The conservatism that served Infosys Ltd so well for three decades is now stunting its growth,prompting calls from investors for new blood at the top of India’s showpiece outsourcer.
Critics say Infosys also must shed its aversion to acquisitions, change its premium pricing strategy and make better headway in higher-end businesses like consulting to compete with global rivals IBM and Accenture .
“It’s one thing to get to the top and it’s another to stay there. Infosys is clearly struggling to stay there,” said Eric Mookherjee, a Paris-based fund manager for Shanti India, which holds Infosys shares.
“In this scenario, what would you lose by bringing in someone from outside who would not be infatuated with the Infosys culture?” he said.
The first signs all is not well at Infosys came a year ago with a disappointing sales forecast and the unexpected resignation of an executive many had expected to be its next CEO and the first from outside its fabled group of seven founders.
“For years, we loved Infosys for consistently delivering more than they promised and now we are seeing just the reverse,” said Mads Kaiser, a fund manager in Denmark at JI India Equity, which holds $200 million in Indian shares including Infosys.
“They are having real problems and it is not just external because it hasn’t impacted its rivals much,” he said.
The story of Infosys’s founding in 1981 – seven engineers pooling together $250, mostly scraped together from their wives – is the stuff of corporate legend.
The seeds of Infosys’s current woes may well be the unwritten pact that each of its core founders get a shot at running it. Chief executive S D Shibulal, known in the informal Infosys style as “Shibu”, is the company’s fourth, having taken the helm last year from fellow co-founder Kris Gopalakrishnan. Shibulal, 57, was previously chief operating officer.
“The company has had two operational leaders and operational leaders tend to make a company very inward focused,” said a senior executive at a technology company who previously worked at Infosys and declined to be identified. Infosys played down concerns about its recent performance. “Just a couple of quarters of ups and downs can happen to any company that is built to last,” said Chandrashekar Kakal, a senior vice president.
Critics say Infosys is overly focused on service delivery and not enough on sales; that it is slavish to preserving margins at the expense of winning new business; that its core service offerings differ little from competition.
Smaller rivals Cognizant , HCL Technologies , and iGate are winning market share partly due to Infosys’ reluctance to lower prices in a tough market.
“Some of the problems are cultural and I think a change in top management can bring in a change in culture,” said Kaiser. Infosys investors are running out of patience with the lack of a clear plan for its $4 billion in cash. “You have to either pay it back to the shareholders or you use it to grow,” said Sam Mahtani, a London- based fund manager at F&C Asset Management, which owns India shares worth $300 million,
including Infosys shares.
Despite the problems, Infosys still has believers. “I think it’s too early to say that Infosys has lost the game,” said Taina Erajuuri, a portfolio manager at FIM India in Helsinki. “The company is in a tough spot, but I am prepared to give them some more time.”