Infosys CEO and Co-founder S.D. Shibulal is a man under immense scrutiny. He took over the company in a difficult business climate, stepping into shoes once occupied by giants like N.R. Narayana Murthy and Nandan Nilekani. Infosys's string of bad performances over the last year has not helped him either. The third quarter ending December 2012, however, was a welcome change with Infosys surpassing all expectations. Shibulal explains to Business Today's Chaitanya Kalbag why he prefers to be cautiously optimistic. Edited excerpts:
Q: The latest quarter results were good. How confident are you that this pattern will be maintained over the next few quarters?
A: Let me give you an overall picture. We did well in Q3 (third quarter of 2012/13). We grew by 6.3 per cent, including the Lodestone acquisition and 4.2 per cent without the Lodestone acquisition, which is organic growth. We have had one of the largest client additions - 89 clients were added in Q3. We had $731 million of TCV (total contract value) won in Q3 in our Business and IT operations space. We completed the Lodestone acquisition. The acquisition is very strategic to us. It is in continental Europe and in the consulting and the systems integration space. That is where we wanted to invest. The integration is going on and we already have one integrated win because of the acquisition. Now, the world has not really changed. I am in Davos and you can clearly see that there is uncertainty, currency volatility. Corporations have large amounts of cash but they don't have the confidence to invest. There are various issues in various parts of the world. This impacts our clients' ability to take decisions. For the current year, we have said we are going to stay with at least five per cent growth. That is the guidance we have given. At the beginning of the quarter, we have 95 per cent visibility for the quarter. We still have some catching up to do. That is what we are trying to do.
Q: Is Infosys 3.0 starting to work?
A: We rolled out this strategic direction 12 to18 months back. We created a new mission statement, we created a new structure - whenever you change the structure of a 150,000 people corporation there will be some transformational turbulence because there is a new leadership in place. The change is complete, the transformation is complete, the new structure is in place. Now, what is Infosys 3.0 about? It is about combining execution excellence with innovation for our clients. It is truly about increasing our relevancy to our client. That is the fundamental driver behind Infosys 3.0, along with addressing issues of scale and value. It talks about scale, value, and relevance. Simultaneously, it is also about a balanced portfolio for Infosys. We clearly believe that the industry is going through some challenges and we need to create a balanced portfolio. When you take on this path, you look at early indicators of success. Number one, I can clearly see our customers and analysts accepting the strategy. If you look at the Forrester report which talks about our products and platforms strategy it is clearly acknowledging that we are leaders in that space. There was a recent report that came out two or three days before about companies that invest in R&D across the world. We are topmost in India in R&D investments. We filed close to 450 patents in the last two to three years. If you look at the early indicators, the acknowledgement by analysts, acceptance by clients, and if you look at Building Tomorrow's Enterprise innovating framework, we have multiple clients who have accepted that framework. Then you look at Consulting and Systems Integration, which is one of our focus areas - it has crossed 32 per cent of revenues. Our aspiration is to be at one-third. If you look at Products and Platforms, we have launched 14 products. In this space, as of the last quarter, we have $600 million of TCV booked in a span of about 12 months, which is in my mind, quite substantial.
A few days ago, we launched a new product called AssistEdge for contact centres. It is about transforming customer service experience. And it has been launched along with one of our clients. If you look at Airtel Money, which is launched in India, it has been co-created with Airtel. If you look at the work we are doing in India Post, it is on the McCamish Insurance Platform, which is a classic example of our success in the space. If you look at the mobile POS (point-of-sale) which we created for Nordstrom … all the cases are publicly referred cases. Consulting and Systems Integration, in the last quarter, grew eight per cent organically, and 15 per cent inorganically. In Products and Platforms, we have been acknowledged by analysts as leading in the space. I believe our strategy is definitely showing resonance. But at the same time, I do not want to acknowledge Q3 - a single quarter - as a reflection of our direction because it is a reflection of the work we have done over multiple quarters. I remain cautiously optimistic because of the environment. The world has not changed.
