Infosys tries new recipe for revival
NR Narayana Murthy, who founded Infosys with half-a-dozen friends and a capital of only Rs 10,000 in 1981, used to say that reinventing a company was like changing the wheels of an aircraft mid-flight. N Madhavan reports. Iconic firm seeks a new avatarbusiness Updated: May 02, 2013 03:39 IST
NR Narayana Murthy, who founded Infosys with half-a-dozen friends and a capital of only Rs 10,000 in 1981, ever the man to convince people with a mix of charm and wisdom, used to say that reinventing a company was like changing the wheels of an aircraft mid-flight.
The company has been going through just that in recent years, with the rise of its Infosys 3.0 story. While the financial crisis and the recession it spawned across the West made eager customers turn thrifty, emerging technologies have accentuated the challenge. As an industry insider puts it, what cost $20 million to make in the mainframe era is now wanted by customers at 2.5% of the same cost as a mobile application.With the miniaturisation of technology, even mid-sized companies such as MindTree Consulting can swim with giants like Infosys in the emerging alphabet soup called SMAC (social, mobility, analytics and cloud) that involves everything from deciphering Facebook updates for brands and developing tablet apps to sundry data crunching.
“The industry is getting more and more commoditised and clients are trying to extract the most of its vendors,” admits Infosys board member V. Balakrishan, a long-time Infosys executive. “You do go through tough times.”
Narayana Murthy rattled the stock market 12 years ago, when, after the Internet “dotcom” meltdown, he said there was “fog on the windshield.”
Sounding cautious to the market is not new for the company that has prided itself on under-promising and over-delivering.
But is this time different?
Those not happy with SD Shibulal’s less-than-flamboyant style seem to think so. Four months before he formally took over as CEO in 2011, he re-organised the business into four industry verticals--financial services and insurance (FSI); manufacturing; energy, utilities, communications and services (ECS); and retail, consumer products, logistics and life sciences.
There are those who think this shifted a sales-oriented culture into something more staid that hurt revenue growth. Infosys now lags TCS by $3 billion in revenues. Board member Ashok Vemuri, a former banking expert, now looks after manufacturing as a vertical head, while BG Srinivas runs insurance after specialising in supply chains. For Infosys, this could be the job-rotation route to readying potential CEOs.
There are sceptics who question the changes, and analysts who think this can slow down work.
“I would think the management restructuring has had an impact. But I don’t think this management is incapable,” said Dipen Shah, IT analyst at Kotak Securities.
Shah notes that both TCS and HCL Technologies have shown decisively stronger volume growth and “clearly superior execution” that needs to be taken note of.
Infosys watchers say TCS also has exposure to crisis-hit financial service clients but has done well. It could be that with a presence in 44 countries against the 30 that Infosys has, TCS has a wider sales footprint. Also, TCS, HCL and Cognizant are led by marketing honchos -- something that may give an edge of aggression in difficult times. But you could also say the diligent, caring Shibulal builds deep relations in difficult times.
HCL has clearly stolen a march with its infrastructure management practice that helps companies manage data centres better -something that is not adversely affected by recession.
“Different companies have different revenue profiles. Our dependence on discretionary spend is definitely higher than other companies,” Shibulal admits.
This, however, is not good enough for those who say the new story is yet to grow wings.
The PPS (products, platforms and solutions) business that relies on intellectual property to boost profit margins is hardly 6% of the revenue, notes Angel
Broking’s analyst Ankita Somani.
“It will take some time for us to see substantial change. What has been talked about is so qualitative. We have to see the fruits of what they have done,” she said. “Performance issue is definitely there.”
Balakrishnan admits “scalability is a challenge” - and he adds that this includes entry-level staff training, which is now stretched to six months from the earlier three because the new crop of workers need more hand-holding.
Betting more on reusuable intellectual property to boost margins, Infosys has set up a $100 million fund for products and platforms. These steps are not overnight successes but the company is moving fast.
Earlier this week, Infosys announced a partnership with IPsoft which industry researcher Forrester’s analyst Fred Giron said takes “automation efforts to a whole new level.”
Infosys staffers bound by company rules are reluctant to talk, but the buzz is clearly about not seeing clear career growth paths. And that makes them comfortable.
“They (management) are struggling to articulate to shareholders and employees what this 3.0 is all about,” said a former Infosys employee. “They are confident but somehow they cannot communicate this.”
Optimism also lurks in the form of a $4.3 billion cash chest - that’s about R24,000 crore. Analysts say even a small acquisition can trigger the stock. The company however, says it will acquire competencies, not size or revenues, through its buyouts.
Balakrishnan says the current recovery in the US economy, which accounts for 63% of Infosys revenues, augurs well.
“There is a lot of pent-up demand that is waiting to come,” he said.
And asked to say why critics still abound, he said: “Infosys is like the elephant and the blind men (tale). Everybody says something but only people in Infosys know what’s on.”
Right now, the blind men outside feel they are playing poker with what was once the unquestionable darling of India’s software prowess.