‘There’s a very clear pipeline of leadership’ Chairman Kamath speaks about leadership plans at Infosys and broader economic issues in India, Mihir Dalal 
| Pankaj Mishra Updated: Sat, Oct 13 2012. 01 06 AM IST
Bangalore: K.V. Kamath, who is known for building ICICI Bank Ltdinto a banking powerhouse, has now been chairman at Infosys Ltdfor over a year. Mangalore native Kamath came in when the company, grappling with slowing growth, changed its top management and implemented a new strategy to boost profits and return to the growth it used to see in the days it was considered an information technology (IT) bellwether. A year into his new job, investors are getting increasingly impatient with Infosys after a string of disappointing results. In an interview, Kamath said investors will have to be patient with Infosys and reiterated the board’s support for the management. He also spoke about leadership plans at Infosys and broader economic issues in India. Edited excerpts:
How are you preparing to transition Infosys from a founder-led team to the next generation?
We saw the chair role change from a professional founder to an outsider. As we go forward, we will also have to prepare an executive leadership for that movement. Along with this, we’ve had very turbulent environment in which to chart this course. Infosys had clearly articulated what is the path they believe ought to be taken, which was Infosys 3.0, which is basically: how do you facilitate building tomorrow’s enterprise? The first year, in terms of strategy, they’ve stayed the course. And that is with the full endorsement of the board that that’s the course to stay. It has also coincided with turbulent times for the industry, and there are always issues about how do you benchmark the performance against the market. But any company’s board looks at the performance...how it fits into the long-term context. You cannot work out the future of the company on a quarter-to-quarter basis. Within that, there are all the execution tools, structural changes, reorganization. The executive team believes that they are on course with the strategy they outlined.
What progress have you made on that journey? Have you started looking for leaders who would take over from S.D. Shibulal?
It’s too early because Shibu has been at the top for hardly a year and he’s got two-and-a-half years or so. At the right time, the board will see to that matter. At this time, the board will be more interested in developing the leadership pipeline, not necessarily just for the CEO (chief executive officer) slate. And there is work happening there.
Who are going to be the leaders of tomorrow?
There are 50 or so leaders who are picked up for further growth. And as they go up, there will be probably another 200 or so leaders. So there’s a very clear pipeline of leadership that Infosys has developed over the years and is now polishing.
When you’re looking at a company that had a track record of outgrowing everybody else, it’s natural for people to have high expectations. Do you think it is taking Infosys too long to get back there?
What is too long or too short is contextual. The market possibly looks at quarter-on-quarter performance. But if you are in the process of driving a change, repositioning yourself in a strategically different path, then you need to look at things over a longer horizon. That’s what Infosys has been doing. If any course correction is required, the board will look at it. But as of now, Infosys 3.0 is the strategy that the board is please to support.
How long would you give Infosys’s new strategy to start demonstrating results and growth?
Something like an Infosys 3.0, if the global marketplace was normal, should have yielded results from Day One. But where the world is, the results will slightly lag. Need to have patience.
It’s been a year for you as Infosys chairman. How would you like yourself to be measured?
Patience is a virtue that you need to develop. In this industry’s context, at this time, patience is something that we are all trying to work with to make sure that we are able to execute on the strategy at the quickest possible time and get the desired results.
Investors seem impatient.
That’s always a challenge—to balance perceptions and express needs of various stakeholders. Any company has to chart its own path and that is the core of good governance.
Two years down the line, you’d have completed three years and Infosys would also be looking at possible changes in top leadership. What is the Infosys you would like to see?
Two years down the line is a long enough lead time to measure the strategic changes that have been put in place. Clearly, two years down the line we would like to see the strategy that has been articulated having delivered and the marketplace and all stakeholders acknowledging that.
Not necessarily in terms of numbers, but what are the metrics for that, even qualitatively?
Qualitative ambition would be to have a leadership slate which is ready to take on the next level. You have progressed in terms of the leadership roles that you need for the future—people have been identified and groomed, and when the change in leadership happens it is seamless. Secondly, the execution in strategy, that it is well understood and its outcomes can be seen clearly.
It looks like there are too many changes happening at the same time at the company right now with the shuffling of executives.
No. In the past year, there haven’t been too many changes. If you want an example of how succession should take place, this is one.
Would it be wrong to read that V. Balakrishnan is being groomed as one of the top leaders and that is why he is getting into a business role?
We should not read more into any leadership change until something has been articulated by the leadership. Clearly, the geographic focus is India which he’s going to look at. There are certain aspects of the India growth which he has anyway been driving.
Infosys and some other companies have been blamed for not betting on the big ideas, if you compare them with an Accenture or IBM. What do you think of that comparison?
I can’t talk about the other companies. Infosys has clearly articulated where we want to in some way leapfrog or make our way into a league where we will be looked at as business transformers. If you look globally, there are a few players who are already there. It’s an interesting time where you see the need to protect some of the older businesses but at the same time, not slacken on the move (to be a business transformer).
At this time, there is a lot of hunger in other companies to gain market share. That’s one area where analysts and investors point out that Infosys hasn’t been hungry enough. Have you been shying away from some of the low-margin businesses?
