With chips down, Shibulals exit was only matter of time

Written by P P Thimmaya | Bangalore | Updated: Apr 14 2014, 09:11am hrs
The tenure of SD Shibulal as chief executive officer of Infosys over the past three years marks a turbulent period for Indias second-largest IT services exporter with revenue growth plummeting to single digits and profits becoming almost insignificant. The company has already announced the search for a new CEO to succeed Shibulal. The hunt is expected to close in the next 6-7 months.

Shibulal took over as CEO and managing director in August, 2011, and Infosys ended FY12 with a revenue of $6.9 billion, posting a growth rate of 15.8%. Net profit rose 14.5% to touch $1.7 billion. But things worsened dramatically in FY13 revenue growth crashed to 5.8% to touch $7.3 billion while profit remained almost flat at $1.7 billion.

This underperformance was also articulated by Infosys chairman NR Narayana Murthy in an analyst call with Deutsche Bank on February 26, 2014. I must admit that we are not happy with our performance over the last 2-2.5 years. In the financial year 2012-13, our growth plummeted to 5.8%, which is almost half the Indian software industry growth rate, which was proclaimed to be about 11%.

Operating profit margin at Infosys also fell from 28.8% in FY12 to 25.8% in FY13. This was even more damaging for a company that always prided itself on superior margins. During this period, Infosys nearest rival Tata Consultancy Services (TCS) was not only recording higher growth, but also posted better operating margins. As if that were enough, Cognizant also beat Infosys in terms of revenue size.

Shibulals travails began as soon as he was elevated to CEO since Infosys did not name anybody as chief operating officer, which was the practice earlier. This was also seen as a succession plan. That led to the departure of MD Mohandas Pai, a board member and head of HR, who was seen as one of contenders for the top job after Shibulal.

Shibulal very actively articulated a strategy of Infosys 3.0, which did not find much resonance with the marketplace and was seen as a positioning that was very futuristic. The strategy talked about getting a third of the revenue each from systems integration & consulting, products, solutions & platforms and the traditional outsourcing business.

As the company went about talking 3.0, the actual impact was not visible on the topline. Murthy defended the strategy, but admitted that it needed certain tweaks.

The only change we are making is that we are focusing on winning a large share of outsourcing deals where focus got blurred in the past.

During this period of Shibulal as CEO, there was also a concerted move within the board of Infosys to bring in changes, and they were split on asking for his resignation and getting someone else at the top, people present at such meetings told FE.

Multiple sources aware of the developments within Infosys said that Shibulal was not able to build a cohesive team within the company, and was found lacking in customer interaction, which is a crucial element in the IT services business.

It remains to be seen how the company performs from FY15 it has already said it will most probably meet just the lower end of the revenue guidance of 11.5-12% for FY14. Murthy, who has given a three-year time frame for revival, expects the early results of the ongoing turnaround plan to be visible only from FY16.