Indian IT companies need to pivot to the cloud technology to stay ahead of the curve -- that's the advice to the likes of Wipro and Infosys from Adobe's Shantanu Narayen.
In an exclusive conversation with Shereen Bhan, Narayen said that IT industry is entering a third phase of enterprise software and companies must have the stomach to embrace the change.
Below are the excerpts of Shantanu Narayen's interview to CNBC-TV18's Shereen Bhan. Q: Your new office in Noida, India is an indication of your confidence in India as well as your growth plans of India. So, we have always talked about how bullish you are about the India story and how strategic a role India plays in Adobe’s growth plans. But from where you sit today, what does India look like?
A: You are right. Whenever I come here, we actually wear two hats. The first one is India as a market in itself and how that is growing and we can talk about Digital India and all of the opportunities that that is going to afford. And second is the role that the Adobe India centre plays in our global aspirations.
We have been growing really well as a company and India has always had disproportionate part of that growth. So yes, we continue to be excited. We are always ranked one of the best places to work here and employees are doing some amazing stuff.
Q: Your results are out on the September 28, so you cannot give us any forward looking statements or talk about numbers, but I can talk to you about the kind of growth that we have seen for Adobe in your previous quarter and once again record revenues that you have announced in Q2 and lastly on the back of the kind of growth that you have seen as far as your cloud businesses are concerned. On the back of that, how do you manage expectations at this point in time? People are expecting after nine quarters that you are going to be able to deliver on this kind of growth. And I do not want to talk to you about numbers, but how do you manage expectations and what is the dilemma and the challenge of being able to do that?
A: We look at opportunity and at the end of the day, if we can demonstrate, especially to financial investors, how large the opportunity is and if you can demonstrate a cadence for execution, then you think expectations will take care of it. So, I like to focus a lot more on the opportunities, both the opportunities we have talked about, namely the entire creative economy and how design is becoming more important and aesthetics and how the creative cloud is clearly pioneered, how you can transform an existing desktop business into a cloud subscription based business. The second is the marketing cloud and everything to do with digital disruption. There is not an industry in the world that is not getting disrupted by technology; we are enabling them to use technology to do that. And so, two massive opportunities and as long as we continue to execute, the financial expectation takes care of itself.
Q: Let me talk to you about dealing with government and specifically in India, the Prime Minister has this big Digital India vision and you have of course met him in the Valley. In India as well, a lot of people are betting on that opportunity. We were talking to LinkedIn. They have launched three products specifically for India, developed in India, made for and made by India. How are you seeing this play out? It has been about two-and-a-half years since the Digital India vision in that sense was unveiled.
A: There are a couple of things that make India a really unique opportunity as it relates to Digital India. The first is mobile. India has the opportunity to leapfrog with generations of technology and in this mobile first or in many cases, mobile only environment, any company like Adobe or others in the Valley who use India as an opportunity to innovate around mobile first, it is going to payoff not just in India as an opportunity, but also everywhere else, in all of the other markets. So, that is one big opportunity.
However, when you look at what has happened here with the Aadhaar Card and everything to do with how people are moving inefficient paper-based processes to digital, the Adobe Sign product has a very unique opportunity. Think about identity on the web and how if you can digitally complete a transaction. So, Adobe Sign and what the government is doing with respect to what is happening on Aadhaar or companies like e-Mudhra are actually able to now do digital transactions, I think that is just a massive opportunity. And last but not least the cost of transactions in India, whether it is financial services or automotive, are much lower.
And so targeting how you can look at efficiencies in your business and then translate that across the world, but we are actually continuing to see growth. When you see companies Interglobe Aviation (IndiGo), they are among the most successful in the world or what is happening with companies that in some cases are emulating US based business models in travel or automotive or transportation, just big opportunity for us in India.
Q: I will get to the enterprise opportunity in just a second, but let me continue to talk to you about the government opportunity. One of the concerns specifically that we saw in at least as far as the domestic technology companies when dealing with government was that revenues are inconsistent, it is patchy, it is lumpy. I know you do not like any of those words. So, what is your India team telling you in terms of being able to transact and deal with government? Has it got significantly better and easier?
A: We look at it as a little bit of a do you have the right bowling pins and if you have the bowling pins strategy -- maybe we are a little bit more fortunate than local companies in that given the magnitude of our business, we can take a much longer range approach to some of these businesses. And for us, maybe the only metric is not revenue. In other words, if we can find that we are actually serving customers well and you are getting government agencies to adopt these technologies, you believe that as a number of transactions increase, the revenue will follow. In the commercial space for example, a similar opportunity might be in video where as the amount of video that is being consumed and the Olympics were certainly an example of that, is happening more on digital. If you price you model where you are getting revenue as digital streams increase, it will take care of itself.
