Bangalore: Infosys Ltd, which is in the middle of an organizational overhaul led by co-founder and chairman N.R. Narayana Murthy, is reviewing more of its business divisions that do not generate revenue and deploying employees in those units on live outsourcing projects to optimize costs.
India’s second largest software services exporter, which late last year began a review of operations at its Infosys Labs—or research & development (R&D)—division that resulted in at least a third of the division’s employees being transferred to other business units to work on billable, software development projects, has recently conducted a similar review with its education and research unit, according to three people familiar with the development.
In the past few months, the headcount of Infosys’s education and research division has also been reduced by at least one-third and those employees have been transferred to other business units, according to the three people who requested anonymity.
The education and research unit and the R&D division are among those businesses that are counted among what the company calls its cost centres and do not generate any revenue. “As of now, E&R (education and research) and Labs are the ones to have been hit by the tsunami. The IP (intellectual property) Cell continues to function as before, but they’re also under constant pressure,” said the first person familiar with the matter.
Any business division that falls under Infosys’s cost centre definition is now under scrutiny from the chairman’s office. One of the people mentioned above said the cost efficiency exercise had also extended across other business units.
“Cost optimization is needed but the company also needs to ensure that it doesn’t hamper investments into areas that will spur growth in the future. The question that needs to be asked is whether this optimization is being done in a manner that will not hurt the company’s future growth or investments,” said the second person familiar with the development.
In an email response, Infosys said the company transfers employees from the education and Labs divisions from time to time as part of job rotation, but declined to comment on the exact number or percentage of employees who have been assigned to software development projects recently, saying those details were an internal organizational matter.
“We have made several changes to realign our business and resources to help us become more client-centric, create service differentiation and execution agility so that our clients can receive the best of Infosys at all times. As part of job rotation and job enrichment, talented people from education and research, Infosys Labs or any other part of the business are deployed in other functions that help us bring better value to our clients,” an Infosys spokeswoman said in an emailed response. “As we have stated several times in the recent past that we have undertaken an organization-wide effort to make our company more robust and are looking at ways to optimize our costs, enhance our delivery excellence and improve our sales effectiveness.”
Since Murthy scripted a comeback at Infosys in June, he identified three key priorities for reviving the fortunes of a company that over the past three years lost its prized bellwether tag, missed its own guidance and lost market share to faster-growing rivals such as Tata Consultancy Services Ltd and US-based Cognizant Technology Solutions Corp.—protecting the top 25-30 customer accounts and getting more business from them, focus on winning larger traditional outsourcing contracts and aggressively cut costs.
He has been pushing to cut costs, especially the ones linked to doing business at the location of clients based outside India. Infosys’s on-site costs at the time of Murthy’s return had increased to 46% of the total costs, compared to 36% in 2011. As a result, Infosys has reduced the strength of its on-site sales teams significantly over the last few months. In a recent meeting with analysts, Murthy had said the company would cut down the number of top officials at client locations to save costs.
The total strength of the Infosys’s R&D arm has also been brought down from a little over 600 to about 400 employees over the last few months, according to the third person mentioned above. Most of those employees have been shifted to other business units where they’re maintaining and developing software applications.
Murthy has also been aggressively pushing to automate more portions of the company’s bread and butter outsourcing business that have become highly commoditized and even put his son Rohan Murty in charge of driving that initiative, said one of the people above who is familiar with Murthy’s thinking.
At the company’s annual strategy meeting that ended last week, Rohan Murty even made a presentation on automation and the need for further efficiencies across businesses, said a person who was present during the meeting.
“Murthy’s focus since returning to the company in June has been on improving the cost structure and December-quarter margin performance suggests some of those efforts are bearing fruit helped in no small measure by a weaker currency,” analyst Nimish Joshi of brokerage CLSA India said in a note last week. “We believe there is further runway for Infosys on margins without compromising on growth.”