Infosys is on track to achieve its aim of clocking revenue of USD 20 billion along with steady margins, says CEO and MD Vishal Sikka.
Infosys reported revenue of USD 9.5 billion in FY16.
In an interview to CNBC-TV18, Sikka says innovation and automation will be crucial factors to achieve its aspiration of little over doubling its revenue.
He acknowledges the industry faces pricing pressure but says the company will lower people per project and increase automation to increase margins.
The company will work on renewal of existing business through the platform named "Mana" which shifts focus from people only model to people plus software model, he points out.
Mana is a platform launched by Infosys that brings machine learning together with existing knowledge of the organization, to drive automation and innovation.
Below is the transcript of Vishal Sikka’s interview with Shereen Bhan on CNBC-TV18.
Q: We are here in your office in San Francisco and of course, very different from your campus in Bangalore. Let me start by asking you, it is the end of your first fiscal year at Infosys. The first conversation that you and I had, you said that the effort was going to be to bring in automation, innovation, education and operational excellence. How do you think you have done on all of those parameters in the first fiscal year?
A: It is still very early, but a lot is going on. As you can see here, we have an automated farm, completely self regulating, that we are putting together for one of our clients. We are still in the early stages of that, but we have made great progress that I am really proud of.
Q: What are you most satisfied with in terms of performance?
A: I was just giving you a tour of the place. As excited as I am about all these next generation things, in here we have our virtual reality lab, where we have a small team that is doing really cutting edge stuff in new experiences for retail, for education, for repair. This digital farming here and all this advanced work that we are doing, but the thing that makes me very proud is the grassroots innovation. When I see 27-28 year old kids come up with great ideas through zero distance in all our ongoing projects. And the fact that when I started the zero distance programme about 13 months ago, if you had told me that I would meet you here a year later and every project where there is an Infosys project manager has a zero distance plan, I would have said this is impossible. And yet, here we are.
Q: You were talking about what you were able to achieve in the past two years that you have here at Infosys. But let me talk to you in terms of the outlook and the performance. I mean, four straight quarters of growth, industry leading growth, constant currency about 13.3 percent. You have said of course that you can revisit the guidance in case you get more visibility. From where you stand here today, do you feel more confident of being able to revise that upwards?
A: We are confident with the number that we have given so far. It is just a month that has gone by. So, actually, the earnings was just a couple of weeks ago, so we are still gathering up information and executing on the business. Generally, I feel that the opportunity ahead of us is a massive one, I was just looking at the numbers and the performance of many companies in our industry and not only in the services industry, but broadly in IT. And you see that companies are struggling. And yet, from where I sit, I see that there is a tremendous opportunity that a company that can really help enterprises become digital.
People talk to me about digital. This farm that I showed you here, that is digital. This is a truly next generation experience that we are doing with our virtual reality world is we creating the experience in being one of the flagship stores of one of the greatest retail companies in the world. But, instead of 500-800 people going into the store at a time, you can have a million people walk into the store and get the same experience of walking around in London or in Union Square or in Times Square. That is digital and to me, companies in every industry are looking for help in transforming their agenda towards this next generation atoms turning into bits kind of agendas as well as in bringing artificial intelligence and automation to dramatically simplifying their existing business and existing systems and a company that can serve both of these needs has no shortage of opportunities.
So, this is what I see and I see that if we are able to get our internal house in order to get all these things done, then we will get to that.
Q: So, when you talk about getting the internal house in order, how much of the work that you wanted to get done in order for you to go after these new areas of opportunity, have you been able to do so far.
A: We are making very good progress but it is, I mean, 2,00,000 people in the company, so even with zero distance, I feel really proud of what our team has been able to accomplish and getting innovation done at this massive scale. But really the leap from where we are towards becoming a strategic partner of the clients, it is something that we have demonstrated in the last 20 months that we have made great progress, but it is still progress where myself or Pravin or our three presidents are directly involved, we need to bring this to a scale where instead of the 50 accounts, we have 250, we have 1,000 accounts where we can have these kinds of deep strategic engagements with.
Q: When you talk about these deep strategic engagements how does it fit in then with your idea of creating a new services model and new services company and what is that going to mean now in terms of the next milestones that you set for yourselves?
A: That is the heart of the question. Again, it is instructive to look at the world from these two lenses on the renewing of the existing and the completely new. Both in our world the renewing of power existing services and in the our new services as well as the clients world the renewal of their business and their new world what I see is that our entire renewal of the existing business is going to be transformed around the platform that we call Mana- this going from a people only model to software plus people. The only way that we can manage the decline in price is by bring software in, by bringing in much better automation, continuing to lower the price as the clients expect but improving our margins and improving our bandwidth our throughput.