Q: Once you finish your term, Infosys is going to be led by a non-founder for the first time. Do you think the process will be smooth? Why is there no chief operating officer (COO) in your company, which would point to the designated line of succession?
A: One, we have no dearth of leadership. We have very strong leadership. We have tier one leadership, we have people on the board. We have tier two leadership … We had established a Leadership Institute in 2002, 10 years before today, to focus on leadership development. Two, at all the times in the past and in the future, I clearly see and transition from one professional to another professional. I believe whatever roles we have performed has been purely as professionals. This is a company with the highest levels of corporate governance, highest levels of ethical values, highest levels of fairness and transparency. And every one of us, whatever chair we sat on, we have sat on those chairs as professionals, not as founders. So the (next) transition will be no different from any other transition in the past because it will be from one professional to another. The rest of the questions should be asked to the nominations committee because as I said we have a very strong corporate governance practice in place. We have a nominations committee headed by Jeff (Jeffrey) Lehman with very competent members. They will do the needful.
Q: Mr Narayana Murthy spoke about Infosys's adherence to high margins. Do you feel customer focus needs to become a bit stronger to contend with growing competition?
A: First of all, we have very respectable competition. If you look at the competition today, if you look at the Consulting and System Integrations space, predominantly, the competition is from global system integrators (Sis - the Accentures and IBMs of the world. We have built a business over a period of time where we are competing with global SIs. In various parts of our business we compete with various parties. Number two, at the very beginning, when I spoke about Infosys 3.0 and our strategic direction, the word I used was 'relevance'. The strategic direction of Infosys 3.0 is increasing relevance to our clients.
Q: So from that point of view you feel customer focus is very strong, and that is one of the things making a difference?
A: Infosys has always been focused on its clients. I can't think of a single period in our history when we have not focused on our clients. Client focus also involves delivering value, delivering innovation as well as being relevant to them in all areas of their activities. Our clients operate globally, run their businesses, transform their businesses, they want to deliver innovation to their own customers. So it is important that we deliver higher and higher value, we become more and more relevant, we deliver execution excellence and innovation. Our complete strategic direction is about that.
Q: Lodestone was a very interesting development because earlier you had almost acquired one company and then decided not to (Axon). Do you feel this kind of inorganic growth through acquisition is something that will become more and more relevant as you try to enter new areas and new markets? Again, one of your stated goals was to grow the business in Europe. But that has suffered to quite an extent, obviously because of the recession in Europe. Do you feel that acquisitions will be an important plank of your strategy?
A: You are asking two questions. One is about acquisitions. It will continue to be strategic to us. We have certain focus areas which we have identified and we have talked about them before. We will continue to focus on that. Acquisitions have to be strategic. They have to bring in new capabilities. As far as Europe is concerned, there are two parts - the United Kingdom and Continental Europe. Our revenues from Continental Europe are 10 per cent of our revenue and we believe that being such a large market, we have opportunities for growth. We have chosen five different countries to invest in and one is Germany which has grown hugely, above Infosys's average - at least twice the Infosys average over the last few years. Please remember we are doing this transformation in a challenging environment. It is too early to make conclusions based on couple of quarters.
Q: Infosys carried out a lot of firsts in the 1990s but then slowed down in the 2000s. It was the first to do quarterly results, first to adhere to GAAP (generally accepted accounting principles) in eight countries. The global delivery model was pioneered by Infosys. I think because of the momentum of those changes, Infosys reached a certain level and there is lot of interest in how the company will adapt and transform as it goes forward …
A: Yeah, but if you look at it, we were the first Indian company to start on the consulting and systems integration journey. The strategy usually plays out in five to seven years. Look at many of the things that have happened in the recent past. These are all strategies that have played out over a period of time. We have taken a view that products and platforms are going to be important. We have taken a view that China is important. We have taken a view that we need to file patents. We have taken a view that we should invest in R&D as a service corporation. There are many path-breaking things that we do.