Letter to the stakeholder

Dear Stakeholder,

We live in extraordinary times. Technology is reshaping our world in a fundamental way: new CPUs from Intel, built on 14 nanometer processor technology, deliver unprecedented performance and analysts recently reported that hardware unit sales for cloud are approaching those for enterprise. Technology companies are making cars and watches, and creating new kinds of transportation, hospitality, retail, insurance, and other services, disrupting entire industries. And recently, a fleet of driverless trucks made by various vendors, drove thousands of miles across Europe, demonstrating vividly that the end of a key job category is upon us. The world of our future looks vastly different from what we see today – an increasingly digital world, a deeply connected world, a collaborative world.

It was clear nearly two years ago, and today it is starkly clear, that given this digital transformation of our world, the traditional services industry of the past, in which we compete to do the same work cheaper but with world-class quality, must also transform. A services company must be more, and we, Infoscions, as individuals and as a company, must be more. We must instead become a company that delivers value and innovation. Our context has fundamentally, and irreversibly, changed, and we cannot go back to the approaches and methods of the past. The imperatives, and the opportunities, are clear.

It is with this new reality in mind that we embraced three simple ideas in our strategy: renew ourselves and help our clients renew their businesses; drive innovation and new opportunities in our business and with our clients; and do all of this based on a culture of education and collaboration. Indeed, when we think about it, this blueprint applies to all businesses.

Renew is about being better. Better than we have been. Automation is a key part of this. It is how we improve solutions to the known, well-defined problems and improve the businesses we are already in. It is about driving grassroots innovation in every project and in every service. The repetitive tasks can be automated by bringing Artificial Intelligence to our existing services and existing customer landscapes, so that we fundamentally transform cost and productivity. And we set a lofty benchmark for this: if we have done something once, we should not do it again. It can be automated.

New is about being different. This is the breakthrough innovation. It is about finding problems that we don’t easily have words to describe, that no one has defined. It is the unknown problems. It is about leveraging automation to digitize our physical world, and using Design Thinking to focus on the empathy, the problem-finding, which uncovers new markets, for us and for our clients.

And our Culture is all about education. It is staying true to who we are. It is the idea of ‘being improving’, where we constantly build upon what we already know. Education is how we drive our strategy – it helps us learn new techniques to automate the things we understand, and it gives us the mindset to discover the things that we do not yet know. It is how we work. It is not the innovation lab that drives all the big ideas, it is to enable and every Infoscion to be an innovator. This bedrock of our culture, this learnability – as Mr. Murthy always said, to me, and to all of us – an ability to learn, is as true and critical for our future as it has ever been.

On AI specifically, people often ask me if all this automation, this AI, will lead to human obsolescence, and the elimination of jobs. It is my emphatic view, having studied AI at the feet of some of its great pioneers, that this is not the case. AI, like all great technologies and tools that have come before it, can and should amplify people – enabling us to focus on the creative work, the imaginative work. The driverless trucks that I mentioned did things we humans simply cannot do, e.g. ‘platooning’; we don’t have the mechanical precision or the reflexes for it; we do, however, have the imagination and the knowledge to build the software and systems for driverless trucks, and to govern their safe operation. Technology can and must be the great amplifier of our human potential, our humanity. It is why we focus on education and learning; it is why we participate in OpenAI and other initiatives to develop and advance AI openly, to help bring its benefits to all of us.

It has been more than one year since we outlined this Renew and New strategy for consistent and profitable of the company. I am happy to share with you the progress we have made so far on the execution of our strategy.

In the financial year 2016, our revenues grew in rupee terms by 17.1% to ₹62,441 crore. In dollar terms, our revenues grew during the year by 9.1% to US $9,501 million and in constant currency terms, revenues grew by 13.3%. For the financial year 2016, our operating profit margin was 25.0% and net profit margin was 21.6%. During the year, earnings per share grew by 9.4% in rupee terms and 1.9% in dollar terms. Our operating cash flows were healthy during the year and we ended the year with liquid assets of US $5,202 million (₹34,468 crore).

