How to cope with slowdown, by Nandan Nilekani

By : |January 19, 2002 0

PUNE: How has the IT giant Infosys Technologies coped with the slowdown? From a stupendous growth of 100 per cent per year to a modest figure of 30 per cent, the company has faced a major challenge of coping with the pressing times that industry is currently caught in.

Nandan Nilekani, president, managing director, Chief Operating Officer and CEO-designate, Infosys Technologies Ltd was in Pune to address the CEO’s Forum of the Mahratta Chamber of Commerce, Industries and Agriculture (MCCIA). He told them how Infosys had managed to stay above water.

“In March 1999, our turnover was $100 million. This figure quadrupled the following year. By March 2001, we had over 4,500 people. Our assumption was that as you scaled, business would come in. However, when the market came to a halt in the first quarter of 2001, we realized that things had changed,” he explained.

The company, therefore, decided to curtail recruitment by hiring just 1,500 people in the following year. “Today, we have a bench with a utilization of 72 per cent. Earlier utilization was 85 per cent. We would not have hired so many people. In August 2000, recruitment offers were made on the basis of decisions taken in March 1999. But, we were caught on the wrong foot and had excess capacity,” he candidly admitted.

The company plans to take a closer look at its compensation structure in April this year to combat the slowdown. In the last seven years the company has been giving a raise of 30 to 35 per cent annually. About 15 per cent of the raise was linked to performance.

“We plan to change our salary structure in April and to link it to the company performance since 40 per cent of the cost is the employee cost. If we get this right, we get everything right,” he said. This year onwards, the company will move from an annual budgeting mode to a quarterly mode. The planning cycle has also been changed to 90 days.

When asked to comment on the company’s take on the non-US market. In the wake of recent plans for a soft opening in China, Nilekani made it very clear that the US market was high on their agenda.

“Let’s face it. US is where the action is. It is the world’s largest economy. And, therefore, we have to assume that US has to be a substantial part of our business, either 50 per cent or more,” he said. Nilekani said that more than 26 per cent of the world’s GDP growth in the last five years has been in the USA. “The recession is synchronized. If the US shuts down, it does not mean that Europe gallops. There is simply no way you can have a hi-tech story today by ignoring the US market,” he observed.

What about hiring international talent? Nilekani said the company was hiring a multi-cultural work force. “We have 70 Canadian employees. Of the 10,000 workforce, there are more than 150 employees of international origin. We will rectify that soon,” he said.

According to him, outsourcing the repetitive processes, which were not critical in the survival of a business, could prove a desirable strategy in terms of costs and efficiency. Companies choosing to outsource, however, must retain distribution, control brand and intellectual property, he warned. Nilekani cited the example of IBM, which outsourced chips from Intel and operating systems from Microsoft. However, Microsoft was clever enough to retain rights and IBM became and also-ran, he said.

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