In its more than 30-year history, Infosys has set performance and governance benchmarks for the software industry and the rest of corporate India. Of late, however, its performance has slipped into mediocrity: its revenue trailed the industry average for 2012-13 and Infosys has forecast that this year will be no better. To use a golfing analogy, it is like Tiger Woods falling below 50th in the rankings.
But the question is whether Infosys can make a comeback, like Tiger Woods. Undoubtedly, it can — Infosys is still one of India’s finest companies, generating more than Rs 12,500 crore in cash last year from operations — provided it regains the imagination and initiative that made it such a successful company in the first place.
Failure to Read the Market
The main reason for Infosys’ ongoing struggle is its failure to read the market accurately and adapt its strategy, combined with a certain amount of hubris brought on by success.
Because it was unable to quickly balance its strategy of consultingled growth with market demand for more prosaic offerings at lower prices, revenue growth became the first casualty. By the time Infosys decided that it must compete aggressively on price and take on higher risk, it lost several months.
Infosys is playing catch up now, but the results of the increased sales aggression should become apparent in the topline in 3-6 months. The bottomline will suffer because there is only so much operational efficiency that can be squeezed out of the company.
But growth is the lifeblood of any organisation and Infosys has belatedly recognised that. Even so, that is just the beginning. For a true comeback, it still has a long and hard way to travel.
The two biggest weapons in Infosys’ armoury are its strong delivery capabilities and its sterling brand name. However, neither can be taken for granted. In a sign of danger, attrition rates are creeping up, portending a decline in employee morale. It is vital for the company to immediately announce pay raises that match the best in the industry.
Long-term investors will understand the value of a motivated workforce, especially in the software industry. So, the company must not do anything that undermines its relationship with its 1.5 lakh employees.
Chief executive officer SD Shibulal has a golden opportunity to leave behind a lasting legacy by re-positioning Infosys as the leader of India’s software industry. This can only happen if he shows the imagination of the sort that has resulted in the creation of a $100-million (Rs 540 crore) fund for high-end software products, platforms and solutions.
The fund, which was announced on Friday, has the potential to do an enormous amount of good for the company. It can bring in new ideas, new technologies and new blood, all of which Infosys needs in ample measure. But he must follow the dictum of the company’s co-founder and chairman emeritus NR Narayana Murthy: act quickly.
Alongside the infusion of freshness through the fund, Infosys must use its cash more creatively. Returning money to shareholders is an option, but it must be the last option. With more than Rs 21,000 crore in hand, Infosys has a luxury that few other companies possess.
For perspective, enterprise software company Salesforce has projected revenue of a little less than $3 billion, or Rs 16,000 crore, for 2013. There are certainly some very interesting companies in the areas of data analytics and cloud computing that could make interesting acquisition prospects. Yes, an acquisition is risky, and integration is fraught with pitfalls. But Shibulal teamed up with Murthy on a risky venture when he was a young lad.
The other thing that Infosys must do right away is identify a successor to Shibulal and appoint that individual as the chief operating officer. The board must not hesitate to look outside the organisation for a replacement for the current CEO.
Along with a successor to Shibulal, Infosys must hire creative, young professionals well versed in the latest technology trends in the top echelons of the company. Meantime, top executives must set aside their differences and pledge to work together under the leadership of Shibulal.
The board cannot, and must not, settle for anything less than a tightlyknit leadership team.
While it is naive to expect communication of the sort that came from Murthy or Nandan Nilekani, there is surely room for Infosys’ message to be conveyed more effectively. Explaining the company’s strategy to external stakeholders — investors, analysts, the media — is a painful but necessary part of running a worldclass organisation.
Setting and managing expectations is a job to be taken seriously. Not doing so can result in the company losing control of the narrative about itself, as seems to be happening already. Again, this puts at risk the brand image of Infosys that has been built painstakingly.
By acquiring Swiss company Lodestone and setting up an investment fund, Shibulal has shown that he is keen on change. But Infosys must see a lot more of it and very soon if it has to return, like Woods, to winning ways.