Bangalore: S.D. Shibulal took over the reins of India’s second largest software exporter Infosys Ltd in August 2011, just as the company was beginning to struggle to keep pace with rivals Tata Consultancy Services Ltd and Cognizant Technology Solutions Corp. On Friday, Infosys lost more than a fifth of its market value after fourth-quarter results and guidance for the upcoming year disappointed investors. In an interview on Friday, the last of the seven founders of Infosys to lead the company spoke about the challenges facing the company and the controversial 3.0 strategy. Edited excerpts:
What’s really happening with Infosys? Is it mainly macroeconomic volatility or problems with execution of strategy?
I think with our quarterly performance what you should note is the volatility of the environment. We started off the year by giving a guidance of 8-10%. Our volume has gone up by 8.8%. And when we changed the guidance (last year) we were clear we were assuming a flat revenue productivity. Our revenue productivity went down by 3%. It not only went down by 3%, it once went down by 4.5%, then went up by 1.8%... It’s been up and down... So the quarterly volatility has been there due to multiple reasons. Firstly, the revenue productivity, secondly, the currency fluctuation in terms of the industry, and that we believe will continue. But if you look at the year and the volumes, we were right on the mark. In my mind, that’s going to continue for a while.
You’ve said in the past that your ambition is to be higher than the industry benchmark. What is that benchmark like and when do you think you’ll get there?
There are two different parts of our business, which have to be benchmarked across different categories. We’re a pretty strong company across a very large percentage of our businesses... where the impact of the volatility is more prominent. And comparisons are also somewhat like that. Converting them into revenue is going up... It is now reflected in the volume growth on-site. The revenue growth is starting up... so we’re trying to fire on all cylinders. We had announced some very large wins over the last year, so we’re firing on all cylinders. That’s exactly what we’re trying to do. Now next year, because of the kind of volatility we’ve seen over the last few quarters, we’ve taken the safe approach of giving 6-10% (revenue growth guidance). And if we look at it today, we’re quite confident of meeting that guidance. It is a wide range, but that’s a reflection of the volatility we’re seeing.
But what about aspirations of industry leading growth?
Aspiration should not be confused with guidance. We have to tell the truth as we see it today. Today, Infosys is comfortable with this guidance.
When does that aspiration translate into performance?
See, we went through a change of strategy, with a new leadership, new structure, new offerings in place. If you look at it, our consulting and systems integration revenue has not fallen. It has grown in line with our other businesses... we’re able to keep our growth up even there. We’re able to keep all of those intact. We’re going through a tough time, there’s no doubt. Then there’s serious pricing pressure because clients are focusing on costs. Even then, all of them are moving forward. Nothing has fallen behind. And products and platforms are not a quarter-to-quarter journey. Can you build a building in three-and-a-half hours? It is not possible. The inorganic decision we’ve made is a pretty important one. It’s not like, ‘you have money, you have people, you put it together’. That is not how we operate. It is much more planned. So, when we find the right fit, we’ll go for it.
Also, what do you have to say about the timing of your 3.0 strategy?
There’s no doubt that the volatility impacted our revenue, which did not allow us to benefit from 3.0. Usually when you put a new strategy in place, you can get some early benefits out of that. Other than that, the strategy is all about creating two other new growth engines. That should be done at any point of time—there’s no good time or bad time for that. We cannot wait for the world to be stable before we say we’re going to create a new growth engine. Even in a volatile environment we’ve said that we’re going to set aside $100 million for products and platforms. Companies can never stand still, wait for a perfect time to create new avenues of growth, to create new relationships, or to offer new services. But with benefits, yes there’s no doubt. When you’re in a stable environment, you can much easily take the low-hanging fruits. When you’re in a volatile environment, you have no low-hanging fruits.
Is the impact on volume more because of the transition, in terms of the mix of your business and your service lines?
The impact on revenue productivity this quarter is not because of the portfolio shift, it’s because of pricing.
But on an annual basis?
The pricing has only dropped this year. Last year the pricing had gone up 2.2%. And if I look at annual, it hasn’t shifted too much.
As a founder and board member of the company, have you started the process of identifying the next CEO?
I think you should put that question to that nomination committee.
Given how the business mix and the industry are changing, what kind of leaders do you need for tomorrow?
I think leaders need to take responsibility. Your role is to be an aspirational leader. In an Infosys context, you have to balance the short term with the long term. You have to take the tough decisions, you have to make the choices. You have to be fair and transparent to all the stakeholders. It is about being a link between the external world and the internal world, in keeping with the values of the company.