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Friday, August 18, 2006

Infosys's winning formula

Nandan M Nilekani takes over as the head of Infosys Technologies , as N R Narayana Murthy becomes the non-executive chairman. Nilekani talks about the Infosys success story, new challenges and future plans.

Looking back, what has been Infosys's winning formula?

The vision and values, which were a core part of its creation have played an incalculable role in what has been accomplished. The vision was, 25 years back we saw a global opportunity for software. It was fairly clear that the world would become more and more software intensive.

We saw a great opportunity for the human capital that there was in India. Most importantly, we saw a role for a professional and people oriented company in this space.

We ourselves had been employees. So we wanted to create an organisation where employees mattered, wealth creation was shared, there was complete professionalism, meritocracy and reinvestment in people.

There was also a set of values enunciated by Narayana Murthy -- the entire credit for that has to go to him -- which laid the foundations for success and longevity. One, we would run the company extremely professionally and with an impeccable line between the personal and the corporate.
We would only take from the firm what was explicitly meant for us - salaries, perks and dividends by virtue of being shareholders. One of the challenges in India has been the dividing line between personal and corporate assets. This has not been as firm as it should be. The notion that this was a company, which was a trust and what we took from it was what we agreed we would, that was a very important part of the value system.

Second was the belief that we should create a culture of transparency, courtesy, fairness, honesty with respect to all the stakeholders - customers, society, employees and investors.

Third was creating this culture of disclosure, making sure that whatever was happening to the company, good or bad, was known to the public.

Fourth was the belief that the challenge for India was not to distribute wealth but to create wealth. But having created the wealth, making sure that the beneficiaries of the wealth were spread out. Then the notion that the company was more important than any one of us. Therefore in case of a choice, the decision was based on what was in the best interest of the company. Then the fact that it was about team work.

This was a group of people with diverse skills and backgrounds, each of whom brought some unique value to the organisation. It was really all this meshing together that made it work, provided you the longevity, anchor and fulcrum around which you do things. That's what really kept us together and sometimes unique.

These ground rules, which Murthy defined have provided sustainability, longevity and uniqueness to this corporation.

What were the lucky breaks for the company?

The fact that we could start our business, get work right from the beginning, was a good break. Getting great clients like Mico, Reebok and GE was a huge break. In recent years Infosys going public in the US in 1999 and creating a brand was a big break for us.

Is it right to say the going would have been entirely different if the new policies had not come in 1991?

Oh, absolutely. We have been saying at every forum that the reform momentum that the late prime minister Narasimha Rao and Manmohan Singh, then as finance minister, gave were really the turning point in our growth.

The fact that licensing was abolished, taxes came down, duties came down, software technology parks were established, capital markets were liberalised, foreign investors came into the capital market, foreign exchange became easier to get, the telecom infrastructure began to improve - the genesis of all this can definitely be traced to the momentous events of 1991.

In many ways Infosys is the shining example of the benefits of economic reforms in India. As of last count we had 58,000 employees. Assume that for every job we create in our industry, we create five jobs to support this industry. That means in effect Infosys creates a quarter of a million jobs.

The economic impact of that in terms of job creation is significant. The whole idea of economic reforms, which was to reduce the dead hand of government on enterprise, let Indian entrepreneurship bloom, has really been redeemed by us. Jeff Sachs says that the green revolution gave India food security. Today our oil bill is $50 billion. IT-ITES exports are $ 24 billion which has happened essentially from our human capital, and the inward remittances of Indians working abroad is $ 21 billion. Just as the green revolution gave food security, these two categories have essentially given this country oil security.

In more technical terms Y2K was a great lucky break?

In fact, three things happened together. One was Y2K. Clearly that was an important point. The second was the dotcom boom, which coincided in many ways with the Y2K and third was the huge investment in telecommunications that was unleashed after the telecom liberalisation in the US in the nineties.

