One Step Closer to the Endgame

It was just like another day at Infosys on April 2, 2002 when Nandan Nilekani took over as its CEO from the legendary N R Narayana Murthy. No excitement, no formal ceremonies or celebrations. Exactly two years later, it is a different scene altogether. Its party time at Infy, as the company, under the youthful zest of Nilekani, has weathered the unstable environment and reached the billion-dollar landmark. Soon after announcing the company's results, an elated Nilekani shared some moments with Prasanto Kumar Roy, Chief Editor of Dataquest, and Shubhendu Parth of CyberMedia News describing what it means to be in the billion-dollar club.

What does becoming a billion dollar company mean to Infosys?



It certainly is a milestone that signals the arrival of Indian companies on the global stage. However, what is important is to

understand that this milestone has happened during one of the most difficult times in the

industry. Infosys went public in March 11, 1999 and during the fiscal ending March 31, 1999, we were a 121-million dollar company. This was at the height

of the bubble. Five years since then, the bubble has burst, the customers have changed and there has been the economic slow down.

In this entire phase, we have grown from 121 million dollars to a billion dollars in March

2004-in five years. I think the billion-dollar mark is the manifestation of what is possible and what we can do even in such difficult environment.

"The endgame is to create a world class consulting company using global delivery...We’re closer to the endgame than the companies>"

Nandan Nilekani

How would you describe the next challenge of achieving the $4-5 billion

landmark in the global context?



I think it's a progression. Today, we have three clients who earn more than $50 million in revenue every year. Our total

revenue was round $50 million six or seven years back. So it's just a progression. You just keep growing,

adding customers, adding services, building capabilities... but the more important point is that, at billion dollars, we have 25% net margin. Its not

just about size, it's also about profitability at that size.






When do you think Infosys will be hitting the next billion mark?



It certainly won't take 23 years. But I cannot predict that. All I can say is that, this year we expect to grow at about 30% in

dollar terms.

What about the domestic market?



I think as years pass by, the Indian market will begin to assume more significance and it will be one more market that we will be serving. But

at this point of time, we have a big foray in banking. We have the largest market share of banking sector

through Finacle-Punjab National Bank, Oriental Bank of Commerce, Bank of India, ICICI-you name it. I think we are

very dominant in the banking sector and that would remain our focus area for the

time being. Decision not to tap the domestic market is not an ideological one. It's just about the right time, the right value proposition, the right

size. We keep assessing these and once we figure out the right mix we will do it.






Speaking of ideology, you have achieved this milestone almost organically. Do you think the company would have grown faster had you taken the inorganic route?



Let me make it very clear that we will not acquire anything just for growth.

We are open to acquisition if it helps us fill any strategic gap in our vision and mission of building the next generation IT services and

consulting firm. So anything that we will look for acquisition has to essentially be something that we cannot possibly do organically or something

that will take too much time. However, what is more important is that we should have the confidence that we can seamlessly integrate the two

companies, including the people. Remember, a service business is all about people and you lose the entire game if people from

the company you have bought, walk out. Acquisition is not an alternative means of growth, neither

are we looking at it as a substitute. Growth must come essentially from treading organic plan and acquisition might just help us to do something

faster or acquire a new technology. It may also help us add new client base or a new geography, but it has to be strategic in intent.

Acquisition for just bulking up is a clear no.

How did this Infosys model really work out because it seems very different

from all other success stories?



Actually when Infosys was formed, all of us were working with Patni in Mumbai and Mr Narayan Murthy was our boss there, heading the software group.

The group strongly felt that there is a need to create a very professional company, one that was based on very strong ethics and values. We also wanted

to create a company that really valued people. That is how we started. The fact of the matter is that there were many such companies that started at

the same time during early '80s. However, what made is different was that we stuck it out-we realized that it was not a sprint but a marathon and we were

long distance runners. We went through difficult times, but none of us digressed from the common vision. All of us believed

that Infosys was bigger than any of us and were willing to subordinate our egos and our desire to

larger boats. I think that determination to create a world-class company, to stick together, willingness to keep Infosys ahead of any individual-perhaps



these are the characteristic not many people and companies had to the extent we had. That's why we were able to last the marathon for last 23 years.

How much of a role has the cultivation of the Infosys brand played in this

success?



In 1992 or 1991 when the likes of HP, IBM and Motorola were coming to town we were just a 200 people company

operating from Jai Nagar. We wanted to attract the best talent to come and work with us and hence did a market

survey to find out how to attract the best-bred talent. The market survey showed that we were an unknown company and so it was

decided that we must build a brand and become an employer of choice-the only way to attract the

best and the brightest.






