Infosys Ltd to see renewed operational rigour

Written by P P Thimmaya | Debojyoti Ghosh | Debojyoti Ghosh | Updated: Jun 11 2013, 00:45am hrs
The return of NR Narayana Murthy to the top of the management tree at Infosys will certainly revitalise Indias second largest IT services exporter. There is renewed hope among investors that this iconic personality would get the company back to its bellwether status despite multiple challenges, say Debojyoti Ghosh & PP Thimmaya

There has been a growing disquiet in the manner in which Indias second largest IT services exporter Infosys was drifting away from a highly competitive Indian IT landscape with growth lagging its peers and losing its status as the bellwether of the industry. Though, many voiced their opinion about the need for changes within Infosys, none expected such a drastic action of 66-year-old NR Narayana Murthy coming back to the company he co-founded in 1981 and exited in 2011.

Though the external economic environment remains challenging with business momentum slowing down, Infosys performance over the last two years never really matched with the peers or industry. Infosys always spoke about tough conditions for their mediocre performance of late but a larger number of industry observers were very clear that internal issues were plaguing the company with no strong leadership hand to hold the firm together.

Now the return of Murthy will dispel any such doubts within the company and there is a very clear line of leadership which has been established within Infosys. All this distracting talk of who would take over as CEO of the company after SD Shibulal, who is expected to

retire only two years from now, is expected to quieten down. Nobody understands Infosys better than Murthy. His comeback is expected to have a positive impact on the stock and investor sentiments in the long run.

Murthy has taken the responsibility for growth. No other Infosys shareholder can do it. He is an

acceptable leader and will be taken seriously. It will boost employee morale and attrition will come down. In a services industry, it is all about people. Personality and ideas matter, said Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities.

Ever since Murthy stepped down from the role of non-executive chairman at Infosys in May 2011 and was appointed as chairman emeritus there has been much debate on the kind of role he would play in the company. Given his stature and influence over the company, observers said it was inevitable that his invisible shadow would always loom over it. Infosys, as a company, was always known for high decibel branding initiatives, but in the recent past the poor financial performance had eroded some of that brand image.

The biggest challenge for the company would be get its front engine sales & marketingroaring back to life. Its sales team appeared rudderless over the last four to

six quarters. TV Mohandas Pai, former Board member at Infosys and who has known Murthy for 30 years, recently said, More than a technology person, we need sales people these days. And NRN will be able to do that better than the current leadership.

Brokerage house CLSA in its recent note on the changes within Infosys said, Murthys return would definitely bring back the operational and review rigour which has been definitely missing during the current CEOs tenure and has

resulted in a unidirectional slide in margins and a continuous miss on the companys own financial guidance. Seen in conjunction with the recent raise in base salary of employees across the board, Murthys comeback should also raise employee morale and revitalise the company. Stock volatility on result days will most definitely go down with likely improvement in company communication with the street.

The Bangalore-headquartered IT firm has not been able to shake off its prolonged spell of sluggish growth even while its larger rival TCS continued to grow thereby widened its revenue gap. TCS has also overtaken Infosys in margin terms over the last one year. Following the announcement of the fourth quarter earnings, the Infosys stock had crashed by over 21%, when the company provided an annual revenue outlook of 6-10% for FY14 which was below industry estimates projected by Nasscom. For FY13, Infosys posted a revenue growth of 5.8%, missing the guidance target of 6.5% growth.

For Murthy, the macro numbers are not just the only concerns.

Infosys has missed the growth bus in verticals like healthcare, retail and infrastructure, which grew even during the downturn. Analysts pointed out that most of the large re-bid deals in the last two years were from the infrastructure sector where Infosys did not have an active participation.

Internally, Infosys has seen management transformation in the last two years including reshuffle of top executives. In a key move last week, Infosys, appointed V Balakrishnan as the new chairman of its European subsidiary Infosys Lodestone, the Switzerland-based management consultancy firm it had

acquired last year. Balakrishnan

replaces fellow board member BG Srinivas, who currently heads the companys Europe and financial services and insurance verticals.

The internal restructuring came within a few days of Murthys return as the executive chairman of the company. Balakrishnan, who was earlier tipped as Infosys next CEO, had stepped down last year in October from his role as the CFO to shoulder responsibilities in the product platforms, BPO and India business space.