All these trends in a sense coalesced in the late nineties to 2001 and created a situation in the technology space where demand for technology resources far exceeded supply. This created a market opening, which we were able to take advantage of. If you look at our growth rates, we went about $ 3-5 million in the early nineties, by March 1999 we were $ 121 million when we listed on the Nasdaq. Then we jumped to $ 200 and $ 400 million in two years, riding on the back of this triple boom.

Looking back, the tech bubble bursting and 9/11 at that time were real big.

Our growth rate slowed down to something like 30 per cent in 2002, but I think the difference was that there was another shift in the market. After years of binging on technology there was a backlash and customers started questioning why they were spending so much on technology and what was the value they were getting.

So the market moved into a return on investment, value for money, more bang for the buck kind of atmosphere and we were able to take advantage of that. In a sense, we took advantage of the triple boom in one way and when the market shifted we were able to rejig ourselves for that.

Looking ahead, how is life likely to be in the next 2-5 years?

Until 2001, we took advantage of the triple boom in technology spending to take the company up, build up a brand, go up to $400 million. Then when the market shifted on more of the ROI kind of thing we were able to position ourselves as someone who provides a faster, better and cheaper way of doing technology.

That essentially led us through to the billion in 2004, two billion in 2006 and this year we are looking at $ 2.9 billion or thereabouts. What this also showed conclusively to the world was that what we had here was a new way of doing things, structurally different, disruptive to the legacy players and sustainable. Therefore we think that what we are seeing today is what we call the battle of the business models.

There was a legacy business model based on local resources in different silos - in each country some people working for you - to a global model which we have essentially invented. It treats the whole world as a network of people and finds ways to reallocate work on that network in an optimal fashion.

We think this model is fundamentally superior because it is faster, better and cheaper. So I think in this battle our model has been proved superior, which is why you see the legacy competitors trying to do the same thing. They have realised this is the future.

Now when we go forward, we believe customers are asking for the Holy Grail in our business, which is companies that in their execution capability are built on this global model. At the same time customers want us to be well versed in their business challenges and be good mission critical transformation partners.

Whether you come from the new model like us or the legacy model, that has to be your end position. The customer wants both, all the cost efficiency, quality, timeliness of our business model. He also wants you to know how you can help him to change his business. We also believe the transformational activities in our clients in the next several years is going to be unprecedented.

All our customers are going through major change. These changes are driven by globalisation, technological innovation - telecom, demographics - more young people in Indian and China than in the west. They are also driven by the fact that technology has made outsourcing possible. Supply chain technology has made outsourcing to China possible, information technology and telecommunications have made outsourcing to India possible.

The share of India and China in global GDP, which had gone down from 50 in 1820 to 8 per cent in 1970, has gone up to 17 per cent in 2002. So there is a shift in the economic ratios of the world, creating more purchasing power in India and China.

What this means for companies, and it affects every company in the world, is that what they sell, whom they sell - today India is consuming 4-5 million mobile phones a month but for that you need to develop a phone that costs only $ 10 - where you produce it, where you service it - the service call may be to a call centre in Bangalore - and how you manage this global operation is changing.

You have to manage operations in a new way using information in a real time basis, monitoring everything globally. So we think companies across the world are going to do these transformations, which we call the transformation to the flat world.

We think Infosys is uniquely placed for this because not only have we ourselves provided the direction on this, we ourselves are a flat world company. Therefore we can be the partner of choice for our global customers to transform themselves. That's the big agenda for us in the coming years: How do we develop more and more capabilities on top of what we already have to become a transformational partner for our clients.

What are the challenges you face in delivering this?

We need to continue to build our business knowledge, domain capabilities, consultative mindset, intellectual property, solutions, platforms, and invest in our brand as a transformation partner. We have already done quite a bit of this and the set of actions we have to take to go where we want to go are very clear.

There is a cogent, articulated strategy and agenda for action and everybody in the firm is on board on that agenda and that's what we are driving towards. The agenda is essentially doing all that is required for our customers to use us more and more as their transformation partners.

A lot of it has happened but if you ask me what is the overwhelming agenda for the next two to three years, it is clearly getting that going. Of course there are a lot of other things like scale building.
Source - Rediff


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