A change at the top of any large and successful corporation always appears cataclysmic to those outside it. Infosys Technologies Ltd., which unveiled a ‘leadership succession plan’ on Saturday, was no exception.

The stepping down of its “iconic” Chairman, N.R. Narayana Murthy, heralds the end of an era spanning three decades in which Indian companies established themselves as the preferred choice of global corporations seeking to outsource work offshore.

Child of the boom

Infosys was unique in the sense that it was truly a child of this boom. It saw the opportunity, built a viable model for this task and quickly scaled it up to make it a viable proposition for the large corporations to outsource their work here. Of course, there were other companies such as Tata Consultancy Services, which had been in existence well before the IT services boom had even started. Wipro, too, had started business in the IT space, but it had its eyes set on the hardware space. The point is that among all the IT biggies, Infosys was the only company that was truly a child of the outsourcing boom.

It’s complicated

Although it is tempting to relate Infosys’ current challenges to the impending departure of Mr. Murthy and several of his colleagues, the reality is much more complex.

The company’s strenuous attempt to portray the transition as one which will maintain continuity while managing change is reflected in the elevation of S. Gopalakrishnan (the current Chief Executive Officer and Managing Director) to the position of Co-Chairman of the Infosys board, while appointing an ‘outsider’, K.V. Kamath, a banker, as the new Chairman.

A new era

Much as the media likes to identify the change of guard at Infosys with the beginning of a new era, the fact remains that the new era is much more than merely the departure of these founders. Infosys today, is undoubtedly under pressure, just as the rest of the business is. Margins have been dipping even as wage costs have been rising, but the biggest factor since the global meltdown has been the increasing risks associated with uncertainties in the global economy.

Industry leaders were smug initially, claiming that the virtual collapse of the businesses since 2008 would only spur more outsourcing. Companies, driven by the cut-costs-at-any-cost frenzy, would give them more work, they argued. The sceptics, who argued that business would be more difficult in an uncertain world, were simply silenced.

The turn of events in the last year shows that not only has ‘robust growth’ not returned, but volatility and unpredictability, best exemplified by the currency gyrations, remain the biggest risk for companies in this business.

Difficult environment

In the last four years, Infosys’ revenues doubled — from $ 3 billion to $ 6 billion — while the number of employees increased from 72,000 to a little over 1.3 lakh at the end of the last fiscal. It is evident that it is going to become more and more difficult for Infosys to maintain this rate of growth.

Infosys has always been regarded as a company that does not condescend to work on small margins or deal sizes. But in a difficult economic environment, the scope for such deals would become lesser, as Infosys has seen in the last few quarters.

Infosys, in the last few years, has also attempted innovative pricing solutions such as the one by which it only seeks a fraction of the cost that its solutions save for clients.

Mr. Gopalakrishnan pointed out that consulting and value-added services now contribute about one-fourth of the overall revenues. In addition, application development and maintenance contributes about 40 per cent to revenues.

Chief Operating Officer S.D. Shibulal, who takes over Mr. Gopalakrishnan’s duties from August 21, outlined his vision in taking the company to the third stage of its evolution — Infosys 3.0.

The first stage was about developing the Global Delivery Model, the second was about integrating the model with the company’s consulting practice and expanding the scope of Infosys’ services and the third would be “about evolving our model further to remain relevant to clients, said Mr. Shibulal.

Meanwhile, the industry awaits with interest the reorganisation of the company’s business divisions, which Mr. Shibulal expects to complete in two months.

http://www.thehindu.com / V. Sridhar / Bangalore / May 03rd, 2011