In 2006, after 1,400 years, the oldest family business in the world went out of business. Kongo Gumi, a Japanese temple builder that's been in operation since 578 AD went under burdened by excess debt.
Debt-free and with billions of dollars of cold cash in the bank, that's not a future Infosys needs to worry about.
But its not taking chances. His confidence tempered by a determination keep the slowdown from Infosys' electrified fence, S. Gopalakrishnan (Kris to his colleagues), is focused on business efficiency. And that's his advice to other business leaders.
It's a strategy that's working, if the atmosphere at Infosys is any indicator. The air there has a feel of business-as-usual-- not anxiety and fear.
In this interview, Kris also shares his views on the slowdown and what companies can do to stay healthy.
CIO: Earlier this year, you said you wanted to make Infosys one of the world's top five IT companies. How do you plan to do that?
S. Gopalakrishnan: Clearly we want to be a leader in this industry. To classify someone as a leader, you have to study each of its stakeholders and ensure that they see you as one of its best partners or providers or employers or even as the best opportunity for investment.
Starting with customers, our solutions and services have to be world-class and rated as one of the best and that's what we are striving to do. We want to be more proactive with coming out with solutions and services that address trends in the technology and business. For instance we measure repeat business; typically it's been between 90 and 95 percent and we compete on value -- not on price. This proves that there is value in working with us; our customers aren't with us because we are the cheapest, they want to work with us because they see value in our partnership.
We also monitor how analysts rate our services and we want to be perceived as a leader. With our employees, we want to be seen as the best employers. With our investors, we want to be seen giving the best returns. What we focus on is growth margins, being an investor-friendly company and one that addresses corporate governance and risk.
How has the downturn changed your plans?
In this environment, we continue to run the business as efficiently as possible, sustain our relationships with clients and continue to invest in certain areas so that when the recovery commences, we emerge out of it in a strong position. Given that downturn is something that's occurring on a global scale and across all industries, as a service provider we are also impacted. Growth has slowed.
So, in the short term, we need to run the business efficiently, sustain the momentum we've created, and make sure that the company is not as hard hit as the competition. That's the goal of the company right now.
How much longer do you think the downturn will last?
Experts vary in their estimate, from 18 months to four years. The best case scenario is mid-2010. The reason why I believe there is this wide variation is because we have yet not hit the bottom. There is still concern about large companies, certain currencies and countries. That's why it's hard to say when the recovery will start.
Till September 2008, people assumed that the slowdown wouldn't be that bad. It's only after September 15 that everyone's opinion completely changed and that they started saying that this was the worst slump in the last 70 to 80 years.
When times are good, everyone, even poorly run businesses, benefit. When things are bad, well-run companies survive better and poor-run companies may not even exist. As Warren Buffett famously said: It's only when the tide goes out that you learn who's been swimming naked.
Did you see the slowdown coming?
The equations changed mid-September 2008. We had a fantastic Q2. We grew almost 7 percent sequentially. And then we began to see how this slowdown was going to be different. Of course, at the beginning of the year we had assumed that this was going to be a challenging year, but I don't think anyone expected it to be as bad as this.
Do you wish Infosys had reacted sooner?
Under the circumstances, we have reacted fast. We are doing reasonably well. We are still growing, still profitable and we're still holding on to our employees. We are committed to all the people we made offers to; they will join in June-July. Neither have we reduced our commitment to our employees in terms of education and training. Infosys is handling the slowdown reasonably well and going forward we are in a good position to handle this.
Is nervous sentiment worsening the situation?
Yes, of course. Emotions play a role in making the situation worse. There is a lack of confidence that the recovery will happen quickly. The reason is simple: unemployment is increasing; people are watching their savings diminish and you still hear of large companies that are struggling to survive. Sentiment is certainly down at this point.
That said, India's still one of the few economies that is growing, even if we debate by how much. Our exposure to exports is much smaller than our domestic consumption-driven growth, which is positive. Third, we have an economy which is still creating jobs and wealth and that's positive for anyone who is focused on India. Look at the growth in cell phones. It was between 9.5 to 11 million. That's a fantastic indicator. And I've heard from retailers that they are not seeing any impact in Tier II or Tier III cities.
