LIVE AND EXCLUSIV: NFOSYS TOP BRASS TALK TO b&e ON LIFE AFTER DEATH AND ON THE ROAD AHEAD. deputy editor Virat Bahri GIVES THE INSIDER ON THE STRATEGIC LESSONS FROM INFOSYS!
“Our growth has significantly come down – from 35% to 7% to much lesser. It is a failure in some sense, since the opportunities are there, we have customer relationships, so I do feel we could have done better.” We’ve met S. Gopalakrishnan (Kris, for everybody), CEO and MD of Infosys, previously too, but perhaps this is the first time we sense his dejection that things could have turned out better for Infosys.
Factually, it’s not as if things are that bad. For starters, they’ve been rated India’s 7th most profitable company in the 2009 B&E Power 100 listings. The five year CAGR for revenues, till the month ending June 2009, was 32%. At the same time, the five year net income CAGR stood at 34%. Market capitalisation was screaming at $21.08 billion in July ‘09. Now it’s screaming better. The number of clients contributing to business has grown from 141 in 2004 to 330 this year. Since Kris took over, the revenue per client has regularly increased, Infosys has gone into newer services, entered newer markets, hired more people, consolidated existing clients, won a few awards, and a lot more.
But Kris comes from a world, where Infosys – under Murthy – was used to growing at rates close to, and sometimes beyond, 100%. Even Nilekani sailed around the 50% figure for long. Compare that to the fact that Kris ended last year with 29.5% growth. “In good times, high repeat business is a very good strategy; in bad times, bad!” says Kris on a Monday afternoon to us, “We need a lot more hunters (who get newer businesses) than farmers (who maintain current businesses).”
The first quarter of FY 2010 hasn’t been too kind. Infosys’ revenues actually fell by 2.9% quarter on quarter, in rupee terms. For the same quarter, as per Angel Broking, “Infosys’ IT Services Business was largely flat in US dollar terms on a sequential basis, while on a yoy basis, a fall of 2.8% was witnessed.” Further, onsite volumes declined 2.1% qoq (0.6% decline yoy) and offshore volumes slipped by 0.6% qoq (but grew by 9% yoy).
The top management at Infosys has been preparing double time for the economic slowdown since the 15/9/2008 debacle. “I predicted the collapse of Bear Sterns six months before it actually occurred,” says Chief Financial Officer, S. Balakrishnan (Bala, for friends). And once Lehman collapsed, the world – as Kris tells – changed for Infosys. And not because Lehman was a big client for Infosys (rather it was a bigger one for Wipro & TCS), but because the American financial industry – including companies like AIG – formed (and still do) an incredibly large part of Infosys’ earnings (more than 60%). Things were changing too fast at that time, and Infosys decided to change faster. And the hero, creditably, in the bloodied times, was not marketing, but finance, whose six strategies are the reasons Infosys today remains the most profitable IT corporation in India...
Strategy #1: Forget the long term; at least when it comes to your money!
Driven in a warlike fashion by CFO Balakrishnan, Infosys rewrote process orientation and risk control like never before. Realising that the war would be played on cost rather than price, Bala opened up a new battlefront, “I realised volaltility of foreign exchange was going to be the key issue as 98% of our revenues is in foreign currency; 62% from North America.” The dual reporting mechanism in both dollar and rupee terms made handling finances a supremely complicated Pythagorean conundrum for Bala and his team. Bala had already implemented the long term hedging route much earlier for Infosys.
Strangely, that was what was turning out to be the biggest headache for Infosys, which decided to shut down long term hedges & convert all exposures to a maximum of two quarters. This saved Infy from getting massacred.
Factually, it’s not as if things are that bad. For starters, they’ve been rated India’s 7th most profitable company in the 2009 B&E Power 100 listings. The five year CAGR for revenues, till the month ending June 2009, was 32%. At the same time, the five year net income CAGR stood at 34%. Market capitalisation was screaming at $21.08 billion in July ‘09. Now it’s screaming better. The number of clients contributing to business has grown from 141 in 2004 to 330 this year. Since Kris took over, the revenue per client has regularly increased, Infosys has gone into newer services, entered newer markets, hired more people, consolidated existing clients, won a few awards, and a lot more.
But Kris comes from a world, where Infosys – under Murthy – was used to growing at rates close to, and sometimes beyond, 100%. Even Nilekani sailed around the 50% figure for long. Compare that to the fact that Kris ended last year with 29.5% growth. “In good times, high repeat business is a very good strategy; in bad times, bad!” says Kris on a Monday afternoon to us, “We need a lot more hunters (who get newer businesses) than farmers (who maintain current businesses).”
The first quarter of FY 2010 hasn’t been too kind. Infosys’ revenues actually fell by 2.9% quarter on quarter, in rupee terms. For the same quarter, as per Angel Broking, “Infosys’ IT Services Business was largely flat in US dollar terms on a sequential basis, while on a yoy basis, a fall of 2.8% was witnessed.” Further, onsite volumes declined 2.1% qoq (0.6% decline yoy) and offshore volumes slipped by 0.6% qoq (but grew by 9% yoy).
The top management at Infosys has been preparing double time for the economic slowdown since the 15/9/2008 debacle. “I predicted the collapse of Bear Sterns six months before it actually occurred,” says Chief Financial Officer, S. Balakrishnan (Bala, for friends). And once Lehman collapsed, the world – as Kris tells – changed for Infosys. And not because Lehman was a big client for Infosys (rather it was a bigger one for Wipro & TCS), but because the American financial industry – including companies like AIG – formed (and still do) an incredibly large part of Infosys’ earnings (more than 60%). Things were changing too fast at that time, and Infosys decided to change faster. And the hero, creditably, in the bloodied times, was not marketing, but finance, whose six strategies are the reasons Infosys today remains the most profitable IT corporation in India...
Strategy #1: Forget the long term; at least when it comes to your money!
Driven in a warlike fashion by CFO Balakrishnan, Infosys rewrote process orientation and risk control like never before. Realising that the war would be played on cost rather than price, Bala opened up a new battlefront, “I realised volaltility of foreign exchange was going to be the key issue as 98% of our revenues is in foreign currency; 62% from North America.” The dual reporting mechanism in both dollar and rupee terms made handling finances a supremely complicated Pythagorean conundrum for Bala and his team. Bala had already implemented the long term hedging route much earlier for Infosys.
Strangely, that was what was turning out to be the biggest headache for Infosys, which decided to shut down long term hedges & convert all exposures to a maximum of two quarters. This saved Infy from getting massacred.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