The next issue was to decide on what the Infosys brand stood for. We could not say that we were a multinational, neither did
we have a family company lineage to talk about. What the company represented was the spirit

of entrepreneurship, the integrity, values and respect for our fellow beings. That was the space that nobody had occupied and within two to three years

of our conscious decision and efforts, we went on to become the top brand. So I think, branding has certainly played an

important role. It is about doing the unusual thing, about staking a position in the market place or in the minds

of the employee and then consequently reinforcing that image.

How does this play out in the global market amongst the customers?



I think it's very important. Today we have convinced the world about the value of global outsourcing-the Financial Times,

Economist, Fortune, Bussiness Week, everybody writes about it. So we have sold the concept to

the world. Now we need to make sure that when a global company thinks of outsourcing, they should think of Infosys. Building that global brand is

very important because the CEO must have comfort. Hence the reinforcement of brand Infosys is certainly very important.

From building a brand across as a human company to projecting yourself as a company, which is uniquely poised to achieve the 'endgame' that you have been

talking about. is this a strategic shift in your branding and marcom plan?



By making outsourcing so well known we are inviting customers and expect the global market becoming hotter. But then, we are also inviting competitors.

Competitors so far could get away without offshoring because customers didn't want. But the customer is now asking everybody about what they can do

on the offshore front because he cannot afford pay the onsite rates. So, the game has changed in that sense and has become much more competitive because

the existing players are also willing to offer services of which we have so far been providing. It has also become a much more intense challenge because



the battle is also for the employees. Hence it's very important that we articulate the end game first and we articulate why we will get them first.
Also, it's critical for us to convey why we think we are in a better position to get there-it is an important massage we need to convey to our

investors, our employees and our customers. At the end of it, I'm not sure if it's a branding issue or not, but it certainly is a strategy articulation

issue.

Could you elaborate on the Infosys' global delivery model and the entire consultancy pyramid? Has there been any change with the inclusion of the

consultancy subsidiary set up by the company in Texas?



The end game is to create a world class consulting company using global

delivery. Infosys has got global delivery and some consulting end solutions.But that is not enough and over the next few years we need to strengthen our

consulting offerings. The global big daddies have consulting-certainly stronger than us-but they have the old model of onsite delivery. What this

means is that to be able to achieve the end game, these companies will have to balance their onsite-offshore delivery model by moving jobs offshore and

shrinking the onsite slice. That is a painful process- laying off people, trauma, politics and survival

issue. For us it's just the matter of adding on the consultancy layer which is a growth process and has much more

positive energy. There is another challenge too. The traditional companies have a sales and

marketing (S&M) cost hovering around 15% of their revenues, which in our case is just 7%. So at some point, in order to compete with us on this

model, they have to shrink the S&M cost from 15% to 7%. Also, because these

companies would be handling more offshore work at lower billing rates in future, this 7% has to be on the declining revenue. In other words, their

revenue, their employee base and their sales and marketing cost all would be shrinking leading to a triple whammy.

There seems to be some conflict between what seems to be the end game and what you think should not be outsourced-the

key strategic areas. On the other hand with the launch of Infosys Consulting, you are talking about

delivering the entire package under one roof. Isn't there a conflict?



Well... out of the entire business objective, there are certain things that IT can do itself. First, business alignment or making

sure that IT does what business needs to do. Second is governance. While business has many needs,

IT can help decide what to do and when. Third is the technology architecture. Fourth may be quality. Fifth may be project management. Sixth

could be program management and seventh may be vendor management and so on. This is the layer, which no company can abdicate because it's the strategic

intent. Below this there maybe someone managing the data center operation, somebody handling the network and another group managing the applications

and someone else the infrastructure.

Do we take the consulting inputs in this as well?



Yes. Suppose out of this alignment it emerges that they need to make some strategic choices, so then they will go to a

consultant-a McKinsey or a BCG. These guys are pure plays and may be vendor neutral but they don't go

downstream. Suppose as a result of this consultancy, it is recommended that

the company needs to take its CRM solution to the next level and completely revamp it-that is the level of recommendations that typically come from

these guys. Our job starts from where their job ends. From here onwards there is a whole lot of business consulting and IT piece that needs to be

taken care of and we want to be exactly in this space. We are not competing with

McKinsey.






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