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We think Infosys could be at risk for accelerating its own decline if it does not adjust itself to the realities of the new normal. " This astonishing line from a recent J P Morgan analyst report pithily sums up the troubled state of affairs at the IT industry's hitherto undisputed star. It's a judgement nobody would have believed could be pronounced against a company like Infosys even a year ago. Astonishing also because it makes the argument that Infosys' recent troubles are of its own making and not external. Which means the onus for the poor run of quarters is being laid at the feet of the company's management, considered gold standard not just in the IT sector but in India Inc. Infosys' quandary - it wants to do more business transformation kind of work, like the American firm Accenture, and not be just another IT vendor competing on price at the bottom of the pyramid - reflects the crossroads at which the industry also finds itself. In the new normal, the $70-billion Indian IT industry has to deal with growth rates of 10-14 per cent, a volatile global economy in which its principal consumer - the financial services industry is lurching from one crisis to another, never having fully recovered from the 2008 meltdown. Former Wipro vice chairman, Vivek Paul, founder of KineticGlue, an enterprise social media company, says, "This slowdown is not to be taken lightly. Service companies either grow or die, and we will see some implosions. Many of the companies have lost their raison d'etre, and appear directionless. Just trying to get bigger is not a vision. "

Also, according to analysts over 70 per cent of the addressable market near term for Indian IT lies in the unglamorous, highly price sensitive breadand-butter business, not exactly music to the ears of those players wanting to trade-up.
T K Kurien, CEO, Wipro Technologies, doesn't necessarily believe that the addressable market is limited. "The IT services industry today is over $850 billion, with all Indian companies together accounting for only 7-8 per cent of this large market. I believe that there is ample space for us to grow, it is more a question of reaching out to untapped markets and segments. " He believes, "We would definitely say that there is demand in the market - however, the type of demand has changed. "

In this scenario, Infosys' stumbles wouldn't have attracted the same attention if it weren't for the new kid on the block - Cognizant - whose steroid-fuelled growth until the very recent fumble was in a way reminiscent of Infosys in its glory days.
Cognizant's dramatic race to the top, which left Wipro in the dust (it ceded the long held 3rd position ) has been mainly driven by its willingness to settle for lower margins while chasing volume.

Nobody is yet heralding Cognizant as the next Infosys. Said a senior industry executive, "Cognizant is not the answer. It does not have a portfolio that is wide or rich enough. "
What then made Infosys lose the plot? Not many want to comment on its current woes. Not competitors who have had to live in its shadows for the longest time, not even people like T V Mohandas Pai, who quit Infosys last year rather noisily when passed up for the top job.
What TOI-Crest could gather from speaking to a host of people - senior industry executives, analysts, long time Infy-watchers (in Bangalore, this can be a profession by itself) is that: The company is faced with management/leadership challenges rather than business challenges The transition from the N R Narayana Murthy-Nandan Nilekani era to the Kris Gopalakrishnan-S D Shibulal one was badly managed It is hostage to its high margins.


Because the founders aren't letting go, Infosys has become a partnership with the baton passed from one to another. Said a senior industry source, "Three generations of leaders left the company between the period 1994-2011 because of the policy of founders becoming CEOs. In the last 5 years, Infosys has not invested enough in leadership. Not pushed power down the line. " S D Shibulal, Infosys CEO, naturally doesn't agree. He says, "Our executive leadership development center is widely recognized as best in its class. The organisational changes last year created even more empowerment for senior executives. "


Leadership crisis, sources say, is best exemplified in Infosys' inability to appoint a chief operating officer (COO). There are three contenders for the post. Finance chief V Balakrishnan, global head of financial services and insurance;B G Srinivas, global head of financial services and insurance business;and Ashok Vemuri, global manufacturing and engineering services head. If one is made COO (a stepping stone in Infosys to the CEO's office) the other two will leave. But not making that call is hurting Infosys. As a consequence, according to sources, Shibulal finds himself in the unenviable task of having 16 direct reportees.
Shibulal insists that, "In our previous, very different, organisation structure, a COO was a natural position. Now that we have created semiautonomous, more empowered P&L's, those service line and business unit leads are fully empowered and accountable to operate their own business. "


Infosys is sitting on a cash pile of Rs 20, 0000 crore, and yet it is unwilling to make a really big acquisition. Some of the conservativism stems from founder-chairman N R Naryana Murthy's belief in having enough cash in the bank to run the company
for multiple years.
The cash mountain wasn't an issue when Infosys found ways of organically growing 20-30 per cent annually. But in a scenario where growth for the industry is slowing, acquisitions are seen as an absolute must. "You have to sometimes buy growth, " says a rival.


Infosys' industry-high margins have been the envy of India Inc. They haven't dropped below 25 per cent in the last 3 years. In the new normal, however, analysts believe that Infosys will have to make the volume-pricing trade-off. The CLSA analyst report says that while focus on margins worked well earlier, "history is replete with multiple examples where loss of market share impaired pricing power over time. . . and led to convergence of margins across companies. "
These issues have made the Infosys stock trail peers. An amazing twist, given that Infosys mainly shot to glory because of the humongous money it made for its shareholders and employees over the 1990s and 2000s. It actually made CLSA analyst Nimish Joshi write a letter recently titled 'Rime of the ancient IT vendor' to Shibulal, wanting to understand "why have shareholder returns trailed sector peers across time periods over the last four years, something that is quite unprecedented in your history as a public company?"


While there's a bunch of people baying for the Infosys founders' blood saying their refusal to let go of the company they started 30 years ago is causing the problems, there's another school which wants Murthy to come marching back, take charge and revive the company.

Joshi of CLSA points to how Steve Jobs and Howard Schultz returned to Apple and Starbucks respectively when the companies were in crisis and led them to greater glory and wonders if Infosys can benefit from getting "advice from Narayana Murthy and Kris Gopalakrishnan".

The role of the Infosys board is also coming under close scrutiny. While it's star studded and has luminaries from across the world, the guessing game in Infy's hometown is how independent it is and how large a shadow does Murthy cast over it? New chairman K V Kamath, known as an aggressive growth-oriented chief in his ICICI days, has stayed an unknown commodity in his new role.


Infosys can spring back, says an industry veteran. "No other Indian company has the management talent that Infy has. The company is still very formidable. It has a great brand, amazing clients, a very good portfolio of businesses, " he says. Decisive leadership and real transfer of powers to the heads of business unit - industry tattle is that customers are cribbing about the long delays in Infosys closing contracts - so that they can run them independently will make a difference.

An acquisition, either a big one of the size of $500 million to $ 1 billion or smaller ones in each of the verticals to create growth impetus, is said to be the absolute need of the hour.

The man holding the reins will soon have to make a decision on which way Infosys will go. So expect a tough call soon. After all, the only piece of advice Shibulal got when he took over as CEO from Murthy was, "Take the decisions Shibu. Even if you make a mistake, take the decision. "

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