Larger aspirations led to top exits: Infosys CEO Shibulal

Q: Let me ask you about the guidance that you have actually held out and how that aligns with your commentary because you believe that the next fiscal is actually going to be an exciting one and exciting is not a word that Infosys uses very often. But if we look at your guidance and we look at what that anticipates in terms of Q4 performance you are actually anticipating Q4 to be even weaker than your Q3 performance, how do the two align, "exciting" and your Q4 guidance?

A: First let me give you an overview about Q3. Our Q3 was a decent quarter, we grew by 1.7 percent in Q3, our revenue was USD 2.1 billion dollars in Q3. The volumes went up by 0.7 percent. The onside came down by 3.4 percent and the offshore went up by 2.6 percent, very much in line with some of the initiatives which we have undertaken over the last two quarters. Our operating margins went up from 23.5 percent last quarter to 25 percent this quarter, an increase of 1.5 percent. Our net margin also went up to 22.1 percent. This is a quarter where we have seen good client additions, we had 54 new clients this quarter as well as a new USD 50 million client. So overall Q3 was a decent quarter. We have revised our guidance, the guidance which we gave in the past was 9-10 percent. Given what we have done in Q3 and looking at Q4 we have given a guidance of 11.5 percent to 12 percent in reported currency terms and 12.4 to 12.9 percent in constant currency terms.

Q: If I go by the guidance, the asking rate for Q4 is minus 0.3 to 1.3 percent. So surely you are not telling me that that is what you actually expect in terms of your Q4 performance?

A: Same answer as last time, I actually told you last time our guidance is a statement of fact as we see it in the beginning of the quarter. Q3 and Q4 are generally soft quarters for us because of the seasonality in our business. The budgets are getting closed, it will take us some time to get our solutions in place with our clients and win new deals. So as of now based on the facts which we see, this is the guidance for Q4 and the year.

Q: Are you feeling more confident? Are you feeling more optimistic about the demand environment? About the deal pipeline, the deal outlook as well as pricing because a lot of analysts are comparing the next calendar year to what we saw in calendar year 2010; comparing what we saw in 2013 to calendar year 2009 when demand revival started. And the actual pickup actually took place in calendar year 2010 which is what they anticipate in calendar year 2014, is the parallel make sense to you?

A: We are seeing some confidence coming back to our clients but at the same time we expect the budget to be stable from last year to this year. Our clients are very focused on cost optimization even today. So that means we have to build solutions which will give them reduction in total cost of ownership and that is how we will continue to win deals with our clients. Next year is starting in April 1 and by the time we are in April, we will have much better idea about next year.

Q: So today you are feeling more confident than you were in Q3?

A: I think it is all reflected in our guidance of 11.5-12 percent, our guidance is a sum total of our fact which we know and the confidence which we have.

Q: The other issue is what is happening in terms of the management reshuffle and the churn that we are seeing at Infosys. We have actually seen nine top level exits in the last seven months, does that have to do with the changes in leadership? And the fact that the vision outlined now perhaps by Narayan Murthy is not aligned to the vision of your senior management forcing them to leave or do they actually feel that there is no room at the top for them to grow their own personal ambitions and aspirations?

A: Multiple points, one, the organization is definitely going through a transformation. Two, our leadership pool is extremely deep, in fact we started our leadership institute in 2002 and over the last 11 years we have invested heavily into building a very deep leadership pool. As you can note every one of the transitions have been smooth.

Q: Why are we actually seeing top level executives, Infosys veterans who have actually spend their lives at Infosys leave the company at a time when the founder has in a sense returned to steer the it forward? That is what the market is trying to understand.

A: Because these are great leaders, these are people with tremendous skills and they also have aspirations, they sometimes have larger aspirations than what Infosys is and these people do look at their aspirations when the transformation happens.

Q: Are you telling me that people like Ashok Vemuri, Basab Pradhan, most recently people like V Balakrishnan have actually left because they have perhaps felt that they were not in the reckoning, not in the running as far as the top job at Infosys is concerned?

A: I did not say that at all. I just said that these are people with aspirations and ambitions and their aspirations and ambitions sometimes can be larger than Infosys, different than Infosys and each one of these transitions have been smooth and in time.

And as I said before in the commentary our relationship with our clients are very deep, they are multi level and whenever there is a transition of this sort we have been able to transit the relation to new people in the organization.

Q: What are you doing as a company to stem further senior level management attrition if anything at all?

A: We need to put this in perspective, this is a 160,000 people organization, even if you take 1 percent of the 160,000 as leaders that is 1600 people, we are discussing a few exits. We are a large corporation with a large pool of leaders and finally there is only one spot at the top so these are natural course of a large corporation.

Q: It does then come back to personal ambitions and aspiration to actually lead this company, that seems to be the sub text of what you are saying?

A: I did not say that at all. We need to put this in perspective, in a large corporation you have very large number of leadership pool available and we are discussing a very low number of exits.

Q10: You have decided to disband the executive council, it will be disbanded come April 1. The executive council was set up by Narayan Murthy in October, why the decision then to disband it? You now have two co-presidents who you have just appointed BG Srinivas and UB Pravin Rao, what exactly is going on in terms of constantly trying to change the management structure, what is not working?

A: The executive council was set up to have wider participation of our management in the top level deliberations given the fact that today we have two presidents, they are going to set up their own governance procedures and that is why effective April 1 we have dissolved the executive council.