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Five hard truths that Infosys must face

india Updated: Jul 23, 2012 15:45 IST
N Madhavan
N Madhavan
Hindustan Times
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With disappointing results from Infosys Technologies, and worse, what the company calls a lack of visibility on its business, questions arise on both the software bellwether and also the Indian IT story. But contrast this with the fact that industry leader Tata Consultancy Services (TCS) has been showing respectable results.

So what gives? It is time to take stock, here is my list of five hard truths that Infosys watchers must take note of:

1. The consultancy business is dull: Maybe it was badly timed, given the crisis that the US economy went into, or that its prime customer segment, the business and financial services industry (BFSI) was the worst hit by the Wall Street crisis of 2008. Whatever it is, the simple truth is that the company’s attempts to boost profit margins by high-value work has not quite got off the ground.

2. The India advantage is gone: Given that IBM, Hewlett Packard and Accenture have their own Indian headcount matching Infosys in some ways, the famous offshore advantage that Infosys sold to global customers is being sold by its big rivals. Infosys tried to expand into smaller centres such as Mohali, Bhubaneshwar and Jaipur to keep its costs low, but clearly, there is a limited advantage here.

3. Hot markets are cold: Time was when the US was so hot, that Infosys did not have the time to cultivate or grow the European market enough. Now, the US economic recovery is shaky while Europe’s economy is doddering. Political obstacles loom. TCS has done well by focusing on markets such as China. Infosys seems a relative laggard.

4. Business transformation is old hat: Better project delivery or process innovation are passé. Infosys talks of helping its customers do better, but that is so 2000. Business process reengineering (BPR) was in vogue two decades ago and everybody is doing it in some form. The company has no real new cards to play.

5. Gen X is not Gen Y: The graduates entering the workforce now were born after economic reforms began in 1991. Their ambitions and aspirations are different. Maruti, which is of the same vintage as Infosys, is facing unrest on account of this. Infosys needs a special advantage as an employer because it is not resting on a mountain of patents. Hiring people by the thousands is “commodity” business.

Infosys could then be having its Nokia moment. Both companies have a great brand and lots of cash, but both badly need a distinguishing feature in a competitive market.

CEO SD Shibulal has been a great delivery man respected by customers. But what the shareholders and employees of Infosys need now is a big story with which to imagine the future.