That’s part of the strategy. In businesses where we want to get out of and get into something else, it would be very tempting to say that’s where higher growth is and do you want to migrate down that path. The call has been: we don’t want to. And the leadership is staying with it.
Are you letting go of growth by focusing on a high-margin strategy?
I don’t think that is happening. The strategy is to go down a particular path, and we will take what growth comes there in terms of growth and growth in margins both.
How do you incubate new ideas and pack those ideas in an environment that you talked about? What are the bets you are making?
There are several ways in which this happens. The key is how have you positioned your own businesses to seek momentum and advantage. The basic structural change which Shibu did was when he came into the job, the structure that was recast—that stays. We’re clearly seeing traction on that track in a difficult market. The Lodestone acquisition is in the same path.
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It drives you up the value chain and into a system implementation task around a speciality SAP engine as it were. It opens up a whole new range of opportunities particularly around Europe, which is a market we need to grow in, apart from the US.
People talk of game-changing bets. The companies that you are acquiring—is it disruptive and game changing in nature?
Lodestone is disruptive for us because it allows you to leapfrog into a geography, it allows you to push toward a particular platform that you have been supporting in a new geography. It allows to get a completely new reach. Those are the sort of bets that we will continue to look at.
You said the marketplace is very challenging. But internally, what are the biggest challenges to the strategy that you are trying to implement?
In any strategy, aligning all interests and making sure change happens is the biggest challenge. There’s always a tendency to revert to the status quo. I’m not saying that’s happening, but that is the challenge any CEO faces.
Some companies, retailers mainly, have said they have already seen an uptick in business since the reform measures were announced by the government. Have you seen that happen, on a broad corporate level?
It’s too early to say whether there are any particular areas of business that have started accelerating. But what you see after the policy announcements is an uptick in confidence levels and good vibes from a set of entrepreneurs who otherwise were negative. The consequential outcome of the reforms, in this case. was on the capital market. Another was on the exchange rate. There are more such reforms required.
Name such three key reform measures.
If they can get the GST (Goods and Services Tax) in, that would give a huge boost to the economy. But to me, more than major reforms, what is important is to have a facilitative environment. If you deconstruct the Indian economy, you will see some interesting pictures. The rural economy continues to do well whatever you may say of urban India. So you ask yourself the question: are there two Indias? The so-called backward states are doing very well. You need to ponder all this. I don’t want to say yes or no.
If I look at banks, the retail side is growing at 20%-plus. So you have rural India doing well, consumption is strong. Then there’s the rest of the system—manufacturing, infrastructure and services. Overall, services have grown across all the sectors. Growth has probably come down from double digits to 8%. It’s not a dramatic fall. Manufacturing has moved to what I call a ‘just-in-time’ syndrome because manufacturing companies are now cash-rich.
Manufacturing companies around 10-12 years back were leveraged 4:1 (debt:equity). These companies are now probably leveraged 1.5:1. They are sitting on cash. They want to expand capacity; it’s brownfield activity today. They can implement a project today in 12-15 months, whereas 10 years back, it would take four years.
You may say auto is growing only at 3-5%, yes. Motorcycle sales are just about flat. But there are pockets like consumer credit still growing at 20%. Interest rates, inflation—the burden on the purse is holding back consumer India. That needs to be corrected.
In manufacturing, there’s nothing anybody needs to do there. These are brownfield projects, no import licences are involved, money is available, margin borrowing is not a problem. The real problem then is infrastructure. Within infrastructure, the areas where things are not happening is power. Power still has a lead of 36 months. You’re seeing a peculiar situation where 25,000 megawatts (MW) of capacity is almost ready to be fired and there is no coal.
Second, large pipelines, possibly up to 50,000MW, are lying in uncertainty today. Some down payments have been made, but there is uncertainty on the path forward. This doesn’t have an immediate impact, but has an impact two years down the line in terms of power availability. Here you need to see if the electricity boards have the wherewithal to buy the power—they don’t. But there is urgency to restructure the electricity boards. To me, that is a major reform. State electricity boards are sitting with their banks, trying to resolve the immediate problems and the path forward, which involves repricing power. (Repricing power) has been agreed to by the central government.
The second problem is that after the electricity boards buy, the capacity is ready, but where is the fuel. That’s being worked on. It would appear it’s taking six months to work out, but it doesn’t actually matter because in those six months, the electricity boards wouldn’t have been able to buy in any case.
Then, there is the problem of coal supply for the future, which is a grey area because until the mining allocation issues are worked out and environmental issues are sorted, things won’t work. (But) various things the government has done like the NREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) and urban development projects have had enormous positive impact. So, some pieces have to fall in place, but more pieces are in place than not.
As a corporate leader, what is your view on corruption, political uncertainty?
Unless we address these issues, the future it will be difficult. But we cannot afford to let the present stall because of this. I’d best describe it as beating-heart surgery. You have to do the surgery while the heart is beating because you can’t let the heart stop. So we need to ring-fence what is wrong in several areas and then proceed. Having said this, the last two to two-and-a-half-years have been seminal in this context. That is, issues which otherwise would not have come to the fore have been allowed to come to the fore and the consequences have been borne.
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