Innovation Is Imperative

Viktor Korolev

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Thirty years ago he helped create what was destined to become a global software giant, helping India become a new global center for economic growth and innovation. Today he is engaged in bringing about the enterprise of the future by investing in R&D and new talent. In an exclusive interview with BRICS Business Magazine, Infosys founder and CEO S.D. Shibulal discloses his secrets of success and explains how to best capitalize on the opportunities unfolding before us.

Since the beginning of the financial crisis, finding new sources of economic growth has become central in global intellectual discourse. Do you believe advances in technology can provide the drivers and become a key to shaping the emerging future?

Yes. Advances in technology, led by innovation, will continue to play a key role in shaping the emerging future. A new technological landscape is already here, led by trends like digital consumers, mobility, and cloud, amongst others. These trends give enterprise new opportunities for technology-led innovation and growth.

To begin with, crisis or otherwise, the fact is that what helped governments and enterprises succeed yesterday will not help them succeed today. What will help them succeed today will not help them tomorrow. Businesses and business models alike need to constantly reinvent themselves to adapt to the changing social and macroeconomic environment in which they operate. To succeed, they need to be consistently relevant to the changing needs of the consumer or client.

Today we live in an age where emerging trends in technology and society are changing the way we interact with each other. More than 50% of the world’s population is under the age of 30. There are close to 2 billion internet users globally and 87% of the world’s population has a mobile phone. If Facebook were a country it would be the world’s 3rd most populous – twice the size of the U.S.

These trends are changing consumer mindsets and consumption patterns. Enterprises wooing these consumers are left with no option but to adapt to their evolving lifestyles. Businesses across the board have always had consumer choices and preferences at the heart of all their strategies. However, what has changed in recent times is the fact that there is little room for blunders. Products and services are voted a success or failure even before they hit the High Street, by consumers actively conversing on social media. Mobile internet has only exacerbated this trend. Enterprises seeking to leverage this enthusiastic and involved consumer to make more than just yes or no decisions, and collaborate with them to create unique value, have led to the growing focus on co-creation.

Some experts say the new paradigm shift in technology could emerge as a disaster, not a blessing. For instance Ken Rogoff, a Harvard University professor of economics and public policy, earlier this year marked the proliferation of industrial robots and other productivity-improving technologies as a huge threat to thousands of jobs in emerging economies, and a risk factor for world inequality in wellbeing to deepen further.

I don’t believe technical revolution is a disaster. Historically, technical revolution has only contributed to the large-scale benefit of the society, whether it was the industrial revolution or the rise of the digital era. However, every time we witness a paradigm shift in technology, there are bound to be unintended consequences.

For instance, in the first phase, when automation in the manufacturing industry brought about huge productivity increases, it did come at the cost of thousands of jobs. In the second phase of the technical revolution, the one we are witnessing today, service jobs are becoming automated. The rise of automated teller machines replacing desk cashiers in banks is an example. The third wave of the technical revolution will witness the rise of niche or high-tech jobs in the near future, again coming at the cost of job redundancies.

However, every new phase of technology will also create millions of jobs. The jobs of the future, in the next 5-10 years, will be created in several areas like robotics, healthcare, genome technology, personalized care and mobility, amongst others. However, leveraging these opportunities requires certain key enablers.

What kind of enablers specifically?

Firstly, it’s investment from all stakeholders – government, private sector, and individual – in building the talent and training infrastructure. Secondly, it’s talent mobility – within and between countries. This is because, while the jobs are created in one country or region, the talent might be available in others. Thirdly, it’s global exposure. The competitive landscape today is certainly global, hence the preparedness and strategies should also be global. And finally, it’s skilling and continuous skilling.

The business environment in India during the 1980s was by no means conducive to entrepreneurial ventures. In the midst of these challenging times, a group of seven software professionals with high aspirations, but limited resources, founded Infosys. The first ten years were characterized by the overcoming of tremendous obstacles. It took a year to obtain a telephone connection and two years to obtain the license to import a computer

To conclude, yes, technological revolution causes job losses in the immediate short term. However, in the long term, it is a huge creator of jobs, wealth and economic progress.

Infosys’ leap to China

Infosys’ experience in China was very unique and insightful. Since inception, the company’s revenues had been generated predominantly from operations in the developed economies, particularly the U.S. and Europe. However, in early 2000, Infosys realized that they had to consciously tap into the increasing opportunities in the emerging economies like China, Brazil and Mexico, amongst others. China had by then already established itself as the world’s manufacturing hub. Global consulting and IT services firms had also started to look at expanding their operations in China in order to tap into the large pool of talent. Infosys was no different.