So, our approach at Adobe has always been let us go find some key customer in government who have this vision of digital transformation and as long as you get them signed up and you build a great product and the business model allows you to grow as the business grows, that is a luxury that we have over the smaller companies in the market.
Q: Let me ask you about the enterprise and what looks exciting to you. You talked about IndiGo, of course one of the companies that's recently listed on the Indian stock markets, one of the only profitable aviation companies anywhere in the world. What is looking exciting to you on the enterprise side here in India, the stories that you are watching?
A: The stories that we are watching financial services, I think just continues to be a large market opportunity for us because the credit card revolution has also happened in India and as people are starting to transact with residential accessibility now becoming a reality. I think what is happening in financial services is big, what is happening in residential is big. The other thing we certainly find is the number of people who are travel and entertainment as an industry whether it's the rise in the accessibility of airline travel or holidays abroad and so that has been a big market for us and last but certainly not least is retail. The Indian market is slightly different in terms of online retail but retail has been a big driver for us in the enterprise and while a couple of online retailers are probably battling against each other eventually that is going to become one of those opportunities for every single company in the retail space._PAGEBREAK_
Q: Since you are talked about retail and online retail in specific, let me ask you about as you see the picture today. These are home grown companies, young companies about a decade or so old and they are competing against the big boys; they are taking on the Amazon of the world, deep pocket, deep expertise, deep domain knowledge. What would your advice be to somebody like Flipkart and Snapdeal at this point in time?
A: I think they pioneered the market and large companies - you have to believe that if you are Flipkart or Snapdeal - that you are going to be more nimble and able to move relative to the large more well pocketed companies in that particular space. Second, there are so many things that are so different and unique to the Indian environment in terms of how you pay cash, how you do credit, how you do transportation. We just believe in technology that there is always room to innovate and as long as you can be more nimble and be customer focused, so they will have to focus on that. On the other hand Amazon is a formidable competitor and they have done a great job in the US and around the world of competing but the best part is that if you are a consumer you benefit from all of that.
Q: We have seen consolidation here in India, we have seen consolidation in the US whether it's the likes of Microsoft and LinkedIn but do you think that for growth and for self preservation the days of standalone whether it's social companies etc, numbered at this point?
A: I think in the internet era in particular you either needs to be the windshield or you are a bug and the scale in the internet space is certainly an issue and unless you have a certain amount of scale, having a niche product, a lot of small start-ups in the Valley are finding that they do not have the ability to compete with people who have an aggregation capability. So I do think scale is an issue and having said that you have to believe that even within the 100s of companies that are being created, you are going to get a few massive winners and so the question is how do you make sure - if you are a financial backer that you are backing one of the real significant winners.
Q: Speaking of winners and you continue to have an appetite as far as acquisitions and M&As are concerned. You have been disappointed with what we have seen in India on the product side. Has that picture changed at all since we last spoke?
A: Unfortunately not yet. I think B2C companies; you have seen a lot of innovation in India around B2C companies but building fundamental technology that we would use. I think there is one area where India can particularly shine maybe two. The first is the new form of software is everything to do with machine learning and deep learning and in that particular space even more so than ever before it is all about intellectual property and so given the amount of folks India has, I think you will find a number of companies that are formed where deep mathematicians are going to invest in deep learning or machine learning. I think that is a big area where given they do not have to have scale but if they have specialised expertise then that would work in particular with India.
The second continues to be services because more and more people are trying to say how I deal with digital disruption and have consulting. We have chosen to have them be partners rather than companies we acquire because we want an ecosystem. So the opportunity for innovation in multiple spaces in India is higher than it's ever been.Q: The Indian IT services model at this point in time is in need of disruption or is being forced to disrupt given what we are seeing with automation and so on and so forth and with the challenges that they face it is probably going to get worse from here on. From your experience of how you pivoted Adobe to where it is today, what would your advice be to companies like Wipro, Infosys and TCS?
A: I am not an expert and number of good friends run all those companies. However, I will tell you what is happening, which is there was an enterprise era where people deployed enterprise software behind the firewalls. So, companies like Infosys or Wipro or TCS were the experts in enabling IT departments to install that and they built extremely lucrative successful businesses.
With the move towards the Cloud, people are not deploying that software anymore. So the entire customisation effort where these companies specialised in that customisation behind the firewall, that is going away because people are deploying companies like Adobe or other companies completely in the Cloud.
So, then the question is how do these companies evolve from where their primary business was deploying on premier software to a new model of software.
Q: How easy is it to make that transition?
A: With all transitions, it is about do you have a North Star of where you want to go as a company and then how do you navigate it. Companies in the US like Oracle and SAP are finding that they also have to completely take their application software and move it to the Cloud. Is there an opportunity? Absolutely. Who are the experts to make that change? I think it is people within those companies.
So as people like Vishal Sikka who come in, who have tremendous product experience or Abidali Neemuchwala now at Wipro, I think they have the talent to now look at it and say if there is a new opportunity and it is all software as a service, it is all Cloud and it is all Mobile, what do we have as a company to completely pivot to that.
