Infosys not satisfied with recent performance: Narayana Murthy
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“I must admit we’re not happy with our performance over the last two-two-and-a-half years,” Murthy said during an investor conference on Wednesday. “During the year 2013-14, we would have doubled our growth but even this is slightly short of the average industry growth rate as enunciated by Nasscom and therefore, we’re not happy with it,” he said, adding that the company was also not happy about its operating margins.
Murthy blamed India’s second-largest software services firm’s underperformance during the past few years on a loss of focus from traditional plain-vanilla services.
“People in the trenches did not realize that not only should they succeed in these challenging areas (newer areas such as analytics and cloud computing), but they should also focus on the large revenue-yielding opportunities, which are commoditized. I would say this is the main reason,” said Murthy.
India’s $118 billion information technology industry will grow by about 13% in 2012-13, Industry lobby Nasscom has projected. Infosys had forecast in January that its revenues would grow by 11-12% during the same period.
Murthy also conceded that the company had lost its pricing premium over competitors and it would take some time before it could regain its former bellwether stature and pricing position.
Last year in March, Mint first reported that Infosys started cutting prices for the first time in its history for select clients to avoid losing business and market share to faster-growing rivals such as Tata Consultancy Services Ltd and US-based Cognizant Technology Solutions Corp.
“We used to command a premium of 20-25% (in pricing) compared to our Indian competitors at a given customer’s place,” said Murthy. “(However) I don’t think God is finished with us. Therefore, if this company re-creates its mindset, the focus on creating further differentiation, I believe our desire to compete in these highly competitive markets successfully while creating additional margins will be possible. “The only way we can say we’ve succeeded is if we bring back the PSPD model of Infosys,” he added, referring to Infosys’s fabled predictability during the 2000s. PSPD stands for predictability, sustainability, profitability and de-risking of revenue growth.
The firm will make further organizational changes over the next 12 months, due to the impending retirements of executives such as co-founder and vice-chairman S. Gopalakrishnan, Murthy said on Wednesday.
Current delivery head and board member Srinath Batni is expected to retire in November, while Gopalakrishnan is set to step down in April 2015. At the board, Omkar Goswami is expected to retire by 2015-end, while Deepak Satwalekar and David Boyles retired recently.
“You will see more changes in the next 12 months,” said Murthy. “However, let me assure you that the company will continue to strive hard to regain its original lustre despite these changes.”
Murthy also said it would be a while before Infosys will see substantial revenues from its core banking software Finacle, adding that the company would not remove its focus from its so-called 3.0 strategy.
“We still have a long way to go in order to make Finacle contribute a significant percentage of our revenues. But we are not going to de-focus from that. In fact, we are focusing even more on products, platforms and solutions,” said the 67-year-old Murthy.
Finacle contributes about $300 million of revenue annually. In a recent interview, Infosys’s two newly-appointed presidents, B.G. Srinivas and U.B. Pravin Rao, had said that the company was shortly planning to hive off its products, platforms and solutions business.
In June last year, Murthy staged a comeback to the company he founded with six others in 1981 at the board’s behest to script a turnaround in its declining fortunes. Prior to Murthy’s comeback, Infosys lost market share to more aggressive rivals.
Last week, Murthy had said that some of the high-profile exits the company has seen in the past six months were necessary because the executives in question were being paid a lot and not doing much. He added that the company would continue to crack down on non-performers.
Murthy had also said that a majority of growth for Infosys and India’s $118 billion information technology industry would continue to be driven by traditional plain-vanilla services that are getting increasingly commoditized.
“The reality is simply this: these are same projects. These are still $2 million-$5 million projects. The world still has not evolved to a stage when there is a $50 million or $100-million digital transformation project,” said Murthy on Wednesday.
Experts have said that only time will tell whether Murthy’s core strategy of bringing the company’s focus back on traditional outsourcing contracts would pay off in the long run, but that Murthy’s return had at least made the company more decisive.
“I think Murthy’s back-to-the-basics formula is taking hold. So in that sense it’s a good sign for Infosys,” Partha Iyengar, vice-president and head of research at Gartner India, said in a recent interview.