In early 2004, when China was producing close to 600,000 engineers a year, Infosys started its operations there through a local subsidiary. It was new territory for the company, with a unique set of challenges, and they knew they had to tread patiently and understand and leverage the local ecosystem before their strategies bore fruit. The learning curve was slow and at times frustrating in the initial years. Between 2004 and 2007 Infosys only managed to scale to an employee base of around 400. However, this phase also gave the company tremendous insights. Based on these, they conceived strategies for overcoming the challenges and leveraging the potential of an emerging-market country like China, which Infosys later intended to replicate in other emerging markets.

In China, Infosys had three key challenges to overcome: tapping into the relevant talent pool, creating a corporate identity, and building a brand locally. Over the past nine years, they have come a long way, and addressed those challenges through focused interventions like partnering with local government and institutions, and investing in building the brand and infrastructure.

Infosys’ efforts have paid off. Today, China is one of the company’s flourishing and strategic markets. Infosys China has been listed among the Top 10 Global Service Providers in China by the China Council for International Investment Promotion for the second consecutive year.

What are the chances for emerging economies to step in and succeed in the global race for innovation, as well as to reach higher ranks in the technological hierarchy of the emerging world?

This is already happening. Emerging economies like India and China have established themselves on the global platform. Like manufacturing in China, IT in India can lay a reasonable claim to being a powerful force that has helped script the country’s economic success story in the last two decades.

To put this in context, let us look at the big picture. In recent years, led by India and China, emerging economies have been at the forefront of driving the engine of global economic growth. They were amongst the most resilient economies during the recent global financial crisis. While developed economies struggled with shrinking and stagnant economic growth, India and China continued to grow, albeit a bit slower. India and China grew on average at about 8% and 10% over the past 3 years and are expected to have grown by 7.5% and 8.1% respectively in 2012. Advanced economies like the U.S. are expected to grow by only 3.5% in 2012.

Infosys in China in numbers

  • In the third quarter of 2012, Infosys China reported revenues of $26.56 million on a standalone basis, and employed 3,066 people.
  • Infosys has four development centers in China – Shanghai, Hangzhou, Beijing and Dalian – with a total capacity close to 5,000 seats.
  • The company has an Education Center in Jiaxing city. This is in line with the investment in talent that differentiates Infosys from its competitors.
  • In 2011, Infosys laid the foundation stone for a new campus at the Zizhu Science and Technology Park in the Minhang district of Shanghai. The company plans to invest $125-150 million in the new campus, one of the largest investments in China by a software company. On completion of this campus (estimated in 2013), Infosys will have the capacity to expand to 10,000 employees in Shanghai.

Let’s take a closer look at India. What are the key factors driving its economic growth?

There are several key factors. To begin with, India has a large demographic dividend: a working-age (25 to 60 years) population of 61%. India’s labor force is estimated to have touched 526 million in 2011, up from 472 million in 2006. By 2050, the percentage of people above the age of 65 will be 39% in the U.S., 53% in Germany and 67% in Japan. India, by contrast, will have only 19% above age 60, according to an International Labor Organization (ILO) paper.

Secondly, India has one of the world’s largest talent pools, producing close to 3 million graduates every year from its over 480 universities and 22,000 colleges. Of this pool, over 700,000 are engineers and 20,000 are postgraduates.

Finally, technology itself is a powerful change agent in India’s transformation story. India has the world’s second largest mobile subscriber base with over 919 million users. In addition, the number of internet users in the country is over 121 million, of which close to 15 million are broadband users. India also has the world’s youngest internet population with 75% of all users under 35 years of age.

These unprecedented developments have made India the new hub for growth, talent and innovation. Global technology firms, hitherto focused on the developed markets, woke up to this opportunity a few years ago in a small way. Today, India plays a critical role in their growth blueprints.

Like most emerging economies, India is a country of contradictions. We have 8-8.5% growth in recent years, but 300 million people below the poverty line. We produce close to 700,000 engineers, but over 16 million students are still out of school. 35% of the world’s illiterate people are in India. Our literacy rate is 63%. While India accounts for one sixth of the world’s total population, it doesn’t even figure among the top 100 nations in the Human Development Index (134th in recent rankings)

Would you give us a couple of examples?

In India, Infosys, along with Airtel – one of the world’s largest telecom operators – have launched a first-of-its kind mobile payment platform that facilitates cashless payments. The platform will enable ‘airtel money’ customers to pay bills, recharge accounts, shop at over 7,000 merchant outlets, and transact online through multiple channels including mobile phones, interactive voice response, ATMs and point-of-sale.

