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Can Infosys revive its sagging fortunes?
by Sohini Bagchi Sep 19, 2013
Infosys 3.0 strategy, a futuristic strategy by
chief executive SD Shibulal around the
companys Products, Platforms and Solutions
division (PPS) that once cemented the future
of the organization is in a way leading to
confusion. The PPS division, barring the core-
banking software product Finacle that brings
in about 4% of sales has garnered business
worth $730 million in the last one decade.
Currently, however, it is operating at -3%
profit margins.
According to recent reports, the $7 billion,
Bangalore-based firm embarked on an ambitious drive in 2011 to get at least one-third of its
revenues through this intellectual property. Two years later, the division is reporting losses
and brings in less than 2% of sales. Sandeep Muthangi, VP, research at IIFL Institutional
Equities said in an interview with ET, One third revenues from PPS look unrealistic because
no service-line in the whole of IT industry accounts for 33% of any companys total
revenues.
Shibulal however mentioned in a statement earlier that the company has earmarked $100-
million innovation fund to incubate ideas related to the PPS business from within Infosys
and outside. According to some, even though Infosys is doing the right thing by investing in
products and platforms, the company needs to invest more on its front-end and sales to
push products in this service line. The current 4.8% of revenue in sales and marketing can
take it nowhere, especially since this is part of its revival strategy.
Moreover, analysts identify internal management conflicts to be the biggest roadblock in
the organizations restructuring strategies.
Is there an i nternal confl i ct?
When the company was reeling under its most difficult time, investors felt that NR
Narayana Murthys come back this year will certainly give the much-needed boost to Infosys,
from the revenue perspective and Murthys promises to strengthen some of its core areas
that seemed to be lost in the flashlight of the many futuristic strategies. Unfortunately, even
since his return in June, frequent exit of high profile executives have not only caused
discomfort among employees and stakeholders, but also hinted at a greater level of
management confusion.
In July, Infosys Global Sales Head Basab Pradhan announced his decision to quit the firm. In
August, Ashok Vemuri who was heading the companys operations in the Americas put in his
papers. Infosys Vice President and financial services head for the Americas Sudhir
Chaturvedi also quit the same month. The most recent one being Kartik Jayaraman, heading
BPO sales in Australia, has quit and joined outsourcing major Accenture.
The focus of the top management got diffused in handling internal wrangles and creation
of power centers, which led to discontent amongst many leaders in the organization, many
of whom left the organization. It also led to loss of motivation in the salesforce who either
joined other companies or slackened out. The Infosys culture and DNA got disturbed. And,
by 2011, the sheen started wearing away, Ed Nair, Editor Dataquest writes in his column
explaining the current situation.
Lack of aggressi on
One of the key problems facing Infosys is lack of aggression in its strategies. Albeit, the Q1-
2013 results showed Infosys net profit grew 0.5% at US$418 million, it is miniscule in
comparison with the growth seen by other rivals such as TCS and Wipro, which saw over
10% rise in profit margins. The situation calls for a more proactive management and a
greater rethinking on its present strategies, believe analysts.
For example, a greater level of aggression has allowed smaller competitors like HCL to
outbid Infosys to acquire the UK based software company Axon Technologies. There was so
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much of reluctance on Infosys to make a big acquisition that when it acquired Lodestone
last year. Moreover, the growth in other companies was not driven primarily by acquisitions.
For example, HCL Technologies growth was driven by infrastructure management.
Cognizant makes only tuck-under acquisitions with its key business coming from
applications and other IT solutions.
Also, source who doesnt wish to be named said that Infosys hasnt make a mark in
consulting like Accenture and IBM, despite their effort. In fact the latter has replicated
Infosys model by increasing offshoring to India. On the other hand, Infosys remained an IT
manpower provider, rather than a complete solutions firm.
Despite this, Nair mentions, the company and its leadership had the ability to think ahead
and create a compelling strategy for the future. One of the biggest solace (forgetting the
discomfort for a while) again is the entry of Murthy, who gave the company some of its best
years. The pressure will be on Murthy now to deliver the same results and the bellwether
can take some more time to set its present strategies right.
For many in the industry, a company cannot simply abate its present for sake of the future.
Successful companies have always walked the tightrope of the present while readying them
for the future, and Infosys has to play its cards right if it has to revive its sagging fortune.
Tags: Infosys 3.0 strategy, NR Narayana Murthy, SD Shibulal
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