There is a need for a bit of reinvention. Both the companies should take a hard look at what?s going wrong rather than being in denial mode
What do you do when confronted with a situation which is not to your liking? Do you do more of the same or do you break down the existing pattern of play for something more tenable? More often than not, the enemy is within. Dealing with competition outside seems to be easier than putting one?s own house in order, as far as Infosys and Wipro are concerned. Infosys CEO SD Shibulal starts talking about global volatility, the moment one pops a question about his company?s continued under-performance. Though he should know by now that it?s a clear company-specific issue, the external environment gets blamed quarter after quarter. The truth is that the surface is the same for all players.
Like TCS and HCL have been proving repeatedly, it?s not impossible to achieve the desired set of numbers even during these trying times. Both these firms have said that they expect to meet, if not go beyond, Nasscom?s projected industry revenue growth of 12-14% this fiscal. Infosys, on the other hand, has given a wide, pessimistic revenue outlook of 6-10% for the year. With this kind of foggy visibility, Infosys may have trouble spotting the tiger. Clearly, the company?s strategies seem to be going wrong and they seem to be betting on the wrong horses to take the game forward. Wipro has been trying hard but has still not broken the shackles. In fact, it seems to be running hard just to stay in the same place.
HCL and TCS have managed to improve their utilisation rates, post higher revenue growth and have eaten into IT budget spends much more hungrily. TCS has recorded a 4.4% rise in volumes, while Infosys could post only a 1.8% increase during Q4. This shows that Infosys is still holding onto its high margin play dearly, despite speculation that the IT major has begun to let that business model go. Both HCL and TCS have registered better sequential revenue growth when compared to Infosys and Wipro. The key is here is to perform at one?s best, in the area that one is most likely to succeed. HCL has recorded a 8.6% rise in its infrastructure services business, which has always been its strength. TCS registered a 3.4% rise in its BFSI play. Maximising one?s strength area is as important as covering up the weaknesses. This is something that Infosys and Wipro do not seem to be able to do. The fact that Infosys has been repeatedly missing forecasts is very worrying. Analysts are routinely referring to TCS as the bellwether of the sector?a tag Infosys enjoyed for many years.
Infosys has not blamed any one thing for its poor results. The reasons provided are multiple. Initially, it talked about financial sector issues, then wage hikes became the reason for grief, delayed customer decisions and a lack of bigger orders were all blamed. It is now becoming increasingly clear that Infosys 3.0 is a mirage.
Infosys has Wipro for company. Wipro?s revenue forecast in the range of $1.57-1.61 billion is much lower than what analysts had anticipated. CLSA analysts Nimish Joshi and Arati Mishra wrote that Wipro?s poor March 2013 top line performance and tepid June 2013 revenue guidance suggest no let-up in its revenue under-performance. ?Wipro?s claims of significant investments in sales and marketing in the last two years are clearly not translating into results,? they stated in their note after the earnings were declared on Friday. CLSA said that Wipro?s performance was confirmation that there is greater heterogeneity in performances in the IT services sector.
Maybe there is a need for a bit of re-invention. Wipro and Infosys need to take a hard look at what?s going wrong. Often one feels that these companies are in denial. Research firm Gartner had recently said that IT service providers must bridge legacy offerings and new services based on new technologies, new delivery models and new architecture to remain relevant. It added that growth will largely come from changes and opportunities brought by cloud, social, mobile, etc. What has worked in the past 20 years in IT services is no longer working. The writing is on the wall and the two companies now need to be making systemic changes to improve their fortunes. And that change has to come right from the top.
dj.hector@expressindia.com