Q: You do believe that there is going to be more pressures as far as pricing is concerned?
A: We have seen that in the last five-six quarters that there is a very fundamental downward trend there. I had predicted that when I started and that is an inevitability, we have to outperform that through automation and we have to outperform that by lowering the number of people per project so, that there will be same number of people can do more projects and people can then free up the bandwidth to innovate.
Q: Give me a sense of what we can expect in terms of the benefits in terms of what we can expect in terms of the benefits on account of automation, if you can break that down for us in terms of numbers that would be great. I understand that in the quarter gone by, you could free up in that sense 1,700 odd people over 1,100 in the previous quarter and then 800 on top of that. What is this going to mean incrementally as far as the margin picture is concerned because that is the concern. You have held out a guidance of between 24 and 26 percent, you have done 25 percent last fiscal. What can we expect?
A: This is the heart of the issue that we see in the industry and certainly in our company as well. Right now, if you look at the 1,700 that we did in Q4, this number, while it is a huge number and we are proud of it, it gets lost in the, this is like 1.5 percent movement of utilisation in one way or the other, has more effect than the 1,700 people through automation. So, we need to get to the point where this number is, over the next few quarters, in the several thousands. Once it crosses 10,000, which I expect will happen in a couple of years, then this number will become a significant contributor to the margin. But right now, we are still early.
Q: So, how do you push in the margins then given the fact that you are going to continue to see pressure on pricing? What will be the levers?
A: There are a lot of existing levers. Utilisation was a big one. On site, the number of people of people on site, versus the ability to use better technology like the virtual reality technology to get more offshore people at the same cost to participate in a richer way in on site projects. This is another way, the role ratios are senior versus junior. A lot of the youngsters that we have coming out of Mysore, have gone through design thinking training, they are much more fluent in the modern technology, so we want to get more of the youngsters involved. So, there are several of these kinds of levers.
Q: You don’t anticipate a downside risk as far as your margin guidance is concerned?
A: This is the burden that we have to ensure. So we are holding the margin guidance at where we are 25 plus or minus 1 percent and I feel confident that we will get that done. Automations contribution to that while it is vital this year will be a small one. However, the margin performance that we will deliver will be as a result of this.
So, the basic approach is improving through automation, improving productivity, improving bandwidth, using that bandwidth for more innovation and more of these next generation kinds of project and fuelling both of those through education this is the basic idea – automation, innovation and education.
I believe that if we execute on this we have a shot at getting to that 20 billion, 30 percent USD 80,000, this is the only way it will happen.
Q: You are still confident of being able to get there by 2020?
A: That is our aspiration and the more time that goes by the more I feel that it is in reach.
Q: Since, we are talking about the targets that you have set for yourself, let me ask you about the aggression that we are seeing Infosys exercise in the market place when it comes to deal wins and you have had a good quarter, 6 large deals that you did. It is a 45 percent increase if you look at FY16 over FY15 in terms of large deal wins. The aspiration there is also to have about a total contract value (TCV) of about a billion per quarter. Do you feel confident of that and are you eking out share from competitors or is this completely new opportunities that you are being able to get for yourself.
A: It is a mix of all of them. We can find out and let you know. I don’t keep track of that.
Q: You are not watching the competition?
A: No. You always watch the competition. All my life, I have believed that it comes to this underlying philosophical transformation that we have to go through, that the industry has to go through. In our humanity, there is always this dual side, there is a conflict of competition and then there is a sense of collaboration. We all know that collaboration makes us more powerful, makes us more efficient but a group of people that collaborates is -- literally exponentially -- more powerful than an individual and yet, we also compete, we have this instinct to compete. What I like to believe in is to that it is better to compete with ourselves, it is better to compete with past versions of ourselves rather than with somebody else because if you focus yourself on competing with others then you are always looking backwards, you are not looking forward. In order to look forward, the best thing is to compete with the way we used to be, not the way somebody else has. Life is too short.
Q: What is it that finally going to translate into as far as deal wins are concerned?
A: We set our own targets. It is a billion per quarter. I expect that we will get there if not this quarter, we will soon get there and we were pretty close.
Q: So maybe next quarter we could see you get there?
A: I don’t have a forecast on that but our expectation is given the pipeline and given the confidence that our team feels and the rate at which we have been winning these, that soon if not in this quarter, next quarter or the one after that we will get to the billion. That is just a beginning then you have to execute and deliver.
