that revenue coming from? Clearly, you are starting to see the squeeze on that industry as well.

Now let’s talk about insurance. One of the great stories in insurance actually doesn’t even start in that industry. It hasn’t even started yet if you ask me. What Uber is doing to transportation is turn it into a service, with potentially driverless cars in the next 10, maybe 12, years. I’m not smart enough to predict how long it will be, but I am smart enough to tell you that it will be sooner than you and I think.

When that happens, what happens to insurance? How do you price risk? Today you price risk based on the individual’s driving history. How many sharp turns he makes, how many sharp brakes he does, what is the average speed he follows. What happens to all that when the driver in the driverless car is software?

I think that disruption hasn’t even started yet. What has started is the squeeze because of disintermediation and availability of information. The first wave was the information explosion, data explosion. The second wave hasn’t hit us yet, or the third wave. The impact of these technologies over the next 10 years will be 10 times of the last 10 years.

Knowledge@Wharton: How is the insurance industry dealing with this? And what is it doing to prepare?

Rakesh: There are two things. You have to run your current business as is, because you have to keep one eye on that while you prepare for the future. I don’t think everyone is still fully prepared for the current business either because of the fact that they are still so core systems focused, or centric, that they haven’t invested enough in technology, or essentially the intelligence layer that sits between their core systems and the customer.

There is a lot of focus right now on how you deal with data, and how you apply data in a cognitive way. How do you personalize insurance for each consumer? I think this is the right thing to do for the current big book of business. I personally haven’t seen a lot of effort being made on transportation; there’s a lot of skepticism on driverless cars at this point. But I think it’s going to sneak up on us so fast that we’re probably not going to have the time to respond and react.

“Technology’s exponentiality is hard to realize; it sneaks up on you.”

The smarter companies are preparing for a future, looking at how the business model will evolve. How do you price risk? I know one insurance carrier that is on a road map to unbundle their underwriting and risk systems. They currently use 90 plus parameters to price risk, and they have narrowed down three to identify which will be the most important in the future; 90% of the risk can be priced with these three. That means they will have to start at the front, which is at the consumer level, and then go backwards.

So I think it’s a long road ahead in terms of preparedness. I would like more CEOs to think about this as a real, imminent near-term threat versus just thinking of it as a 12-15 year threat. Technology’s exponentiality is hard to realize; it sneaks up on you.

Knowledge@Wharton: When you think of the consequences of what you are describing for IT companies, how will they need to change in order to address these needs?

Rakesh: You’ve reached one of my favorite topics. And the reason I say that is every business is a digital business. Some just don’t know it yet; they’ll all realize it sooner rather than later. What that means for our industry is that we will have a lot more to play in, because digital technology will become the core of every business.

If we have the ability and the capability to help large enterprises embrace, adopt and transform themselves, then we become a very important cog in that wheel. We have to be able to transform ourselves with new technologies, invest in the capabilities, have a point of view that we can take to our customers and help them transform. I genuinely believe that the future of our industry is tied to how we help clients transform themselves.

Knowledge@Wharton: Turning to Mphasis, your company is at an interesting point right now because it has a new majority shareholder in Blackstone. There’s new leadership; you have recently arrived. Where do you see opportunities to build value?

Rakesh: Mphasis is in a unique position because we come from fairly pedigreed shareholding, which was Hewlett Packard. We learned a lot working with HP for 10-plus years, built some capability that was very unique to that era and that time. Then, over the last five years, the company took further steps to invest in digital, or consumer-facing, tech. This is the ability to apply cognitive and cloud capabilities, and we are very well positioned there.

I think with Blackstone, the best realization that all of us are having is that they are longer term than long term, which means they want to do the right things, to invest in the right areas, and to move the company along in a way that we can be a leading-edge, next generation IT services company. That is the roadmap we are following right now.

“I … worry that maybe not a lot of our clients have embraced this digital disruptive threat at the scale that they need to.”

Knowledge@Wharton: What will your strategy be, specifically on something called X2C2. What does that stand for?

Rakesh: The revolution is in front of the consumer. The consumer-facing tech, powered by a very strong, intelligent, cognitive layer, is driving pretty much every enterprise, every industry. And then at the back end are core systems. What we are trying to do is help our enterprise clients embrace this consumer-facing front end view of the world. We are calling it a front-to-back transformation.

