LIVE AND EXCLUSIV: NFOSYS TOP BRASS TALK TO b&e ON LIFE AFTER DEATH AND ON THE ROAD AHEAD. deputy editor Virat Bahri GIVES THE INSIDER ON THE STRATEGIC LESSONS FROM INFOSYS!
Strategy #2: Cash is king, liquidity is God!
The second strategy was put in place many years before. GE had once been the biggest client for Infosys. In ‘94, Infosys lost the GE account in one go. And 25% of business vanished at the blink of an eye.
To make matters worse, the liquidity position of Infosys became extremely tight. “That was the day we [top Infy team] told ourselves that we should always have at least one year’s cash positive position; so that even if Infosys were to lose all its business, we would be able to pay our salaries for one full year,” Bala says.He ensures that Infosys maintains a huge ‘unused’ cash position with a gut wrenching cash reserve of $2.5 billion.
Strategy #3: Never, ever, invest your money in equities!
In 1994-95, post the GE setback when Infosys actually grew by 100%, the team was back into cash surpluses and decided to invest in equity options. “We lost crores!” says Bala. And that is when they decided they would never invest their money in equities.
Strategy #4: Be completely averse to general Mergers & Acquisitions
Infosys realised that the world was moving in the glamorous M&A route, but refused to be “stupid” in acquisitions. Bala argued that Infosys should not attempt mergers simply for adding revenues, but to obtain strategic benefits, business competence, geographic competence et al. The strategy seems to have paid off better than expected, as the biggest losses that companies have suffered (from Vodafone to Time-AOL Warner; from Kingfisher to Jet) are reported to have been due to their implementing M&As for growth.
Strategy #5: Keep an iron hand on your marketing department and classify your customers’ creditworthiness!
Infosys generally allows a 30-35 days credit period to its customers. And for all of them, Infosys uses a risk weight route. They call it the CDS – Credit Default Spread. The CDS system not only rates the creditworthiness of customers, but also ensures that whenever Infosys feels there is a danger of default; it makes sure they obtain their accounts receivables in time. Kris says, “We’ve tightened our risk management processes significantly. We review our processes every single day.”
Strategy #6: Attempt the easiest method: control your costs, but not all!
Infosys has cut expenses, but not across the board. Selectively, they’ve ensured that while controllable costs like travel are cut down by 20%, sales and marketing expenses – despite reducing from 5.47% of revenues in 2007 to 4.6% in 2009 – are actually up from $230 million in FY 2008 to $239 million in FY 2009. As a result of these measures, Infosys recorded a 367 basis point yoy expansion in EBITDA margins in the April-June 2009 quarter!
Clearly, the lesson that Infy wishes to give, is that one’s objective should be to be world class, and not necessarily the largest; one reason why Infosys doesn’t care to be India’s largest, but to be its most profitable! B&E brings you live commentaries from India’s greatest managers!
Read more....
Strategy #2: Cash is king, liquidity is God!
The second strategy was put in place many years before. GE had once been the biggest client for Infosys. In ‘94, Infosys lost the GE account in one go. And 25% of business vanished at the blink of an eye.
To make matters worse, the liquidity position of Infosys became extremely tight. “That was the day we [top Infy team] told ourselves that we should always have at least one year’s cash positive position; so that even if Infosys were to lose all its business, we would be able to pay our salaries for one full year,” Bala says.He ensures that Infosys maintains a huge ‘unused’ cash position with a gut wrenching cash reserve of $2.5 billion.
Strategy #3: Never, ever, invest your money in equities!
In 1994-95, post the GE setback when Infosys actually grew by 100%, the team was back into cash surpluses and decided to invest in equity options. “We lost crores!” says Bala. And that is when they decided they would never invest their money in equities.
Strategy #4: Be completely averse to general Mergers & Acquisitions
Infosys realised that the world was moving in the glamorous M&A route, but refused to be “stupid” in acquisitions. Bala argued that Infosys should not attempt mergers simply for adding revenues, but to obtain strategic benefits, business competence, geographic competence et al. The strategy seems to have paid off better than expected, as the biggest losses that companies have suffered (from Vodafone to Time-AOL Warner; from Kingfisher to Jet) are reported to have been due to their implementing M&As for growth.
Strategy #5: Keep an iron hand on your marketing department and classify your customers’ creditworthiness!
Infosys generally allows a 30-35 days credit period to its customers. And for all of them, Infosys uses a risk weight route. They call it the CDS – Credit Default Spread. The CDS system not only rates the creditworthiness of customers, but also ensures that whenever Infosys feels there is a danger of default; it makes sure they obtain their accounts receivables in time. Kris says, “We’ve tightened our risk management processes significantly. We review our processes every single day.”
Strategy #6: Attempt the easiest method: control your costs, but not all!
Infosys has cut expenses, but not across the board. Selectively, they’ve ensured that while controllable costs like travel are cut down by 20%, sales and marketing expenses – despite reducing from 5.47% of revenues in 2007 to 4.6% in 2009 – are actually up from $230 million in FY 2008 to $239 million in FY 2009. As a result of these measures, Infosys recorded a 367 basis point yoy expansion in EBITDA margins in the April-June 2009 quarter!
Clearly, the lesson that Infy wishes to give, is that one’s objective should be to be world class, and not necessarily the largest; one reason why Infosys doesn’t care to be India’s largest, but to be its most profitable! B&E brings you live commentaries from India’s greatest managers!
Read more....
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
