Overcoming A Business Crisis
Many a time, we continued to work on projects which should have been shut down because of the budget cuts, which meant that there was no payments on these
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I became CEO in June 2007. That financial year, Infosys grew by 36 per cent and things were looking great. We were looking to grow at a similar pace in the next fiscal too. The global economy was heated and our clients were investing significantly in IT to take advantage of digitization and new business opportunities.
Infosys and the IT industry in India recruits a large number of engineering graduates to fuel their growth. The recruitment cycles are long. Students are selected and offers letter given before they pass out between September and December every year. The selected candidates join the company by next July-September. They undergo training for three and a half months at the Infosys campus in Mysore and join the business between November and January of year two. This means that a student selected in September, year one, becomes a productive employee in about 18 months by March, in year three. Since Infosys was projecting good growth, we had made more than 25,000 offers on campuses by December 2007 and were expecting these candidates to join from July 2008.
But the global economy came crashing down in September 2008. Some of the global banks like Lehman were shut down overnight. The impact was immediate in the financial sector and continued in other sectors for the next three to four years. The reactions of large multinational companies were swift. There were budget cuts of 25-40 per cent in IT departments of clients; this meant that these budget cuts were passed on to suppliers like Infosys. Overnight, projects were shut down and total revenues from clients were down.
How to handle clients in these difficult times? How to handle revenue deficits? How to handle employees? How to handle the candidates who received campus offers?
I, along with senior leaders of Infosys, travelled extensively during the second half of FY2009 and throughout FY2010, to work with our clients to maximize their IT budgets and reduce the impact of budget cuts on their businesses. Many a time, we continued to work on projects which should have been shut down because of the budget cuts, which meant that there was no payments on these. Our goal was to support our clients in these difficult and challenging times. We knew that our clients will increase their spending with us once the situation improved.
I travelled extensively and met the senior leadership of key clients to personally reassure them of our commitment to them during these difficult time. I got involved in reapportioning the budgets to key projects which were essential to our clients’ businesses. I met our project staff at client sites to help them understand the situation. As projects were shut down, we had to reassign the staff to other projects or sometimes to bench; some staff had return to India.
As revenue growth slowed down, our employee utilization in projects dropped by about 10%. It meant that we had more people on bench (not assigned to any project). We did not need to add any more employees. What to do with the offers already made in campuses from July of 2007?
We decided to honour all offers made on campuses; the joining dates were staggered to suit a new training schedule. We extended the three and a half months of training to six months. We decided to teach new skills and capabilities to the new entrants. This meant that utilization would drop further and our bench costs would increase. The impact on operating margins were about 2-3 per cent during this period. But we decided that this was the right thing to do.
To compensate the drop in operating margins, we had to implement several cost-cutting measures. The senior management went without any increments – all cost-cutting measures started at the top. Everyone travelled in economy class even on international flights. Success parties and other celebratory functions were postponed. Every discretionary expense was questioned and cut.
The revenue growth in FY2009 was 11 per cent and in FY2010 was 3 per cent. We recovered in FY2011 to 26 per cent growth. Employee utilization climbed back up to normal levels in FY2010. Our clients appreciated the efforts put up by Infosys in helping them during this crisis. Our employees and prospective employees appreciated us for honouring employment offers made on the campuses. Infosys came out of this crisis stronger.
After a rewarding and busy 34 years of founding and growing Infosys, I retired in October 2014.
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