Q: Let me ask you now in terms of mergers and acquisition (M&A) and you have done three acquisitions since you came into Infosys. What more can we now expect in terms of the niches that you want to target and you have been very clear about the fact that you don’t want to do big ticket acquisitions that you want to plug capabilities that you don’t currently have within the company, so what more can we expect now in the M&A front?
A: More of the same. I think that there is a slowdown that is happening in the investing climate in Silicon Valley for example, the venture capitals investments and so forth are slowing down which means that the weightage will move towards acquisitions. So we will have a better selection of companies to go after and acquire. I don’t believe in acquiring yesterday's technology, I believe in acquiring things that are relevant for the future.
So acquiring next generation technology by collaboration, design, intelligent services -- people that solve complex problems with software that can be amplified by people and that we can bring large scales of these kind of companies.
Q: Anything on the radar?
A: There are several that we are looking at, probably a dozen or so. Very few of them are larger ones.
Q: You have done between USD 122 and USD200 million?
A: The teams are doing great. We just had our customer event in there in the virtual reality lab that I showed you. We have a chat experience on Skava that we are just rolling out. So it is going extremely well. That sort of a thing.
Very important part of that inorganic strategy is also our investments that we make and we have made about 8 of them so far in smaller companies, more high risk companies. I am excited about those as well. In particular as the environment slows down a little bit, I think that more of a very exciting company has become available. We are looking at companies in autonomous driving, autonomous navigation of vehicles kinds of areas, trucks, airplanes, drones these kinds of things. We are looking at things in next generation with collaboration and amplifying people's effect because I believe that the reinvention of the global delivery model will involve technology and virtual technologies and so forth. So investing is an area that also we are quite excited about.
Q: What kind of capital are we talking about? You talked about the eight companies that you have already invested in. How much incremental capital can we expect to be deployed?
A: Our fund that we had set aside was about 500 million, so we are nowhere close to consuming that. We did 40 million so far. We will probably do somewhere in the 25-50 million range again, I would say in the 9-10 months, somewhere in that. Having said that, this is just a thing that you set for yourself as a guide post. Hopefully, we will exceed that and however, we will not compromise, so if a number is below 25 million, then I do not want people to come and say, hey you said 25, why did you not invest 25 million, because the companies were not good enough.
But generally, that is the idea is that we will double the investments. We have taken about 18 months to get to 40 million. Probably in the next 12 months, we will do another 40 million. But that is again, not something that I want to hold myself to.
Q: But from where you sit today, in terms of the revenue guidance or aspiration that you have held out from mergers and acquisitions which is a billion and a half as far as your 2020 plan is concerned.
A: Wow, you remember all that?
Q: Yes, I do. So, you feel confident of being able to achieve that or perhaps even better it because the expectation or there is scepticism on you being able to achieve that number.
A: A billion and a half from acquisition?
Q: Some degree of scepticism.
A: Hopefully, we will exceed that because of better performance of companies, not because we just go and buy more expensive companies. So, our goal is roughly a healthy mix of organic. That is what this farm shows us. Organic growth is the best. Wherever we cannot grow organically, hiring selectively new talent is the second best and the acquiring third. We do need to acquire to inject new talent, new kinds of culture, new kinds of ideas and technologies, new processes even, but that cannot be the primary mechanism of growth. So, over executing, over achieving on that billion and a half out of the 20 would also not be particularly healthy. So, you do not want to do that. On the other hand, if it is the right kind of inorganic growth, and then it ends up going beyond 1.5 or it goes beyond 1.5 because we did a great job with the company that we acquired and so on, then that is awesome.
So, roughly, the ballpark that we set up is 16.5 in the year 2020 through our renewal of our existing services at 2 billion from the new services like the stuff that you see here or Edge or these kinds of things and a billion and a half from inorganic.
Q: But as far as the renewal business is concerned resumes that you have deliver an 18 percent compounded annual growth rate (CAGR) over the next couple of years.
A: It is something like 13-14 percent. So, I feel that we will get there. I feel that we have a shot at getting there. That 20 billion by 2020 was something that we set as a aspiration for ourselves. And life is too short to... (Interrupted)
Q: Now it is being seen as guidance.
A: No, it is not guidance. When it is guidance we will let you know. It is an aspiration and life is too short to set a weak aspiration.
Q: But speaking of aspirations, let me ask you about the operating environment now. Specifically, for instance, Banking, Financial services and Insurance (BFSI) and you have a problem that your peers are also facing within that particular segment, insurance being one of them, it is a concern for Tata Consultancy Services (TCS). But you are not particularly perturbed about the slowdown that you are seeing in insurance?
