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Infosys

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Chairman's Speech (Infosys) Year : Mar '17

Dear stakeholder,

Three years ago, when I met the Board of Infosys for the first time, I articulated our long-term strategy for ‘the second-third’ — a vision for the next 33 years of our iconic, globally respected company. It was a crucial time in the history of our company, and a turning point in the IT services industry as we knew it. The technology-led transformation of our world, and indeed our every experience, was becoming strikingly clear. Our company was already facing the challenges that come with lower differentiation and subdued growth relative to peers.

The second-third had to be not only about addressing near-term challenges, but especially about charting a new path that keeps us resilient and relevant in this age of software-driven business innovation; a path into higher-value work that leverages automation and transcends it, a path into entrepreneurship where problem-finding comes from our uniquely human ingenuity. We articulated this strategy as ‘Renew’ and ‘New’, on a foundation of creativity and education — software and services coming together in a culture of innovation, to deliver unprecedented value to our clients, our stakeholders, and the world around us. The next 33 years had to be, and have to be, about being more, about helping clients transform themselves for their digital futures, embracing artificial intelligence (AI), and becoming the masters and orchestrators of technology disruption rather than the victims of it. Our confidence for a successful transformation of Infosys would be steeped in the intellect, learnability and strong value system of our company, of every Infoscion.

As I write this letter, three years into this exciting journey, this transformation has started to reveal itself. In fiscal 2017, the results of our client survey showed satisfaction levels at their highest in the 12-year history of the survey, with a significant improvement in CXO satisfaction scores. Industry analysts have endorsed the differentiation of our offerings, including NelsonHall for our services offerings, both renewed and new; IDC, HfS and Forrester for Infosys Nia™, our new AI platform. Revenue from software-related services, including Infosys Nia, Edge, Panaya and Skava, grew by 42% in fiscal 2017 at a much higher Revenue Per Employee (RPE) than the rest of the company. New services such as mainframe modernization, cloud applications and infrastructure, enabling the API economy, Internet of Things, cybersecurity, digital experiences and complex analytics showed rapid momentum with clients. We have been able to attract, excite and retain high-quality talent as evidenced in the addition of top talent and the decline in employee attrition. When I started, our attrition was quite high; standalone attrition was at 23.4% in Q1 of fiscal 2015, and 18.9% in fiscal 2015; in Q1 of fiscal 2017 it was 15.8%, and 15.0% overall in fiscal 2017. Attrition among top performers, the most important metric we track in evaluating attrition, is now in single digits.

All this resulted in us crossing the US billion revenue milestone. In fiscal 2017, revenue grew 8.3% in constant currency, and for the second year in a row, our growth has been in line with industry peers. We won US .5 billion in large deals, including committed value deals as well as framework deals in fiscal 2017, and added five more US 0 million client accounts in fiscal 2017, bringing the total number of US 0 million clients to 19. Operating margins have remained stable within our stated band of 24%-25% despite pricing headwinds and employee wage increases. Revenue per Fulltime Employee (FTE) increased by 1.2% as a result of automation, utilization and productivity improvements.

Automation itself released about 11,000 FTE worth of effort through the year, a clear demonstration of how software is going to play a crucial role in our business model.

At the same time, we relentlessly focused on optimizing traditional operating levers and costs. Employee utilization excluding trainees reached high levels of 81.7%. We realized the highest levels of net operating cash flow at US .1 billion for the year. We approved a comprehensive Capital Allocation Policy after taking into consideration the strategic and operational cash requirements of the company in the medium term.

We continued to strengthen our management team with internal promotions to create four presidents, including the appointment of Ravi Kumar S. as our Deputy COO and the addition of Pervinder Johar as the CEO of EdgeVerve. We strengthened our organizational structure by establishing industry sub-segments for agility in the market and for creating more management bandwidth. There is now more ownership and accountability across the organization at the middle and senior management levels in contributing toward key company priorities.

Fiscal 2017 also brought with it environmental challenges such as rising protectionism, accelerating commoditization, elevated client expectations and new competition. Internally, we had challenges to bring stability to our consulting business and growth to our Finacle and BPO businesses. But amidst all of this, it behooves us to stay focused on our longer-term mission to drive rapid growth in software-led offerings, to capture demand in newer service lines and to renew our core services — a mission to deliver consistent, profitable growth for the benefit of all our stakeholders.

Renewing our core services and growing new services

During the last fiscal, we grew multiple new services in the areas of cloud applications and infrastructure, mainframe modernization to cloud, cybersecurity, developing new digital end-user experiences, advanced analytics and data science, engineering services and Internet of Things and many more. These services represent a rapidly growing portion of our incremental revenue each year, demonstrating our continued relevance to the transformation of our clients’ businesses.

We continued to renew our core service offerings, largely work in maintenance, operations and run areas, by driving automation, agility and innovation into every service line.

In March 2017, we celebrated two years of our Zero Distance program, which continues to drive grassroots innovation in every project, finding new value for clients. The program has generated more than 15,000 ideas, and implementation of more than 2,000 innovation ideas for clients. Our focus now is on further elevating our innovations, including turning these into scalable intellectual property for us.

In May 2017, we announced our plans to hire 10,000 American technology professionals as Infoscions over the next two years. Indiana is the first of four hubs where we will build a strong local presence, with a focus on education and innovation in areas such as AI, Big Data, and more. This journey to increase our local hiring efforts first started in the fall of 2014 with our endeavor to hire 2000 visa-independent talent into our workforce. It was further elevated by the inspiring work being done by the Infosys Foundation USA to help bring Computer Science education to the masses and close the gaps with the skills of the future. In its first two years, more than 1,34,000 students, over 2,500 teachers and almost 2,500 schools across America have benefited from high quality computer science training and classroom equipment funded by the Infosys Foundation USA.

