One-to-One: How a failure to innovate breeds risks

In 1981, seven engineers started Infosys with just $250. The company is now a global leader in consulting, technology and outsourcing with revenues of $7.4 billion. It has a growing global presence with more than 155,000 employees across 67 offices and 69 development centres in India, China, Australia, Europe, Japan, Middle East and the United States.

Infosys was founded on the principle of building and implementing great ideas that drive progress for clients and enhance lives through enterprise solutions. Clients in 30 countries now rely on Infosys to support their innovations, and maximise their growth and competitive strength.
 
The company also passionately believes that its responsibilities extend beyond business. The Infosys Foundation was established to provide assistance to some of the most socially and economically depressed areas in which the company operates.

With more than 20 years of experience in financial leadership, V. Balakrishnan is a member of the board of Infosys. He heads Infosys’s BPO, Finacle and India business unit and was recently appointed chairman of Infosys Lodestone, the management consulting arm of Infosys.

His top tips for sustainable business success in difficult times:

• The biggest risks arise from a failure to innovate. We live in a volatile world, there is no doubt about that. But if you look at the Standard & Poor’s 500, they are sitting on $3 trillion and not investing in anything. Everybody is profitable, but nobody is making any investments due to low confidence. Client focus is more on reducing cost and improving efficiency, and that is where we can play an important part. But we are also working to become a leader in intellectual property (IP) services, platforms and products, and a high-value consulting company. Innovation is key to this mix. A good example is the Airtel money platform. We worked with Airtel, the largest telecom company in India, to create a mobile wallet where small-value financial transactions can be done through a mobile phone. In India 70% of the people live in villages with no access to traditional banks, so this product is essential. Whatever you try to do, you must try to move up the value chain and become a premium player in the industry.
• The finance team is the heart of the business. The finance team is the only function that has a 360 degree view of the business, and the CFO must drive the organisation forward. Ultimately, the face of any organisation is two people – the CEO and the CFO. If they don’t work well together, it results in disaster for the company. A CEO must be highly optimistic even in the worst situations, but the CFO should be more realistic and help the business move forward by making it understand the realities and operate efficiently. At Infosys we need our finance professionals to be very articulate because they need to deal with multiple stakeholders, and have to balance the interests of multiple stakeholders – customers, shareholders, employees and investors. You have to wear multiple hats at different times, and we need talented people to do that. 
• Corporate reporting must continue to progress. We went for an IPO in India in 1993 and wanted to become the world’s best company in terms of transparency and reporting. We benchmarked our practices against different companies. At that time in India we used to report numbers every six months with a lag of three to four months. So when investors received the numbers, they were already stale. So we started reporting quarterly, which was not mandatory at that point in time. We used transparency to our advantage. We started giving a lot of non-financial information in our annual report. If you look at our market cap, it is $20 billion, and if you look at our balance sheet size, it is $4 billion to $5 billion. So how do you make the investors understand the difference? We started reporting HR valuation. We value all human resource because our market value becomes zero when our employees go home at night, and it is vital they return. If you look at our annual report, I think it is the most transparent in the world. Transparency is the biggest competitive advantage for us, and we leverage it to the hilt.
• Value your people. In our organisation people are the biggest asset. If you value their input and put it in the balance sheet, they feel good about it. They feel empowered. There are very few companies who do this, but if your workforce is not happy or motivated, then you have a big problem.

Balakrishnan’s comments about innovation resonate with our recent CGMA research. Long-term business success is dependent on an organisation’s ability to react to, and manage, change. Finance professionals have a reputation for blocking innovation as opposed to enabling it. But there are very few successful innovations that haven’t had input from the finance team.

The role of finance is to create a suitable environment in which innovation can thrive. The finance team should be involved from the very outset of projects, and can then work with the wider business to achieve a successful conclusion. The team can create the business case, the right incentives to drive innovation, and ensure that the appropriate funding is in place at each stage.

Balakrishnan’s insight on the dynamic between CEOs and CFOs is very interesting. The finance professional must act as the co-pilot. A pilot needs a co-pilot whom he can rely on to step in and take the controls of the aircraft. The same relationship exists in business, with a CEO needing a CFO who can step in when necessary to drive the business forward.

I was also encouraged by Balakrishnan’s thoughts on how corporate reporting must evolve. At CIMA we aim to be transparent at all times. I am a member of the International Integrated Reporting Council, and our 2012 annual review adopts as many characteristics of an integrated report as possible, based on current guidelines.

Integrated reporting is a new approach to corporate reporting, which is steadily gaining international recognition. It demonstrates the links between an organisation’s strategy, governance and financial performance and its social, environmental and economic context. Along with our colleagues at the American Institute of CPAs, we are supporting this exciting journey.

—Charles Tilley is chief executive of the Chartered Institute of Management Accountants.