It seems IT bellwether
Infosys Technologies Ltd.
) is up from its deep slumber after a streak of disappointing
results over the last couple of years. In third quarter fiscal
2014, earnings were up 8% year over year and a solid 21% on a
sequential basis. Investors' confidence is also getting back on
track as reflected by a steady uptrend in share price.
Thanks to Executive Chairman of the Board Narayana Murthy, who
came out of his retirement to take charge of the stranded ship
amid declining top and bottom lines, lower margins, high
attrition and loss of businesses to competitors such as
Cognizant Technology Solutions Corp
) and Tata Consultancy Services, Infosys have regained its lost
Mid-2011 to Mid-2013: The Unforgettable Period
In Jun 2011, Narayana Murthy formally resigned from the
executive position when Infosys was at its peak. With his exit,
the company seemed to loose its focus and in a span of six to
eight quarters, Infosys witnessed drop in revenues. Low employee
morale, a confused 3.0 strategy and flawed PSPD (predictability,
sustainability, profitability, de-risking) model further made
Infosys suffered badly due to leadership issues as it could
not frame a proper succession plan after Murthy. The company
looked divided and locked in the trap of
, whereby it lost ground to rivals on pricing.
When other companies resorted to aggressive reduction in
budgets to reduce costs, Infosys was stuck in the pre-recession
period. This had a domino effect on the company's contract wins,
leading to lower top and bottom line, ultimately resulting in
lower profits. Infosys even began to offer revenue guidance in
the range of 6% to 10% which was way below the industry growth
projection of 12% to 14%.
issues were also hurting Infosys dearly. The new CEO after
Murthy's exit failed to recreate the magic and Infosys was
missing the focus, clarity and decisiveness in policy making.
Within a span of less than two years, Infosys was forced to bring
the founder back to the helm to retain the shareholders' and
Just to give an excerpt of waning investor confidence, share
prices of the company fell by approximately 29.7% from Jun 1,
2011 to Jun 1, 2013.
Murthy's Comeback: A Sigh of Relief
With Murthy back on board, share prices had an immediate jump
of almost 9%, leading to a two month-high. Murthy himself has
given a time-frame of three years to revive the fortunes of the
company with a more decisive and focused approach - all this for
virtually no monetary compensation!
After reassuming office, Murthy focused on winning large deals
while maintaining the market share. Secondly, he addressed the
high operating costs of the company through a cost-optimization
strategy and decided to retrench non-performing highly paid
employees who were perceived to add no significant value. At the
same time, Murthy emphasized on improving employee morale through
efficient rewards for avid performers.
Not a Bed of Roses
Murthy's path is not that easy to tread on. The challenges
confronting this dynamic leader include a fast revival of sagging
sales, maintaining market share with competitive pricing,
boosting employee morale amid high attritions. In addition, the
passed by the U.S. government on restriction on the number of
visas it can apply for employees is another major challenge. This
could increase the operating expense of the company, as a
significant number of employees working in the U.S. will burden
its already-stretched coffers.
Despite all these issues, Murthy has maintained his composure
and has emphasized that Infosys will continue to grow on its
traditional path by focusing on plain vanilla services which are
increasingly being commoditized. Furthermore, he intends to
strategically utilize the dry powder of the company for healthy
organic and inorganic growth.
Meanwhile, companies like
), Cognizant and
) have strengthened their presence in India. These have
intensified competition in the domestic market as well. Infosys,
therefore, will have to provide a viable advantage to potential
employees to attract lucrative human capital.
Murthy's comeback has created a positive vibe for Infosys that
was staring down the barrel. The company now looks more focused
and has revived in the last 9 months giving a share price return
of 49.6%. The second time around, Murthy is all set to take his
company to the zenith of the IT industry.
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