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Cover Story
 

Apparently, there’s Quite a Lot in a Name!
As Infosys goes Through Massive Transformations in its Strategy & Branding, Virat Bahri discusses what it would take to take The Next Leap
Issue Date - 21/07/2011
 
When you consider two names – Apple Computers and Infosys Technologies, there can be very little in terms of comparison; besides the obvious fact that both of them command iconic status that is the envy of companies within and beyond their respective industries. Apart from that, there is a marked difference in their trajectories, right from the fact that while Steve Jobs and Steve Wozniak, the founders of Apple shared an incorrigible passion for hardware, Infosys’ group of 7 led by Narayana Murthy had software as the basis of their vision. Jobs always dreamt of leading the computing industry through innovation and design, whereas Infosys started primarily as an outsourcing company that did application development and maintenance and relied on Indian frugality (though it very steadily moved up). And while Jobs was in a hurry for just about every venture he undertook (and still is) and made large & risky bets, Infosys and its founders have often been considered to be more circumspect, more than eager to be right with every bet they make.

The contrasts can go on way beyond the scope of this article, but there is one interesting development in the recent past in the Infosys camp that is uncannily similar to Apple – the change in name from Infosys Technologies to Infosys Ltd. to tell the world that it is evolving from a technology solutions vendor to business transformation services provider. One can recall how Apple Computers had dropped the ‘Computers’ tag and became Apple Inc. in 2007 to show that it had moved into the wider field of consumer electronics, mobile devices, et al; around six years after they actually made that shift in 2001 with the iPod.

 
Infosys, which launched its cloud services recently, is on the brink of the transformation in comparison; a shift they refer to as Infosys 3.0. The company posted net profits of Rs.68.23 billion for the year ended March 2011, growing by 8.8% yoy, but the results have been quite disappointing on the whole. Fourth quarter revenue of $1.6 billion almost breached the lower end of its guidance and there was a 1.4% decline in volumes as well (Angel Broking). Sequential revenue growth was just around 1% compared to 5.9% and 10.2% in Q2 and Q3 of the previous fiscal year. In Q4, Infosys experienced a fall in its margin by 110 basis points to 29%, which is due to lower utilisation. The company also dropped 3 ranks in the Power 100 list in 2010 to be ranked 11. A greater concern is the expected margin hit in the coming quarters due to increased hiring of around 45000 people in the current fiscal as well as rupee appreciation. Infosys CEO & MD Kris Gopalakrishnan, however, comments on a positive note to B&E, “If growth accelerates resulting in higher utilization, margins can improve.” Large transformational deals are coming back, but Europe is still plagued by sovereign debt fears. Moreover, 2011 would see the ending of the tax holiday for Indian IT companies. But the company’s strengths of strong cash flows, with cash and cash equivalents totaling $3.8 billion by the end of FY 2011, a debt free balance sheet and strong client relationships keep it in good stead for the coming quarters. Morningstar stock analyst Swami Shanmugasundaram says that the company’s package implementation and system integration services will be particularly accretive to revenues and projects “compound annual revenue growth of 16% for a five year forecasting period (compared to 16% in the past five years)”.

Of course, there are a number of changes within the company that have taken place, and top executives are unanimous that the next few years will see a lot of transformation. A new team has been set up with K. V. Kamath being appointed as the co-Chairman (non-Executive) with Kris and S. D. Shibulal has taken up the position of CEO; changes that will be effective from August this year. N. R. Narayana Murthy has bid adieu to all executive positions in the company. The exit of T. V. Mohandas Pai has been a major blow, and his statements to the media have led to Infosys’ celebrated management practices and philosophies coming under heated debate.

Under the Infosys 3.0 drive, the new team will divide its verticals into four industry groups with each having a separate P&L account. Infosys expects to take some significant initiatives in terms of employee utilization rates, onshore hiring, consulting services, investment into more emerging economies and counter-cyclical verticals like healthcare & public sector, better utilization of existing and creation of new intellectual property and also ensuring a smooth succession to the first non-founder CEO in a few years. Critics would also want the company to look at inorganic growth. A lot has to change in its DNA if it has to compete with the likes of IBM and Accenture, particularly with respect to its relatively cautious approach. But the very fact that Infosys is showing an eagerness for tampering with a long standing status quo is a sign of a welcome beginning.

Virat Bahri           

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