We focused on effective strategy execution during the year, and I am happy to report that several indicators of strategy execution have improved. For example, our large deal wins have improved significantly during the year, demonstrating, I believe, that the renewal of our existing core services, together with all the new things we can bring, are helping us to differentiate on value, not cost. The total contract value of large deals won during the year increased by 45% to US $2.8 billion this year. Similarly, due to our focused client engagement and value creation, the revenue from top clients improved during the year. Top 10 clients grew by 12.3% in constant currency and top 25 clients grew by 9.3% in constant currency for the year. The measures that we deployed to deepen employee engagement have begun to show results, with attrition coming down to 13.6% this year from 18.9% last year.

Our efforts towards increase in per capita revenue improvement through productivity improvement and automation are in early stages. During the year, we released nearly 4,000 full-time employees from projects as a result of automation of underlying services. We will continue to focus on this crucial front. We have several additional levers to further enhance operational efficiency, such as utilization, onsite effort mix, onsite employee cost and sub-contractor expenses, which we plan to optimize.

Behind these numbers is the work of several transformational initiatives that Pravin and I started over the last 21 months. We set out to renew and bring entirely new ideas to everything – from our processes, to training and curriculum, to marketing, to onboarding, to large deals, to the bench, to our ecosystem, and more. And the results we see are many of these initiatives beginning to take hold and flourish.

We see this in the renewal of ourselves internally, to drive innovation and create value. I am most proud of initiatives such as Zero Distance, in which the teams working in more than 7,000 master projects at Infosys have found and continue to find incremental innovation – looking beyond the SOW, to add value. With this initiative, under the passionate leadership of Ravi, our delivery teams learn and live being innovators rather than order-takers. Our work on this is not done, and in the coming year, I look forward to taking our grassroots innovation to new levels. From BPO to Product Engineering, from Business Intelligence to Digital, from Application Development and Maintenance to Cloud Infrastructure Services, we have embarked on a great renewal of all of our services with automation and pervasive grassroots innovation, founded on a culture of collaboration and openness.

We have trained over 80,000 employees in Design Thinking, in what is surely the largest ever corporate training program for Design Thinking. It is about building creative confidence, as David Kelley describes it, in every Infoscion. About learning to ask questions, to challenge the status quo, to look inside the work we are doing and find new problems to solve. Going forward, we will bring Design Thinking to every facet of our work; it will help us deploy our bandwidth that automation helps us save towards innovation and value-creation for clients and for us; and it will help us engage our clients in their most strategic areas – areas we have rarely worked in.

We introduced Zero Bench in July 2015, an initiative to eradicate the bench – a construct of our industry that, 21 months later, I still cannot accept – from our company and our industry, creating a marketplace inside Infosys so that people awaiting longer-term assignments continue to add value to Infosys and our clients. In just nine months, by the end of the financial year 2016, more than 12,000 jobs had been created on our Zero Bench marketplace, and more than 67% of folks on the bench had completed at least one of these!

We improved employee engagement, creating a new performance management system in which managers provide continuous feedback and an ongoing dialog about performance. We are improving our processes, slowly but surely to ease the way employees work. We ourselves are one of the first users of Infosys Mana, to automate and simplify our mission-critical travel process. And we are investing in employees, not just in training, skills development and the overall employee experience, but investing to drive retention and attract the best leaders through the new stock incentive plan for employees. We are also investing in the Virtual Global Delivery Model, and in our workspaces, to help further our teams’ ability to collaborate and to deliver value to clients across boundaries.

In all of these things, I want to point out our efforts in developing a culture of collaboration, with Zero Distance as a great example of many, such as the tremendous work of our finance team under the leadership of my colleague and friend Ranga – the leader of a world-class finance organization which is both improving our processes and our collaboration, while upholding the utmost standards of governance and compliance set by our founders. Collaboration makes us exponentially more powerful and faster. Competition, on the other hand, a very human tendency of ours, is best when aimed at competing with our past selves, the way we used to be, rather than looking backwards towards others. I believe this leverage of collaboration and competition can best help us create the company we aspire to be, even while competitors increasingly emulate us.