Driving rapid growth in software-led offerings

On April 26, 2017, we launched our next-generation AI platform, Infosys Nia — converging the Big Data / analytics, machine learning, knowledge management, and cognitive capabilities of our first-generation AI platform; the end-to-end robotic process automation (RPA) capabilities of AssistEdge; advanced machine learning capabilities of Skytree; and optical character recognition (OCR), natural language processing (NLP) capabilities and infrastructure management services. Infosys Nia builds on the strong adoption of our AI and automation capabilities over the last year, with more than 130 client engagements, and strong analyst endorsements.

With Infosys Nia, we have the ability to deliver both IT operational efficiencies through automation, and drive breakthrough business scenarios, bringing the power of AI in a purposeful way to our clients’ most complex business challenges. For example, helping clients keep pace with increasingly more sophisticated fraud and enabling agility in addressing new regulatory compliance requirements.

Our other software offerings, Skava, Edge and Panaya, are all seeing strong traction and we continue to invest in expanding their capabilities. We have brought all of our software offerings, under Pervinder’s leadership, to leverage knowledge and synergies, to help scale this new frontier for us to great new heights.

In fiscal 2017, we made six new investments in startup companies working in AI, autonomous unmanned vehicles, data insights, cloud, and more — all areas relevant to our and our clients’ futures — thus extending the innovation we bring to our clients.

Building a culture of learning, creativity and purpose

To strengthen the bedrock on which all of these initiatives can thrive, we continued to focus on the most important aspect of our transformation, our culture. To move from solving the defined problems to finding the unknown problems requires a deep sense of our own abilities, both in the things we know and the things we are yet to learn, and the belief that we can learn anything. Design Thinking training, now at more than 1,35,000 Infoscions, helps give Infoscions the creative confidence, as well as the tools, to go after our clients’ big problems in agile and tangible ways.

In learning and education, we continued to work towards empowering employees in the critical skills of our future such as AI and Machine Learning, and developed completely new programs in these technologies that have now been delivered to more than 1,300 employees, with several thousand more to be trained in the year ahead. We have made our curriculum immersive through our ‘flight simulator’ and other experiential trainings, with over 20% higher engagement levels. We have instituted a program to train all new hires in three programming languages (17,000 employees have already gone through this program), giving individual employees confidence in their ‘learnability’ and giving Infosys a much more agile way of looking at the talent pool of the company. We have created new learning platforms to meet the varying needs of Infoscions, including the Digital Tutor social learning platform and the Infosys Learning Platform.

In employee engagement, we continued to revamp our employee rewards programs to focus much more on performance. In a modern, innovation-driven company, every employee must be measured on performance. In fact, the best and most talented employees want to be measured on performance — not role maturity, or tenure, or other factors. It is about performance, and rewarding those with the passion, entrepreneurship and the imagination to help drive our transformation. As part of this, in fiscal 2017, we introduced our stock incentive plan for top performers, covering approximately 25% of mid- to senior-level employees. It has been my personal endeavor since joining Infosys to enable all employees to share in the successes of the company, and in fiscal 2017, we made the first step of this a reality. In addition, we restructured the compensation of senior leaders to be more performance-based, with a significant portion of their compensation now coming through stock incentives, creating a more direct alignment with the interest of shareholders.

Finally, we continued to be a purposeful contributor in our communities, particularly in India and in the U.S. In fiscal 2017, the Infosys Foundation continued its great work in the areas of eradication of hunger and malnutrition, promoting education, art and culture, healthcare, destitute care and rehabilitation, disaster relief and rural development projects with a focus on solving social challenges and accelerating economic growth. Key projects included initiation of the construction of an Akshaya Patra high-tech kitchen at Hyderabad, sanitation and water storage projects in Chennai, donation of medical equipment to the Vittala International Institute of Ophthalmology, support of computer education in schools in multiple states, pan-India relief support to martyrs and ex-servicemen, and contribution to the Swachh Bharat project, among many other impactful initiatives. In the U.S., we have had a tremendous impact on our communities in helping to empower and enable teachers and students alike, as I mentioned earlier.

Looking ahead

As we look ahead to the next 33 years, I deeply believe that we have the ability to create and shape the technology disruption that is in front of us. And why notRs. Infosys has always been a technology company with the best and brightest talent from India and from around the world. The very people who, over the last 35 years, have built, managed and maintained the mainstream systems that we see today. We are exactly the people who can learn the technologies that will transform the world around us, the people who can learn to be the innovators, not the bystanders, not the order-takers, not the ones optimizing the past, but the ones who find, and deliver, the great breakthroughs for the next 33 years. The ones who leverage technology to fulfill our own unlimited potential, and help others find theirs as well, to shape a better world at a time of pervasive global anxiety about the future of jobs and indeed the future of our humanity. We can be the next-generation services company, as differentiated and iconic as we once were, a company that admires its past and builds on it, or we can be a somewhat improved, but dying, previous-generation company that is mired in that past. It is within us to embrace the tough choices and to move headlong, unabashedly, into creating great new futures. Our work in these early years of our transformation is leading us along this path. It will continue to be a challenging journey, but it is one worth fighting for.

Dr. Vishal Sikka

Palo Alto Chief Executive Officer and

May 19, 2017 Managing Director

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