Q: I started the show by talking about this being trend spotting with you, so let me ask you, what next and what are you most excited about at this point?
A: This experience is just beginning in the way we like to characterise it, the first generation of enterprise software was automating the backend. It was supply chain, it was ERP and everybody sort of focussed on that and the power centre within the enterprise tended to be the CFO, because the CFO determined what the financial system was and then everything was built around it.
The second generation of enterprise software, after the back office, was the front office, which was all about productivity and everybody said how can we make our employees more productive. I think this next phase of enterprise software is all about the customer first and what is that customer journey and how can you, as a customer, get the service you want whether it at home, whether it on your mobile device or whether it on the go and there is going to be a completely new generation of enterprise software I think larger than either of the two prior generations that is going to emerge.
The big battle in the valley is who is going to emerge as the undisputed leader. Adobe is the undisputed leader in the marketing, others have taken other categories of that, but how that consolidates, how that comes together that is going to be a fascinating next decade evolution of enterprise software._PAGEBREAK_
Q: What are the two-three things that you must focus on, in order to stay ahead of the curve and to retain your dominance in this business?
A: It is a cliché to some degree but innovation. Adobe is a product company at our core and unless we can continue to come up with magic, where you have engineers sitting down and inventing something that nobody knew was even possible and with machine learning and deep learning, that is an area that I am particularly passionate about because these data sets enabled a whole new level of innovation.
The second and perhaps the hardest thing and this is even harder in successful companies like the one you mentioned is recognising that change is inevitable and do you have the stomach to make the changes and how do you do that if you are a public company under the glare of Wall Street or the Bombay stock market.
That is the thing that people have to recognise because preserving the status quo is not a business strategy.
Q: You have talked about disruption but I also want to ask you about something I think the CEOs are rappelling with today. It is not just the fact that you are addressing millennials as a customer but retaining and employing millennials, what is the challenge of being able to do that and how are you structuring yourself in order to be able to cope with the millennials as both the customer as well as an employee?
A: You are right. Adobe has grown, we have disproportionately grown with that next generation of employees. The one thing I would mention is our intern programme. The first thing we try and do is they like the 'try before you buy approach' and so you have this very extensive intern programme where they come in, they get familiar with what Adobe stands for.
However, I think as long as you can find employees who resonate with the mission of what you want to do and feel like they can have impact, which is the second issue, I think the millennials are looking to make an impact at a much younger age. It used to be that you would say I am going to pay my dues and eventually I get to the point where I have an impact and they are more impatient, which again if you are in a tech company, you love that kind of impatience because they want to make a difference, so attracting a lot more of them.
Third, the reward structure -- the reward structure that they expect is so different. Adobe has been a pioneer in a couple of areas. We pioneered the whole check and process, we abolished the annual performance appraisals because that was one of those antiquated systems that existed.
Q: So what you have in place?
A: We have a check and process, we don’t do annual performance appraisals for everybody which is a meaningless set of paper that people create rather we have a dialogue about how people want to have impact and give genuine candid feedback.
However, the reward structure for them, what is important and what is not important, it is hard for companies to make those shifts sometimes and again I think we have been good at rapidly making those changes.
Q: In India, in your new facility, ramping up here, how many people housed in this facility, what you believe is likely to be the additions in headcounts for instance?
A: I don’t know the exact number here because we are growing so rapidly both here as well as in Bangalore. So, unlike most companies, we have two facilities. The one thing that I heard was that we are already at capacity here and we are talking about another expansion in building, we have been very pleased with the kind of people we have been able to attract and retained. I did two sections for them, one with the senior managers and one with women at Adobe. All of them talk about how it is such a great place to work. So it is something for us to build on.
Q: In terms of development and in terms of innovation, we talked about strategic importance of India but in the last five years, how would you think India has stacked up as far as the actual innovation and development work that is going on in Adobe?
A: I think the two areas in which as a result of the technology shifts here, it has been more rapid shift here and that is in mobile clearly. The amount of android users here and IOS users here, mobile development becoming a reality, a lot of that has been championed here.
The second is the move towards the cloud because that has again been -- when you disrupt, there are certain countries and certain industries that get to leapfrog. So those are the two areas where we are disproportionately investing here.
Q: Whether it is in India or anywhere in the world, the exciting companies that you have your eye on -- I mean that in a personal way, if you find what they are doing is exciting?
A: I think companies that are looking at data in a meaningful way and understanding how data is going to transform industries. In pharmaceuticals, the entire pharmaceutical industry is going to be thinking about how data and personalised medicine is going to be transformed. So there are number of unique start-ups in the valley who have said we are going to first start with the data expertise and then leverage that across multiple verticals. That is one where it is going to be pretty unique and one where they have tremendous growth opportunities.
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