I believe these internal efforts to renew and bring innovation have led to the steep decline in attrition compared to where we were two years ago. While our work to build an extraordinary workplace for Infoscions as innovators is far from done, these are good signs. When I walk around our beautiful campuses, and feel the energy of many reinvigorated Infoscions, when I listen to the passion in the voice, and the glint in the eyes of a 31-year-old project manager beaming with a Zero Distance idea, more than any of the numbers, I feel reassured that we are on the right path.

Turning to what and how we deliver to our clients – we took big steps in the financial year 2016 by bringing a combination of automation and innovation, powered by education, to clients, and are now building on this work.

We launched our Aikidō service offerings, renewing our existing service lines and introducing new types of services. In Aikidō, we are helping our clients capture the knowledge and know-how and renew their organizations (Ki); leverage open, intelligent platforms to drive new opportunities through new kinds of applications (Ai); and bring design-led services that help clients find their most important problems to solve with Design Thinking (Dō).

And now bringing these services together with our Infosys Mana platform, our purposeful approach to AI, we can help our clients reinvent the continual reinvention of their system landscapes. We can lower the cost of maintenance for both physical and digital systems; capture the know-how of people and fragmented and complex systems across generations; simplify the continuous renovation of core business processes; and enable businesses to bring new and delightful experiences to their customers and end-users.

We refocused consulting to be the tip of our spear, and as part of this charter, I am pleased to see Design Thinking as a key fabric of our work, making its way into each and every client engagement.

We brought the Infosys Information Platform (IIP) to clients in a big way, and created entirely new opportunities resulting in discussions or implementations for more than 200 clients using our open, intelligent cloud-based analytics platform, to define breakthrough solutions from their diverse data sources. Both IIP and IAP are now a part of the broader Mana platform. Our EdgeVerve subsidiary continues to lead our all-important software front.

Panaya, Skava and EdgeVerve continued to add value for our clients and for us. Our philosophy of organic first, then external hiring, then investments, and then mergers and acquisitions is, I believe, the right balance for Infosys. Under Ritika’s leadership, we made several investments, and three acquisitions. On investments, we will continue to carefully deploy our capital on innovative companies that are inventing the future. On acquisitions, we will continue to consider companies that help us advance our cause, and where there is a matching of purpose and passion; we will not buy revenue or ‘market share’ in markets of yesterday.

And as importantly as the work we do with clients and internally, we continued to have a deep focus on contributing to the world around us, in our communities, in the proud and yet humble work we do through our foundations. Our Infosys Foundation, led by the exemplary Mrs. Murty, continued to set new standards in bringing help to those in need across a wide spectrum of needs and regions in India. The Infosys Science Foundation, a purposeful support of the advances in basic sciences that our founders have so passionately believed in and led, has continued its great work. And our young Infosys Foundation USA, which under Vandana’s leadership emerged, in the words of the White House Office of Science and Technology Policy’s senior advisor, is already becoming a force, reaching out to as many people as possible in the all-important frontiers of bringing computer science education and making to all. And on a larger scale, our amazing facilities team led by the incomparable Ramadas Kamath broke new grounds and new frontiers in sustainability and innovation – including moving our Hyderabad campus completely off the grid, a solar powered campus serving 15,000+ Infoscions!

And yet, as we look ahead, we can clearly see that we are barely at the start of where we need to go. Like any large-scale transformation, metamorphosis – as our Chairman Sesh, who took over this year from my mentor and the quintessential leader-entrepreneur Mr. Kamath, calls it – will take time. We have started to implement the changes that will drive our transformation. But it cannot be the valiant efforts of a few warriors within Infosys. The world as we knew it has been transformed. Add to this the extreme cost pressure on our clients due to the disruptions they face, including entirely new types of competitors, and in turn, the pricing pressure this brings to the services industry. We must massively scale our innovation and drive our strategy in every aspect in our company. All of you, our stakeholders, some of whom have been with us for many years, are an integral part of our journey, in empowering our people and our company to be more.

If we can execute our strategy, and do the things we must learn to do, the year, and the years, ahead of us could be deeply rewarding, and I look forward to a great journey ahead, together.

Dr. Vishal Sikka

Chief Executive Officer and
Managing Director