On the other hand, hospitals like Shankar Nethralaya have been performing state-of-the-art heart surgery for a fraction of the cost in comparison to advanced economies.

In China, BYD has been ranked amongst the world’s most innovative companies for being the first to bring electric power to public transportation. They achieved this by building the world’s first purely electric bus.

Investing in the New Future

What was Infosys’ own ‘anti-crisis’ plan? How well prepared are you for the challenges of the emerging future?

In the 32 years since our inception, changing business cycles have been a part of the game for us. We have witnessed three major economic crises in this period, including the most recent financial crisis, and we believe that the frequency of these crises is only bound to increase.

Our ‘anti-crisis’ plan, if you will, has always been to remain consistently relevant to the changing business needs of our clients. This has been the one aspect that has enabled us to adapt to, evolve, and adopt changing technologies, business models and business cycles to stay relevant. It has driven our investments in strengthening our capabilities. It has helped us transform ourselves as an organization, consistently.

How does it affect your strategic planning, internal structure and policies?

Recently, we have embarked on the new strategic journey ‘Building Tomorrow’s Enterprise’. As a part of this journey, we have made significant investments in strengthening our capabilities in several strategic areas including cloud, enterprise mobility, analytics and social media. Our recently launched platforms such as BrandEdge are already helping our clients leverage the opportunities provided by the complex world of social media. Our capabilities in cloud have enabled global leaders like Ricoh to transform their IT infrastructure in order to reduce their carbon footprint and drive efficiencies. We have realigned our internal structure and offerings to enable industry-focused and global go-to-market capabilities. Last quarter we also acquired Lodestone, a Zurich-based global consulting firm with a strong presence in Europe, the Americas and other global markets. These investments are enabling us to partner with our clients to overcome the challenges and leverage the opportunities.

Infosys’ pioneering way

  • Infosys pioneered the Global Delivery Model, which is an industry standard today.
  • The company became one of the first in India to focus on creating a global brand, with more than 98% of its revenues now coming from outside India.
  • In 1993, after making its Initial Public Offering (IPO), Infosys became the first Indian company to share its wealth with its employees through an Employee Stock Option Plan (ESOP), the largest of its kind in India.
  • In 1999, Infosys became the first Indian company to be listed on the NASDAQ (as INFY), a hallmark of its global aspirations.
  • Infosys was one of the first few companies to voluntarily and fully adopt the Sarbanes-Oxley Act in compliance with the relevant U.S. regulations and laws.

The famous Bangalore pyramid on the Infosys campus

Last year you were quoted as saying you don’t think ‘Infosys’ and ‘conservative’ should be used in the same sentence anymore. What did you mean by that?

Historically, Infosys has always been known to set industry benchmarks for others to emulate. We have always been aggressive in our aspirations to take advantage of opportunities far ahead of our peers. Any crisis, including the recent one, only enhances the need for companies to be aggressive in leveraging new opportunities – as well as creating opportunities where none yet exist. Our strategies have been no different.

The business environment in India during the 1980s was by no means conducive to entrepreneurial ventures. The landscape was dominated by a handful of family-owned conglomerates, and byzantine government regulations and import restrictions made it extremely difficult for any new business to start or succeed. In this environment, entrepreneurship as a career choice was in its infancy. In the midst of these challenging times, a group of seven software professionals with high aspirations, but limited resources, founded Infosys.

The first ten years were characterized by the overcoming of tremendous obstacles. It took a year to obtain a telephone connection, two years to obtain the license to import a computer, and business was hard to come by. Yet the company persevered, developing a strong value system built on the principles of customer focus, leadership by example, fairness, excellence in execution, and integrity and transparency.

After economic liberalization in the early 1990s, Infosys began to grow in size and revenue. Slowly but steadily, it began to increase its dominance in the industry and began benchmarking itself with global players and best practices – one of the first Indian companies to do so.

This focus and discipline showed results as Infosys began to develop into an industry leader, with many firsts to its credit.

As I said earlier, we have recently acquired Lodestone, a Zurich-based global consulting firm, to strengthen our focus on inorganic growth.

In an article you highlighted the importance for companies to stay relevant to the “new future” to survive. How do you envisage tomorrow’s enterprise?

As business leaders, we have to grapple with the challenges of continuously changing business landscapes and rapidly emerging technologies. These challenges make existing business models redundant and new models relevant. Every challenge also brings new opportunities.