A: Not at all. Banks have some structural challenges that they are dealing with, but again, by doing it in the right way, by approaching us in the right way, we can in fact turn that into an advantage for us by coming up with the right services and the right product offerings and so forth. When you get on the wrong side of it, every once in a while, because of a large dependency or something and there has to be a ramp down or something of that sort, then of course, the business suffers. But generally, my sense is that even in some of the most challenged banks, we have opportunities for great growth and we are actually seeing that. And then insurance companies, actually the entire insurance industry is again going through a massive transformation because of digital. But it comes down to actually, let me show you something. It comes down to our ability to deliver for their consumers a great new experience in this digital time. And, sometimes, that involves completely rethinking, maybe if you can walk here, I will show you this. I hope there is not a name of a client on that.
Here is an example of something that we put together for a massive insurance company where they were asking us to think about the claims processing experience and our team worked on this project, Shabana and April and the team. And they said why is there even a claims process. In a connected time, just like we can connect the plants, why can we not connect people to the insurance companies? So it is not that you learn about what happened to me when I file a claim, but you learn about me every day on a constant basis. And we can completely reimagine the engagement that a consumer has. This particular company has 40 million consumers. And, I hope that we did not get the name. So, if we could offer a great experience for these 40 million consumers through digital or dramatically, simplify their landscape, then my point is that I do not see. In fact we have just done two big deals with insurance companies, so I do not see any structural issue in insurance.
Q: Which are the verticals that you are most excited about? I know that you believe that consulting is the tip of the sphere as far as Infosys is concerned, which are the verticals that you are most confident and excited about going into the future?
A: Generally the financial industry just because the opportunities there are so huge including insurance is one that I am quite excited about. I think retail is going through a great transformation, all retailers have either come out of it or about to come out of this period of kind of valley of depression or whatever we can call it that they have realised that digital is in tremendous opportunity, in fact this idea that there is only digital retail is complete nonsense because everybody has warehouses and except for music and digitized content there is still a physical value chain that has to be served and optimised and so on.
So there are great opportunities in retail and in particular virtual reality and these richer experiences, I mention investments, we have invested in this company called Noah, which is a spin-off from Dreamworks. Dreamworks was just purchased by Comcast but Noah is out of that and Geoffrey is going to continue to run Noah and they will focus on bringing this animation technology into reimagine their experience of retailers and so forth. So we were the first investor in this venture.
I think retail is a great one. Another huge one in manufacturing. The entire manufacturing world is dying for ways to connect the products that are out there in the field, being repaired and so on. The chillers, the turbines, the locomotives and airplane engine and all these things, we are working with a tonne of these. Manufacturing is another one that I am particularly excited about.
So in general, all of them, I keep being hopeful that soon hopefully in our lifetime we will see a great transformation in healthcare. That is still something that is a little bit further out. I was talking to some of my friends here from the valley yesterday about investing more in healthcare and fundamental breakthroughs and I wish there was more happening there, I wish there was more in the public sector that there was more ease of business but retail, manufacturing, financial services, I am excited about.
Q: Since you talked about the public sector, I cannot not but ask you about what is happening as far as the MCA21 contract is concerned. You have got Amitabh Kant going public on twitter saying that you are responsible for the debacle of MCA21 and all kinds of actions will be initiated, how would you respond to that?
A: I don’t know why Amitabh Kant said that. I don’t understand -- I have looked at this project myself, Pravin looks at it on a daily basis and it is an incredibly complex project. We had a statement from the secretary himself that things were going well given where we were at.
It is a very large scale, very complex project, which we inherited in quite a messy situation that was there before and there is a lot of dependency on these new systems to the underlying data sources and things like that. When I see the reports from all our teams and so forth, they suggest to us that we are well within the parameters that were identified. That is what I see.
Q: Have you heard from the government? There has been talks of some sort of action being initiated against you, have you heard at all from the government on this front?
A: I imagine that if there was such a thing then we would know but we have our best people working on that problem and obviously there are issues that have got people extremely frustrated but nothing -- no worst than what was expected or the expectation that was set certainly with us. So my sense is that this will stabilise.
It is one of the benefits as well as consequences of this age that we live in, the connected age, the social media is that everybody can say and words get amplified and then we all hear about that. This is a good thing general, it helps everybody stay on their toes and so forth. So I am not concerned about this MCA21 issue.
Q: Let me ask you as far as this new financial year is concerned for you specifically. You have often said that you wouldn't like Infosys to judge on metrics of the past because you believe that it is going to be a new age services company. So if I were to ask you what are the metrics that you would judge your own performance or the company's performance in year two?
