Infosys exits face sharp criticism from brokerages

Written by fe Bureau | Bangalore | Updated: Dec 24 2013, 21:22pm hrs
NMThe magnitude of exits could create a leadership vacuum in Infosys. PTI
The latest senior level management exit of V Balakrishnan from Infosys, the eighth since the last six months, has come under sharp criticism from the brokerage houses who say that Indias second-largest IT services exporter is struggling with internal leadership issues.

Kotak Institutional Equities, in its latest report on Infosys, said, An exit that would hurt, V Balakrishnan, member of the Infosys Board, has resigned, marking the eighth senior management exit in six months. The magnitude of exits could create a leadership vacuum. What is disappointing is the inability of the organisation to retain core team members. This, perhaps, indicates that the internal challenges are significantly higher than our initial assessment. We believe that the impact of exits could be felt in the medium term. Returns in the companys stock may be capped, especially after a strong recent performance and increasing concerns on efficacy of reorganisation.

Ever since the return of N R Narayana Murthy as the chairman, the IT major has witnessed several senior level management exits, leaving the company with some sort of a leadership vacuum. This has also raised questions on whether the company would be able to fill in the positions, though it has consistently remarked that they have got enough management cadre within their ranks.

Ambit Capital in its report said these exits raises concerns over the acceptance of the restructuring initiatives within the organisation. These exits may cause medium-term business disruptions. Infosys continues to lack a clear strategy.

It further went on to state that the market appears to have prematurely discounted a turnaround in Infosys after the return of NRN Murthy. Infosys continues to lack a clear strategy. There are conflicts between its renewed focus on commoditised services and its two-year-old 3.0 strategy (with focus on consulting and non-linear revenues).

Some of the initiatives, such as decentralisation and shift of employees from onsite to offshore, could have serious implications on employee morale. Also, sacrificing on pricing on new commoditised service deals could impact the margins of older contracts.

Though, Murthy has earlier remarked that Infosys has been able to retain the best talent and letting go of those who did not fit the new management profile, giving an indication that they are comfortable with such exits.

The note by Kotak said that they were worried about the pace of exits. We have consistently maintained that exits are inevitable in any reorganisation. The pace of exits is surely more than what we had expected. The current pace of exits could possibly impact business momentum. Replacements are equally important.

The brokerage house said, It is plausible that the company has strong leadership bench strength, however, to burden the current leadership with more portfolios instead of promoting new leaders indicates a lack of depth or confidence.