The two pillars of that transformation are hyper cloud and hyper personalization. Hyper cloud is because every large new initiative has to be cloud native. And hyper personalization is because the consumer is in the middle.

The two things that power this change are cloud and cognitive. X2C2 stands for anything to cloud, powered by cognitive, because those are the two pillars of this entire front-to-back transformation strategy that we believe very strongly our enterprise clients need today.

Knowledge@Wharton: What are some of the biggest risks that keep you up at night in implementing this strategy? And can those be mitigated?

Rakesh: There are two broad risks that I worry about. The first one is tied to what I earlier said. Our fortunes are tied to our customer’s fortunes. And I just worry that maybe not a lot of our clients have embraced this digital disruptive threat at the scale that they need to.

If their businesses start getting disrupted that has a pretty significant impact on our businesses, too, especially in retail financial services, retail insurance, which is a large part of what we do today. So that is the reason I am so vocal about bringing this to the fore.

The second risk is this is a pivot for us as well. While we are well positioned compared to our peers, we still have to balance the core IT services, the traditional IT, with the digital IT. The biggest pivot we need to make is with our people. How do you make sure that you are able to provide that opportunity in the platform, bring that talent along, and embrace new technology in a way that it becomes complementary, it becomes bionic, rather than a debate between automation and human [work]?

That is the journey we are on. It’s not an ordinary journey; it will take us three to five years.

Knowledge@Wharton: How do you position Mphasis in this space?

Rakesh: I think of us as the specialist player that understands your industry well because we are focused on a few segments of the market. We are not trying to be everything to everybody. We’ve chosen those industries and those sweet spots based on our capabilities and our investments.

I talk about things like wealth management, I’ve talked about retail banking, consumer banking, insurance … those are good examples of where we have depth. We are complementing that depth with this cloud and cognitive capability. And we are not in the market to build a product or to say we have the best automation platform. What we are bringing to you — we are actually shameless about leaning on all of the work that is out there in open source — is the ability to orchestrate and apply that to your business….

“What used to be a 20-year view of strategy now needs to be agile, just like the whole world around you, especially with technology.”

Knowledge@Wharton: Before Mphasis you were at Syntel for many years. What is the difference between being the CEO of Mphasis and your leadership journey at Syntel? What leadership skills did you need to develop in order to become the CEO of Mphasis?

Rakesh: I have a slightly classical view of leadership. I differentiate leadership from managerial skills. I think leadership is something that transcends time; management skills actually have to evolve to keep up with time. And the reason I say that is that leadership is all about finding a vision, aligning people to that vision. In the end you have to lead people. And finally put an execution plan around that which then can be managed.

I think leadership skills haven’t changed since time immemorial. The skills are pretty consistent, with one big difference, and that difference is that the time skills have shrunk rapidly. What used to be a 20-year view of strategy now needs to be agile, just like the whole world around you, especially with technology.

Technology is causing the timescale to shrink even faster. Globalization has caused it to shrink faster as well. So I think that’s my overall view on leadership. My personal leadership style is I believe leadership is a contact sport. You have to be in front of every stakeholder, whether it is your employees, your customers, your shareholders, your partners.

So I am very much a contact sport believer when it comes to leadership style. I also like to believe that management by vision is something that actually works very well for me rather than managing by objectives alone. I mean, I like to surround myself with people who can actually then work towards those objectives.

I’ve had a great run at Syntel. I grew through the ranks. I learned a lot working with a wonderful set of people, a wonderful set of founders. The challenge at Mphasis is a little different. The challenge is we are emerging from the shadow of a large IT company. We now need to find our own identity, we need to create and establish our own identity, we need to turn our subconscious competence into a conscious strategy and a position in the market.

Knowledge@Wharton: One last question, how do you define success?

Rakesh: We’ve set ourselves certain goals. Those goals have to be met because at the end of the day, in my fiduciary role, I have to maximize shareholder return. So that is one parameter of success.

The bigger parameter is that every stakeholder that we are working with should actually be able to experience this growth, and I call it inclusive growth. We’ve set ourselves what I call the four dimensions of growth as our targets — consistent growth, differentiated growth, profitable growth, and inclusive growth. That is the way I look at how we can succeed over the next few years.