The world today is dramatically different from the world a decade ago. New technologies, along with changing societies and demographic profiles, are affecting human interaction.

The unprecedented penetration of technology I mentioned earlier has changed consumer mindsets and consumption patterns. Along the way, new markets have emerged and sustainability has taken center stage. Amidst these changes, our focus on being relevant to the changing business needs of our clients has remained constant.

It is evident to us that the enterprises of tomorrow will be those that will be able to drive innovation to leverage emerging opportunities. Innovation is imperative to build tomorrow’s enterprises – be it innovating to identify new markets, to create new products and services, or to create new consumer experiences.

Because of its unique architecture, the Infosys headquarters was nicknamed ‘The Washing Machine Building’

In the context of Building Tomorrow’s Enterprise, what is Infosys’ approach to innovation and R&D?

While innovation and R&D are an integral part of all aspects of our business, we are not a traditional products company; hence, R&D in our context is different. Finacle is one of the most comprehensive, flexible and scalable universal banking solutions in its class, and is one of our oldest and most successful products. Let me say that it is the chosen solution in over 165 banks across 78 countries, touching 14% of the world’s banked population, and powering 423 million bank accounts across 48,500 branches.

Infosys Labs has been established as part of Building Tomorrow’s Enterprise. Consisting of a dedicated research and innovation facility, it builds on the successes of the award-winning Software Engineering and Technology Labs (SETLabs), and envisages a broader mandate.

The 600-member technology- and domain-focused team works on driving innovation across seven identified trends (see panel), to transform our clients’ businesses globally. Working together with clients, technology partners, universities and the larger innovation ecosystem, Infosys Labs focuses on setting up joint innovation centers and developing solutions to complex business problems.

Today, ‘Products, Platforms and Solutions’ offerings form a key part of our strategic direction. We are making focused investments to strengthen our R&D capabilities across our service offerings. Our R&D repository includes 3,000 cloud and more than 1200 enterprise mobility experts, as well as Cloud and Mobility Academies.

We have also launched the Center of Innovation on Building Tomorrow’s Enterprise. This showcases our unique capabilities and framework of innovation, which is enabling clients to take advantage of emerging opportunities.

Infosys’ technological trends shaping the emerging future

Infosys believes the next decade will be marked by seven key themes, presenting a great opportunity for innovation and sustainable growth:

  1. The Age of the Digital Consumer:
    self-service, micro-personalization, co-creation
    Companies are focusing on technology as a way to strengthen key services, differentiate product lines, and enhance the digital consumer experience. When it comes to digital consumers, self-service, personalization and co-creation combined with social networks and mobile technologies lie at the core of a successful business strategy.
  2. The Rise of Emerging Economies:
    growth momentum, innovation hubs, smart sourcing
    Emerging economies such as Brazil, Russia, India, China and Mexico are quickly becoming leaders of world economic growth. Infosys believes that these markets offer tremendous opportunities, and are the new hubs of innovation and talent.
  3. A Sustainable Tomorrow:
    social contracts, resource intensity, green innovation
    Sustainability is no longer a choice. Organizations must be environmentally conscious and look at sustainability not only as a means to earn trust as responsible businesses, but also as a tremendous opportunity to engage with stakeholders and act as catalysts for innovation. In a survey of U.S. CEOs, almost two thirds of respondents indicated that sustainability has become a mainstream concern for business.
  4. The New Commerce: mobile, micro and inclusive
    The new commerce is about reaching out to markets previously not accessed for want of supply chain feasibility or financial viability. It leverages mobility and micro-sized interactions to usher in inclusivity – redefining access, size and markets.
  5. The Healthcare Economy: affordable, preventive, patient-centric
    Affordability, prevention and patient-centricity are driving transformations in healthcare and healthcare technology, enhancing patient experience and providing populations with effective care.
  6. Smarter Organizations: simplify, adapt, collaborate & learn
    New ‘smarter organizations’ deliver long-term value by striking a fine balance between operational excellence and continuous innovation. These organizations must constantly simplify, collaborate, learn, and adapt to tomorrow’s challenges and business cycles.
  7. Pervasive Computing: sensor networks, intelligence, cloud
    Pervasive computing is made possible by embedding sensors, controllers, devices and data into the physical world, creating seamless interactions enabling everyday objects to become smarter. For example, refrigerators will be able to create grocery lists, and automobiles will inform service centers of necessary repairs.
    Technology will continue to play a key role in leveraging these opportunities.

  At Infosys, Building Tomorrow’s Enterprise focuses on these seven global mega-trends to help clients overcome the challenges and leverage the opportunities of the emerging future.

