In a candid confession before Infosys investors last week, executive chairman N R Narayana Murthy said a combination of factors, including lack of focus on large outsourcing deals, increase in costs and low employee morale, had led to deteriorating growth for the company.
Murthy, who re-joined the company as executive chairman in June, said Infosys would aggressively focus on winning large deals and maintaining its market share while continuing its focus on high-value projects.
Murthy said there was a need to change the mindset of the employees to focus on large deals. “Change in mindset requires a concerted effort with a change in KPIs (key performance indicators) and reward mechanism. The change will not be easy to implement and will take one-two years to execute.”
This was Murthy’s first direct interaction with investors after he retired from an executive role in the company in August 2006. The investors meet was organised by equity research firm Barclays on August 9, which was attended by around 30 top fund managers, according to sources privy to the development. The event was held in Bangalore, they said.
In reply to specific queries, Murthy said while the company had not lost any client despite muted financial numbers and stock performance, there was pricing pressure in the bread-and-butter segment (business and information services), which impacted the company’s revenue productivity in FY13.
“The slowdown in growth is nothing to be proud of. However, a similar situation occurred when Mr Nandan Nilekani had become the CEO of the company in 2002,” he told investors, according a report issued by Barclays after the meeting. “There is a responsibility to keep inventors, customers and employees happy. With a sense of disappointment reigning within the company, the duty was accepted to the best of abilities with the aim to achieve a ‘desirable Infosys’.”
He reiterated that transformation to make a “desirable Infosys” would take three years and “the measure of success will be revenue growth on a par with the industry average, with a reasonable amount of profitability”.
Murthy reportedly told investors the company has adopted a three-pronged
The costs, he said, had primarily gone up due to payment of higher wages to local hires and lower utilisation of local hires. He said the management will continue to focus on improving margins by rationalising costs and improving utilisation. Infosys’s onsite costs have gone up to around 46 per cent of its revenues in FY13 from 36 per cent in FY11.
Murthy said the company was planning to trim the cost by changing the employee mix to better match skill sets with project requirements. Besides, it would tweak the delivery model to reduce onsite efforts, and cut other unnecessary costs.
To boost employee morale, the management would undertake compensation correction measures. The company plans to sharpen the go-to-market focus by instilling renewed aggression to win large deals by taking risks.
| ...according to Murthy Less focus on winning large outsourcing deals, which accounts for 63% of the company’s revenues Higher costs as compared with peers’ Low level of employee confidence, perpetuated by lack of salary hikes ... & what he intends to do Aggressively focus on winning large deals & maintaining market share Boost employee morale by correcting compensation and reward mechanism Improve sales efficiency and automation Focus on costs to improve margins by managing on-site costs and improving utilisation |
