Management interview: AI raises us to a new level

Mr. Rotter, you have been CEO for over eight years now – it’s high time for an interim review. How would you describe your term in office so far?

Norbert Rotter (NR): It’s been intense and exciting. We’ve developed even closer bonds within the NTT DATA Group since 2016 and have matured into an internationally leading IT service provider – and that also applies to our structures and processes. In doing so, we’ve set the course for further growth. And the figures prove it: Last fiscal year, we continued the previous year’s strong results, once again exceeding average market growth and achieving a record result for the company’s 35-year anniversary. This shows that our customers, who now number over 5000, continue to put their faith in us in connection with the transformation.

Turnover rose to 1.61 billion euros. Earnings before taxes, interest, and amortization (EBITA) exceeded 100 million euros for the first time. How satisfied is the CFO?

Jürgen Pürzer (JP): You can see me beaming; I’m very satisfied. The last fiscal year has been the best in our company’s history. We achieved a record figure not only for turnover but also in terms of EBITA: On an adjusted basis (meaning, excluding the significantly increased management fees to the parent company and exceptionally high acquisition and integration costs) it came to 118.8 million euros. This equals an adjusted EBITA margin of 7.4 percent, which means we exceeded the previous year’s figure of 7.0 percent. All in all, we succeeded in overcompensating for the negative effects of high energy prices and inflation.

Mr. Dubey, on June 6 you took on the role of CEO of NTT DATA Inc., which now combines the entire global business outside of Japan. Are you satisfied as well?

Abhijit Dubey (AD): Yes. I would like to offer my congratulations to Norbert Rotter, Jürgen Pürzer, and the entire NTT DATA Business Solutions team. The growth in turnover and the improvements in profitability show that the company is well placed to catch the tailwind we are currently enjoying thanks to cloud migration and digital transformation.

Mr. Rotter, before we take a look ahead, what were the highlights of last fiscal year for you?

NR: We’ve seen our international business thrive: in the UK, the USA, Brazil, and Indonesia, for example. We achieved around two-thirds of our growth outside our home market. That being said, we still managed to grow by just over 10 percent in the German-speaking region – in my mind, a respectable result in an environment that was unconducive to growth. Of course, the further highlights also include our two acquisitions.

You bought two innovative software firms: the Brazilian company Conexos and the British company Sapphire. What do you expect from these takeovers?

NR: Conexos is a leading software provider for trading companies, and purchasing it will expand our portfolio in South America: Together, we will provide software that can be integrated seamlessly with SAP and will lighten the workload of our customers in Brazil. By purchasing Sapphire, we gained around 1,200 additional SME customers in the USA and the UK at once and strengthened our position as a leading global SAP partner for the SME sector.

JP: That’s right. Acquiring Sapphire has enabled us to strengthen our business in two key markets and build a strong foundation for establishing and developing our new strategic growth area of ServiceNow around the world. This is because Sapphire has not only SAP know-how but also strong ServiceNow expertise.

AD: ServiceNow products are applications that provide useful additions to SAP solutions, giving our customers added value. So I consider the implementation of ServiceNow software a great opportunity and an important area for growth.

Mr. Pürzer, since you took up your post four and a half years ago, you have been committed to standardization. How are things going in this area?

JP: I’m pleased to say we’ve continued to make good progress. As a case in point, I would like to mention the standardization of our data center security in Germany, Poland, Malaysia, the USA, and Denmark. We now use uniform products (such as TrendMicro) for this purpose, replacing isolated solutions. We’ve gone live with our cloud-based ERP system in Denmark, Norway, Sweden, Finland, Bulgaria, and Serbia. And more countries will follow. We’ve made great strides with standardization, but we haven’t reached the end by any means.

How is the expansion of nearshoring and offshoring going?

JP: We’ve made excellent progress in India and Bulgaria. Both locations remain in operation, with plans to increase staffing levels. And we expect our go-to-market units in Europe to expand shoring significantly, based on defined rules and with concrete targets for the next few years.

AD: From the perspective of NTT DATA Inc., I would like to stress that intelligent shoring strategies are a must. IT service providers who operate internationally must have a presence in countries with a large pool of skilled IT workers and minimal costs. India is attractive due to its large talent pool.

Let’s take a look ahead. How much longer will the company be able to benefit from cloud migration as a growth driver?

NR: Migration projects are transformation projects: During cloud migration, many customers scrutinize their entire IT so they can develop into an Intelligent Enterprise. To us, this means we have the chance to gain further orders. And thanks to the trust placed in us, we can use this opportunity frequently. More and more, we’re finding that a successful migration prompts follow-up orders. Our integration into the NTT DATA Group yields further opportunities for growth.

Can you explain briefly what you mean by that?

NR: Thanks to the rebranding and the closer integration, we’re now seen as what we are: a global IT consultancy that’s in the same league as other major sector players. That boosts our chances, particularly in the upper mid-market. We’re more frequently in the running when major projects are involved. This allowed us to win a number of customers last fiscal year where before we would probably not have had much of a chance. It’s clear that closer collaboration was the right decision.

AD: Norbert is totally right. Scale means relevance, and as NTT DATA Inc., we’re among the top five of IT service providers globally. This means we’re automatically among the candidates for major projects. We can also offer customers even more added value through our close collaboration. From IT consulting to cloud services to IT security: with us, they get everything from a single source.

How well is the closer collaboration within the Group working?