The Global Education Center (GEC) in Mysore is Infosys’ unique investment in new talent. Would you tell us a few words about the facility?

The GEC is the world’s largest corporate training university. It has an infrastructure that can support the training of 14,000 new trainees at a time, in-house, as well as a full-time faculty of over 600, of which over 200 have a PhD.

The GEC is used to deliver our 16-week residential training program, designed to aid students’ transition from the academic world to the corporate world as qualified professionals. The program is focused on imparting generic and stream-specific training in various technology areas along with soft skills and leadership programs.

At Infosys, the focus on training started as early as 1991, when we recruited four trainees from the country’s prestigious Indian Institutes of Technology. The GEC was a culmination of this focus on training and development. We were committed to imparting knowledge, sharing best practices and building intellectual capital. The GEC gives scale to this vision. To date, over 100,000 entry-level engineering graduates have successfully completed the Foundation Program.

The GEC is also home to the Infosys Leadership Institute, which is our focused Tier-Leadership Program to identify and groom future leaders of the organization.

The Infosys head office is located in Bangalore, India’s largest scientific center

India’s new face

Although Infosys is a clear manifestation of the ‘new face’ of India, the country as a whole remains pretty poor, at least in terms of per capita income. In this context, don’t you think Infosys is a sort of maverick in India, and has to contribute more to the national community?

Like most emerging economies, India is a country of contradictions. We have 8-8.5% growth in recent years, but 300 million people below the poverty line. We produce close to 700,000 engineers, but over 16 million students are still out of school. Thirty-five percent of the world’s illiterate people are in India. Our literacy rate is 63%. While India accounts for one sixth of the world’s total population, it doesn’t even figure among the top 100 nations in the Human Development Index (134th in recent rankings). We have poor public finances, weak international positions, structurally flawed businesses, poor infrastructure, corruption and political atrophy.

Clearly there are huge developmental gaps, and our growth story has not been inclusive. Corporations play a key role in bridging these gaps because, beyond governments, they are the largest and most influential bodies that can drive large-scale socio-economic development. They create jobs both directly and indirectly – they provide livelihoods – and they contribute to improvements in the general standard of living in the societies where they operate.

At the same time, corporations also consume resources from the societies in which they operate to drive profits – whether it is local talent, natural resources, or public infrastructure. Therefore they have an implicit responsibility to fulfill their social contract. They have to focus on driving growth which is sustainable and inclusive.

This is no longer a choice. The consequences of inequitable growth will impact everyone in a society through social unrest and rising crime. This is not an environment that is conducive for business or social growth. Therefore, all stakeholders – corporations, governments, academia, NGOs, and society in general – have to work together to address these challenges.

Most recently, in India, the government passed an amendment to the Companies Bill. With this amendment, it is mandatory for companies to spend 2% of their profits on social causes. Infosys has been a front runner in this aspect, contributing part of its profits to social causes decades before the law made it mandatory.

What is your own sentiment on that matter? Is it discomforting or dangerous being wealthy in a generally poor country such as India? Can charity be a solution?

No. It is neither discomforting nor dangerous. India is my home country and it is a secular country that accommodates people from all religions, cultures, sections of society and financial status. I would not call India a poor country, but a country where a large section of the population lives below the poverty line. There is a huge gap of inequitable growth and all stakeholders including governments, the private sector, NGOs and individuals are doing their bit to alleviate the situation.

As I said, enterprises have the unique ability to make a positive difference in the societies that they operate in. We are fortunate to have been able to do our bit. At Infosys, our focus has always been on fulfilling our responsibilities to all stakeholders – clients, employees, industry, shareholders and society at large.

As part of our commitment to society, we have undertaken several initiatives. The Infosys Foundation in particular has been a successful example. It was established in 1996 to support underprivileged sections of society. Infosys contributes 1% of profit after tax to the Foundation for its campaign to improve the welfare of people in rural areas of India. The Foundation focuses on healthcare, education, culture, destitution care and rural development.

Another successful initiative is The Infosys Science Foundation, a not-for-profit trust set up in February 2009 by Infosys and some members of its board. The Foundation instituted the Infosys Prize, an annual award to honor outstanding achievements by researchers and scientists across six categories: Engineering and Computer Science, Humanities, Life Sciences, Mathematical Sciences, Physical Sciences and Social Sciences. The underlying mission of the Foundation is to spread and encourage the culture of science.

In addition, senior leaders in Infosys are involved in several charitable initiatives in their personal capacities.

Official partners

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