Real test for Infosys will be over next 3-5 years: CEO Salil Parekh
In an exclusive interview with Mint, Infosys CEO Salil Parekh looks back on the 10 months at the helm of India’s second largest IT firm and delves into his plans for the way ahead.
Bengaluru: Infosys Ltd chief executive Salil Parekh is still two months away from completing one year in office, but the 54-year-old has already ironed out differences within the organization, restructured compensation for the benefit of employees, given the digital business the required urgency, appointed new leaders for key roles and bagged billion-dollar deals. Parekh comments on his journey of the past 10 months at Infosys. Edited excerpts.
You had a great job at Cap Gemini. What attracted you to Infosys, and that, too, at a time when the company was going through some turbulence?
Frankly, I am a little bit fortunate to have this role. Infosys has always been a pre-eminent company, especially in India, but even globally. So when the opportunity came, it was extremely attractive. To me, it was more of a privilege to have something like this. I am sure there are a lot of people who would want to have something like this as a part of their career. The board was kind enough, with Nandan (Nilekani) and Kiran (Mazumdar Shaw), offering me this opportunity. So, in my mind, there was not much of thinking, it was a great opportunity.
Ten months into the job, what are you most satisfied with?
It’s too short a period in terms of achieving. The way we have laid out our approach, it is really a three-year plan. The first year was essentially about focusing on what I call stability and, I think, we have achieved some of that. We have put in place some of the building blocks which will allow us to take our business to where we want to, and the strategic direction is fairly clear. We are starting to execute.
Last quarter, we had a very large number of big deal wins, the largest we have had in many quarters. We were well within the guidance we had given both on growth and on margin. We are still putting in the building blocks. But the real test is over the next 3-5 years, as we put all these things together and as it starts to hum in an efficient way.
You have done two acquisitions since you took over. Are you looking at more?
Absolutely. That is one large part of our strategy, going forward. Fortunately, we have a very strong balance sheet and very good cash generation. As we find things which make sense, we will look at buying.
We have not been specific. We have not quantified internally, nor have we shared in the market whether it’s large or small. What I know is the M&A team has about 15 or so shortlisted companies and that they are keeping a watch on them.
With acquisitions, things are always available. It is a question of whether they are ready to sell, and does the price make sense. The point is about the cultural fit and then the strategic fit. So many things have to come in place together. It’s a little bit like getting married. There’s always people willing on every side, but a lot of things have to come together.
Any particular area or geography that you would look at?
In terms of the strategic fit, we will look at those five elements of digital, plus some of our core services, which are growing well. For example, our engineering services, which is growing very well today, and business process management, which is also growing well. So we are open to those, in addition to the digital ones. And among geographies, my preference is definitely the US, but we’ll also look at some continental European ones, especially markets such as Germany and Switzerland.
As the non-executive chairman, what role does Nandan play in the day-to-day business of the company? And, if you are looking at an acquisition, will you consult him?
The board looks at acquisitions. Therefore, Nandan is always available when I need him, but he doesn’t get involved in day-to-day matters. On an acquisition, if I need some views and advice, I would definitely consult him. But not for day-to-day deals or client work, delivery or people assignments. For those things he is not that involved. He has always said that if I want, he will always be available. He spends time on the campus as well, and he is quite engaged.
What did you make of Nandan’s remarks on Infosys becoming a boring company?
I agree that it is becoming a boring company, and I am hoping that it becomes even more boring.
What is your relationship with N.R. Narayana Murthy, and will you personally, and as part of the board, like him to come back on the board?
Board decisions are really about what Nandan and the board will decide. I have a very good equation, from my perspective, with Mr Murthy. We met socially a few times. I make it a point to try and reach out to him every few months, just to say hello. He has been kind enough to invite me to his home, have coffee or dinner. We have not talked about Infosys. He is deeply involved in so many areas, in NGOs, in the social sector, I am happy to learn and listen. But that’s clearly been the nature of our equation.
Would you like to have him on the board?
All board decisions are best handled by Nandan. So, I don’t have a particular view.
Do the senior-level exits of the last six months worry you?
If you see, I’ve appointed essentially a new set of leaders to run our industry verticals, which is how we go to the market. And they’re really extremely strong. They have been with the company 15, 20, 25 years and are very experienced both with the market and with how Infosys works. We have essentially five large industry verticals, and these are the people who are running those.
We’ve got a really strong bench of leadership talent within the company. This has been built over the years and, when I came in, we had the opportunity to put some of the people into these roles. In the future, as we move things, as we expand and look at new geographies, more of these roles will come about. My sense is we have a tremendous opportunity and options within, and now I’ve started to see quite a few people from outside who are calling me, or calling us, to join the leadership levels from some of our competitors.
So we have the opportunity to start bringing people from outside as well. So far, I’ve not done that, but over time it will be a mix--predominantly of internal candidates and occasionally some external as well.
At the beginning of the year you had lowered your operating margin targets to 22-24%. Is that a reflection of the strategy that you would like to go after growth even if it results in lower profit?
We essentially gave a margin guidance of 22-24% and, in the last quarter, we were at 23.7%. This quarter is pretty close to the high end of that guidance. The reason we did that is twofold. One, there is a lot of new work in the digital area which needs investments, and for us to scale up. To make those investments, we needed some room. And, this was one way for us to make some room. The second, on our employees, we had not handled all employee changes in terms of compensation appropriately.
So, I wanted to make sure we took this first year and got that addressed, and not have it be hanging over us in the future. So, it was much more of a catch up on the employee side. To me it made sense to reduce the margin, and the board was very supportive of that. We are extremely aggressive in the market. You have to be. We’ve expanded our sales capacity. In the last two quarters, we’ve increased the number of go-to-market sales individuals by 5% from a year-ago period.
Did Infosys get into the digital business a little late?
The opportunity in digital is so massive, that the more you can invest within reason, within the guidance of your profit and loss, the faster you will benefit from it. I’m not sure whether it was late or not, but we were not very explicit about it. And that’s one of the things we’ve done. We’re extremely explicit now, we have a clear definition, and it is part of what we announce every quarter. So, internally and externally, people know we are focused on it.
Is there stability in the company?
I think so. But the real test of that will be to go through this for the next 3, 5, 7 years. But really, I don’t see any of that in the way things are going today.
The leadership team is quite focused on the business, quite engaged with clients and with people development, which are the key elements of our business. The board seems to be quite involved and is very supporting on strategic direction, or if you look at acquisitions and things of that nature. So, I think it seems to be working in the way it should be working.
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