A: Of course the metrics that we have been living by, I didn't mean to rewrite the metrics of the past. I want to show you one of the metrics of the future. We look at utilisation for example, but another metric and a metric that is very interesting for the future is what are the people who are on the bench doing, for example we have a Zero Bench Marketplace that I will show you in some time -- there are 15,000 people; 15,000 jobs on this marketplace or a lot of the bench Infosian actually work on projects that deliver value, they maybe for non profit and so forth. So the value created by the people on the bench is an even better metric. The automation you mentioned, 1,700 people. This is a great metric of the future that how many peoples' worth of effort saved because of automation without compromising the business - that is a great one. How many of the next generation strategic projects are we engaged in, where we are solving the most fundamental problems of our clients. This is a great metric of the future. So things of this nature, things that are more forward oriented, things where we can see for example the amount of saving that automation lead to a client's business processes or business operations, this would be a good metric. We do not report on this. We talk about volume growth etc, which is actually the growth in the number of people, which in some sense is not a metric of the future and employee cost as a percentage of revenue and a lot of the software driven, software based services will have initial investments in people which then grow non linearly. So those have to be tracked differently.
So in the next earnings or in the next few months we will come up with a list of these that we will suggest in addition to them. We continue to report on the ones that we have always reported on because everybody reports that way but in addition we will find some additional ones. We have already been doing that, the number of designing, the Zero Bench strength.
There are 15,289 jobs are on Zero Bench Marketplace, 4338 are in progress. So roughly 75 percent of our bench has been touched by one of these jobs, have done at least one job on. This is amazing. We have this idea that people who are on the bench are completely unutilised; it's something that we have to put away in the past. People who are here are either working on internal projects or working on client projects and there should be no distinction.
Q: So, that changes the way that we look at utilisation rates then?
A: Exactly. That is why this thing is called Zero Bench. Here are the actual testimonials. This guy is a work performer meaning he was on the bench. ‘Delightful experience to have worked on the projects alongside the training.’ Look at this, and I can actually show the work. This is all the jobs out there. This is all the jobs out there, these 15,000 jobs and java rule extraction for business process modelling (BPM): this is a 400 hour job, 160 hours, knowledge based articles for Kronos Workforce. So, here is a 60 hour job in business-to-business commerce portal, etc. We have put a burden on the teams to ensure that they do a very precise articulation of what the job is, so that somebody who is on the bench for one week or two weeks can actually come in and do this work.
Q: You have just reported your numbers so we have a sense of what the outlook looks like, but if I were to ask you today on you dashboard what would you say are the key challenges that you are concerned about most worried about – both as far as your own internal organisation is concerned and also as far as the macros in the industry.
A: The scaling of the new services, so far it has been through a top down push, but this large scale up of the innovation services, the AiKiDo, Mana, Skava, these kinds of services bring those to a large number of clients. And the underlying cultural operational shift that that means is the big one, number one, number two is the renewal through automation of the existing business because that has to continue row as well. And that is where the big investments are. So, the ongoing renewal through automation of the existing business through Zero Distance or automation of the main services, that is where again Mana is very big for us. And then, doing so with the cost because like we discussed earlier, the automation is not going to be enough in the near future in the next 2-4 quarters. It will be the mechanism for margin improvement in the mid to long-term, but in the here and now, automation needs to be supplemented with greater operational efficiency, helping to do a purposeful reshaping of our costs is how we have articulated it inside. That is a huge priority, so those are the top three on my mind.
Q: And have you had a conversation with the former founders to take them through the ideas and the vision that you have now put in place?
A: I talk to them all the time. Mr Murthy has been here. He was very happy to see this office and he actually, he gave me one advice which was that Vishal how do you make sure that the confidential information is protected. So, we have ways to do that.
So, I get advice from them all the time and it is my, I feel that it is a unique privilege that I have to take this institution that they have built, especially, Mr Murthy has built and to take it to the next level. Just as he created an entirely new paradigm with the lower delivery model and so on. We have an opportunity, and that was at that time, based on preserving or even improving the quality with CMM level five and all of these things, but at a significantly lower cost. So, in some sense, the entire industry, the entire paradigm has been around doing the same thing cheaper without a compromise in quality. Now it has to be about doing things that a client cannot do themselves, bringing value and innovation. So, to take these 2,00,000 employees and transform them into value creators, into innovators, this is what is extraordinary. When I see our team here who worked on this project, these are not farmers, these are not those people, so go hire domain experts and these engineers and designers who have learned these things on their own and through rapid prototyping, constant feedback from clients, constant feedback from experts, they are completely re-inventing a thousand year old paradigm and that is what the future is all about. And I am really excited about it.