AD: To be honest, we haven’t exhausted the great potential there by any means. But we’re on the right track. The number of joint projects rose significantly last year. We’re also leveraging synergies in other areas to reduce costs and for other reasons.

JP: Indeed. On behalf of NTT DATA Business Solutions, I can say that we’re using cost synergies proactively in the Group. For instance, we’ve moved into the premises of sister companies as subtenants in Paris and Prague as well. Allow me to make a comment on the subject of real estate in this context: The reality of hybrid working allows us to invest in the quality of our office premises while lowering costs due to reduced floor space. Our offices in Cologne and Munich are cases in point.

Mr. Dubey, you mentioned the new relevance earlier. Where do you see concrete opportunities for NTT DATA Business Solutions in the Group?

AD: The company is the leading SAP specialist within the Group. I see great opportunities for providing SAP services, particularly to NTT DATA customers in the Asia Pacific and MENA regions. Thanks to sister companies, NTT DATA Business Solutions will also be able to win further large companies as customers (in the upper mid-market, for example). However, in asking whether NTT DATA Business Solutions is the right partner, the customer’s size is not the only factor. Another is whether their IT is standardized or customized.

NR: I’m also convinced that our SAP expertise is attractive to many companies, particularly since SAP has taken steps to set a new course and improve its products in the last few years. As the only world-famous German tech company, SAP is also making strides in the area of artificial intelligence. So it’s paramount that we strengthen and reinforce our position as a leading SAP service provider. And we’ve recently succeeded impressively in this endeavor. We’ve far surpassed all our sales targets with SAP products and done better than ever before in terms of the Pinnacle Awards, with which SAP honors outstanding partner performances: We were the only SAP partner worldwide that won in four categories, and we were finalists in five others.

You also announced that you would implement more non-SAP applications, whether your own proprietary software or the ServiceNow solutions mentioned earlier. Isn’t that contradictory?

NR: Not at all. Both our ServiceNow and the Microsoftrelated services are complementary services that our customers value. We use them to enhance the added value offered by the SAP solutions. The SAP Business Technology Platform plays a special role here as the route for third-party providers to deliver their products.

AD: That’s also the crucial criterion from my perspective, be it our own or third-party software. The aim should be to make SAP applications even more valuable through add-on solutions to enhance the added value for the customer. That way, third-party software or our own software solutions can act as accelerators of what we already do. I see great potential in this area.

How is the development of your own software solutions progressing?

JP: We’ve made progress in strengthening our own high-margin IP business, although I wish we had gotten further.

How important are AI technologies in this area?

NR: They are highly significant. Where the transformation is concerned, our customers increasingly go for AI solutions. So we forge ahead in this area and have already made progress, including in-house: All departments are required to use AI applications. We expect this to increase productivity by 20 to 30 percent over the next two to three years. It will let us compensate for additional costs arising in connection with ESG regulations (for sustainability reporting, for example). AI will take the entire company to a new level.

JP: I couldn’t agree more. In my area of responsibility, leveraging efficiency reserves through increased use of AI is a key topic.

AD: Incidentally, this is where you can see a further benefit of the NTT DATA Group: Different companies within the Group (including our parent company in Japan) are currently developing and testing promising technologies from which their sister companies and subsidiaries will be able to benefit as well. When it comes to AI, we’re stronger together.

NR: I totally agree. Large, well-funded, international enterprises have a big advantage where AI is concerned. One more reason for us to be part of a strong Group.

Let’s look ahead to the coming months and years. Record-breaking results have a downside: they’re hard to surpass. What goals have you announced for the current fiscal year?

NR: The signs point to continued growth. We’ve done our homework and will capitalize on the tailwind produced by the digital transformation.

JP: We’re expecting up to a six percent turnover growth on a comparable basis in the current business year. Regarding the EBITA margin, we’re aiming for more than seven percent, based on additional increasing revenues. To realize this, we’re continuing with a global cost and efficiency program, shifting our focus from numerous individual measures to fewer (but large-scale) strategic initiatives: implementing ServiceNow IT Operations Management in the Managed Services division or migrating an end-of-life data center in Europe to a co-location site, for example.

Are you planning further acquisitions this fiscal year?

NR: Of course. We’ve recently acquired a majority interest in the company ProvenTech in India. “In collaboration with ProvenTech, we will be able to play a leading role in the pharmaceutical industry. They have niche, industry-specific expertise, advanced technical know-how, and an innovative product portfolio. This acquisition will accelerate our growth in India. At the same time, it’s in line with our strategy to continue our successful expansion in our core industry of pharma/life science.

Mr. Dubey, what are your expectations for the next few years?

AD: Two indicators are particularly significant for us: growth in turnover and the EBITA margin. Over the medium term, we aim for the average percentage growth in turnover over the last two fiscal years plus the EBITA margin to reach a value of 25 or more. And NTT DATA Business Solutions can achieve much more.

And what’s important besides the figures?

AD: We want to evolve into one group and one team. If we succeed in bringing people with so many different experiences, skills, and traditions even closer together and strengthening the team spirit, we will achieve all our goals.

NR: I totally agree. We’ve gained important experience over the last few years and learned how to bring different companies and people closer together. One central insight: A corporate culture built on respect, esteem, and freedom of action for each individual is attractive to employees and really helps them grow together. I’m confident that we will mature as NTT DATA over the next few years and become one powerful unit and one team.