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2/19/2008
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Report From India: Infosys CEO On Slowdowns, Innovation, And CIO Influence

CEO Gopalakrishnan says there are much higher expectations on Indian outsourcers, and the industry needs to step up.

Even as a struggling startup, Infosys poured money into the manicured lawns and distinctive architecture of its Banglore campus, trying to get U.S. execs comfortable with sending their IT projects there for lower-cost offshore IT development. That mission's accomplished, as its $4 billion-plus revenue shows. But Infosys isn't skimping on the campus grandeur, as I found on my visit this week. Here are excerpts from my discussion with CEO S. Gopalakrishnan:

InformationWeek: We did some research with North American companies working with Indian IT services companies. They say the area that's declined the most the past two years is retention of key people on their projects -- 41% say it's a problem. How can you really innovate with your clients if the people keep changing?

Gopalakrishnan: It's driven by the need to move people from one project to another in order for them to continue to grow. This industry in India has grown so fast, the number of people with five or 10 years' experience or beyond is very small. The average age of the Infosys employee is about 27 years old. ... If you look at the people with 15 years' experience, they're really running companies and managing business units, they may not get assigned to projects. If a person has five years' experience, they're not doing coding or even design, they're a project manager. That's why people move around.

There are two ways we're addressing this problem. One is a strong emphasis on knowledge management, using processes and tools to capture the knowledge and reduce the time to get up to speed. ... Second is a strong emphasis on education and training. Infosys this year will spend $170 million on training. We have training programs by industry, and we require people to go for certifications to show that they've learned.

InformationWeek: In your latest conference call, Ashok Vemuri, your head of banking and capital markets, said executives higher than the CIO are getting involved in the decision to outsource. Is there a change in who's driving the decision to outsource?

Gopalakrishnan: There are two reasons for that. One, it's more strategic. It involves IT plus operations, companies are looking at outsourcing business processes along with technology. So you involve the CIO as well as the business. Also, that comment was driven by the current environment. In the current environment, an outsourcing decision will have to be reviewed and justified by many more people.

InformationWeek: How does today's slowing economic outlook change the outsourcing market?

Gopalakrishnan: There's some concern about a temporary slowdown. We have not actually seen it fully, because the news is still coming in about what is happening in the economy. Budgets have been finalized in most cases, there is an increase in IT spending, or at least it's expected to be flat. But in all cases, offshore outsourcing is showing an increase. Medium to long term, I strongly believe the industry will continue to grow, but in the short term, because of delays and trying to figure out what could be the impact of the environment may have on their own businesses, decision making may take longer, which means maybe a quarter or two of slower growth.

InformationWeek: In our research, 45% say they're "less of a believer" of using Indian IT services than two years ago, and just 31% are more of a believer.

Gopalakrishnan: We're also seeing similar data points, and I think it's driven from rising expectations. They want to do more innovative stuff, the projects are more complex, much larger, and they include working with different businesses within the customer, IT plus operations, BPO, and IT. So the expectations have risen, and the industry has to step up to those expectations. That comment is very valid because of the rising expectations. It's no longer just application development and maintenance.

InformationWeek: At last week's Nasscom conference in Mumbai, the CIO speakers made clear their rising expectations for Indian service providers like Infosys -- they want you to tell them more about how to improve their processes. Are you equipped to do that?

Gopalakrishnan: This kind of environment is probably better suited, at least as well suited, as the environment in the U.S. or anywhere else. The reason for saying that is, just at Infosys, we have 65,000 engineers as employees. That's a pool of highly qualified, highly education talent pool. Second, the model is such that we work out of campuses like this, which can be considered as a hub. There is an environment which is different from working out of client engagements. You can today interact, network, meet people -- your peers. I strongly believe that kind of academic environment fosters innovation.

Third, with the Internet, you are not today away from the needs of the market, the needs that drive innovation. You have as much access to the markets, even though you're not in the market, from any location in the world today.

The last point is, since the high-growth markets are markets like India and China, and these markets have specific needs, being closer to the market also drives innovation. Look at telecom, mobile technology. The kind of applications being deployed in India are superior to applications you see elsewhere -- already location-based services, download of coupons, using cell phones to disperse pension funds, using the cell phone as a point for validating identity.

InformationWeek: What about culturally? CIOs note Indian IT pros culturally resist telling the client they're wrong, that there's a better way to do something. Is there more you need to do?

Gopalakrishnan: One, we're training our employees to be more proactive, to go back to clients and tell them they're doing things the wrong way. And encourage them to talk about opportunities they see for improvements, innovation. Second, we're also bringing in people from other cultures, especially in client relationship and consulting roles. So you have diversity and different cultures, and that helps.

Third is making changes in our processes, to have specific tasks focused on innovation, improvement ideas. So you specify this task requires you to come out with ideas. By becoming more explicit helps. Maybe they might not be proactive, but when you say "You must come up with ideas," they do come up with ideas.

InformationWeek: A lot of our readers feel left behind by global IT, that it's just taking U.S. jobs. Do you still feel a backlash element at the would-be clients that you talk to?

Gopalakrishnan: That sentiment has come down, because the reality is there's shortage. Companies are finding it so difficult to get the right skills and people. The truth about the changes which are happening is that either technology has eliminated certain roles, or technology has changed so rapidly, and people have not changed with technology. So the answer is to increase the people coming into this industry with the right skills around the right technology.

InformationWeek: You're very good at training -- you run a six-month course for new engineering hires. Is there a way to do that in the U.S.? There are people who feel they've been left behind by technology changes and outsourcing's rise, and if companies would just train them, then there wouldn't be a shortage. Is there a place for more training in the U.S.?

Gopalakrishnan: I believe so. At least for our clients, we're launching and offering in learning services. There's an opportunity there, no question. Technology has changed the pace at which change happens, in our organizations and in our lives, so education today is going to be lifelong.

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