Will a new Infosys emerge out of this?
The company has constantly been changing over the last several years. Ten years ago, we were primarily focused on technology solutions, application development and maintenance. Today, we have complete end-to-end solutions, from consulting to business processing to outsourcing. In fact, 53 percent of our revenues come from services that we didn't offer about seven years ago.
Infosys will continue to change. We are introducing new services like learning services and, maybe even software-as-a-service. We are expanding geographically. From a market perspective, we have created business units or initiative to focus on the West Asia and Latin America.
India is a focus area for us, as is China. From a delivery capability perspective, we have opened a delivery center in Mexico and we are still investing in China. From an industry perspective, we see opportunities in new sectors, or sectors that are small today but which have significant potential, including the public sector and the government.
One of the possibilities that could come out of the downturn is that cloud computing really takes off. We already have solutions and relationships that we can leverage if it does.
But aren't you focusing on making Infosys a more agile company for the future?
We already have processes in place that allow us to react very fast. We have five-year scenario plans, three-year business plans, one-year budget plans and budgets are revised every quarter. We announce our results within two weeks of a quarter's end. We are one of the companies that still gives guidance. That shows that the business has the information it needs. And quarterly budget revisions allows us to respond to situations very quickly.
Look at Q3, not only did we react by revising our guidance, we were able to meet those numbers.
What's your advice to other CEOs?
Those who are focused, who are able to bring their products and services to these markets, will continue to do well and increasingly, I think they will even see growth. The key is to make sure that you run your business as efficiently as possible, that you have tight control over your business operations and you have metrics to measure how your business is performing so that you can react fast. All this will require investments in systems and technology.
For example, on the last day of every month, at 3 pm, I get Infosys' trial profit and loss position. Within two week of the quarter end, we announce audited results. That wouldn't be possible without good systems. Or take our decision to cut travel by 20 percent. It was done immediately. I could put budgetary controls into the system to cut budgets and if someone exceeded that budget, travel would require exception approval. It was very simple for us to do.
Without systems like Unified Communications (UC), you can't do that.
In this environment, there is an opportunity for companies to build these systems so that they have near real-time information and control. In today's world, where reaction times are so important, creating these capabilities is extremely important. It gives companies confidence, flexibility and can save cost, which will pay for these investments.
Isn't this also a good time to invest in technologies that bring companies closer to their customers?
In today's environment, the priority has to be on running business efficiently. Once companies have this in place, it's smart to invest in getting closer to the customer.
There are other reasons why companies should invest in technology. India is a young country with a tech-savvy population and just to be able to reach those consumers, companies need to invest in technology or run the risk of missing out on an opportunity.
In a country like India, if companies want to introduce efficiencies and maintain their margins, they have to leverage technology. Technology is the only way companies can provide products and services to remote areas at a reasonable cost. Selling to rural India requires good forecasting, a good supply chain and a good inventory management system. All this requires technology and only then can companies take advantage of market opportunities efficiently.
How can CIOs help?
CIOs must create the models that can track business risk. In large companies, this is a specialist function; they have departments that look at risk. But ultimately assessing risk is driven by IT and risk models. Small companies may not have a dedicated team or a chief risk officer. But a model still needs to exist and the CIOs will have to enable this.
What about outsourcing? Should Indian CIOs turn to it to improve efficiency?
It's hard to generalize. It depends on individual companies. The decision depends on where a company is in terms of sophistication, markets, products and services. However, I firmly believe that outsourcing makes sense for larger companies in the country. Many of these companies are global and need to have the best IT and IS capabilities.
Evidently, the cost arbitrage doesn't exist here, so there has to be true value delivered. That said, there is still a cost benefit, because an outsourcing partner has built a shared-service capability, which allows companies to leverage scale benefits. Plus companies can take advantage of best practices in their industry. The third benefit is that companies can truly manage IT as a variable cost. And with SLA penalties, companies are creating higher efficiencies and more transparency in how costs are managed. Finally, outsourcing allows companies to move to a pay-for-use model with SaaS or cloud computing. And that's what will probably drive smaller enterprises to outsource. I see the downturn as an opportunity for companies in India to discover the benefits of outsourcing.