CEOs of Infosys and Wipro face challenges to regain the market share lost to rivals as they head to 2013
Bangalore: They have long been Indian IT’s glimmer twins, but if there was anything 2012 proved, it was that Infosys Ltd and Wipro Ltd had somehow lost their groove and so, for S.D. Shibulal and T.K. Kurien, chief executives officers (CEOs), respectively, of the two companies, 2013 will be the toughest test of their professional careers as they attempt to help their companies regain double-digit revenue growth rates by betting on their versions of the future.
And who knows, they may regain a bit of that glimmer too.
The year that will soon end has not been kind to the two companies. Infosys lost its bellwether status and stopped forecasting revenue growth in 2012. Industry lobby group Nasscom has projected that Indian IT companies will grow by 11-14% in 2012-13, but Infosys has said it expects to grow by just around 5% in the same period. Meanwhile, Wipro couldn’t seem to decide what it wanted to be; and analysts raised questions about whether the two companies would ever be able to recover lost ground. Over the past six quarters, including the three months ended 30 September, Wipro’s revenue growth has decelerated. So much so, that it is now at the bottom of the heap, according to an analyst.
“On the revenue front, Wipro is now once again at the bottom of peer comparables, a spot which was briefly occupied by Infosys. In our view, the key driver of re-rating at Wipro is top-line performance and current trends indicate that Wipro could lag peers for now precluding re-rating prospects," CLSA analyst Nimish Joshi said in a November report.
Shibulal and Kurien, who were appointed to lead their respective Bangalore-headquartered companies last year, face similar challenges: regaining market share lost to rivals Tata Consultancy Services Ltd (TCS) and Cognizant Technology Solutions Corp.; and changing their traditional business models to ensure they earn more business from top outsourcing customers.
Both CEOs face internal and external challenges. N.R. Narayana Murthy, the obsessed-with-details co-founder who set Infosys’s agenda for almost 30 years, retired as chairman last year. Wipro scrapped a joint-CEO model it had adopted, unceremoniously fired both CEOs and identified Kurien as the man to take it out of the woods.
And both companies have trailed new wunderkind Cognizant in terms of growth for the past few years, and by some margin.
Indeed, over the past 13 quarters, Cognizant has grown its revenue faster than Indian rivals TCS, Infosys and Wipro by an average of 3.4 percentage points, according to brokerage Jefferies and Co. Inc. Already, Cognizant has overtaken Wipro and Infosys in terms of quarterly revenue, causing anxiety among top executives at the Bangalore-based companies.
Shibulal and Kurien are following different strategies to regain lost momentum. While Shibulal is betting on consulting and products to move away from commoditized maintenance projects that are Infosys’s current staple, Kurien is pushing for bigger outsourcing contracts that fetch better annuity-based revenue streams.
To support what he calls Infosys 3.0, Shibulal has also made the biggest acquisition in the firm’s history, Lodestone Holding AG for $330 million (around ₹ 1,818 crore today) in September—a rare buy for a company that has usually steered clear of aggressive and ambitious purchases. “I believe it’s time to drop the word conservative in the sentences where Infosys is mentioned," Shibulal had said while announcing the acquisition.
That aggression has been absent from the company’s interactions with analysts, with several of the latter critical of the company’s negative commentaries to them. Earlier this month, top executives of Infosys raised doubts about meeting the revenue growth target of 5% for the current fiscal year, citing delayed decision-making by outsourcing customers .
Analysts also fear that Infosys may be giving up on routine “bread and butter" outsourcing business to push for its 3.0 offerings that are more futuristic.
“The Street is not clear which side Infosys is on and, indeed, if Infosys stays committed to Infosys 3.0, the time it would need to show that Infosys 3.0 is working in its intended, distinctive manner without compromising the core of the business," Viju K. George of JPMorgan’s Asia Pacific Equity Research said in his October note.
Wipro’s challenges have been more about increasing its share of outsourcing spend by its top customers. In the three months ended 30 September, Wipro’s business from healthcare and life sciences, and telecom and media customers declined by 4.4% and 1.3%, respectively, from the preceding quarter. The company’s revenue from Japan declined 11.1% in the same period.
Still, Kurien’s strategy of chasing big outsourcing contracts seems to be paying off, at least according to the number of $100 million deals the company has added since he took over. “We only had one customer in the $100 million range. We have nine such customers today," he said in a November interview, even as he cautioned against any early celebrations. “I don’t think we will ever celebrate; at least I am not going to celebrate anything (yet). Because just when you think you have jumped one wall, you see another one staring at you. And that’s our biggest worry today."
Both CEOs will also have to worry about their boards and chairmen, according to an IT industry executive who did not want to be identified.
“The boards of Infosys and Wipro have made a bold bet on these leaders in a period when the technology services industry is going through its biggest shift. Will these boards, chairmen and investors also back them with monies and faith for another few years?" asked this person, who heads a large multinational software services firm.
While Shibulal, who is one of Infosys’s co-founders, will have to answer to the board led by new chairman K.V. Kamath, Kurien will have to deal with Wipro’s billionaire founder Azim Premji. Most analysts say both CEOs have a maximum of two more years to deliver.
Kamath said in an October interview that he’d like to see the company’s new strategy delivering results by 2014.
“Two years down the line is a long enough lead time to measure the strategic changes that have been put in place. Clearly, two years down the line we would like to see the strategy that has been articulated having delivered," Kamath said.
Indeed, it’s too early to judge the two executives, said a consultant.
“While Cognizant, HCL (Technologies) and TCS have done a better job with their financials this year, we’re not even close to the halfway point in this journey," said Phil Fersht, founder of outsourcing research firm HfS Research. “Infosys and Wipro have a pivotal part to play in the future of Indian services—let’s not pass judgement until they have had more time to respond and develop their own answers."
Meanwhile, the business itself is changing. Customers such as Target Corp. are testing new models and preferring to work with vendors who can offer more than cost savings. And that may just mean that Shibulal and Kurien may not have all that much time to define what their companies stand for.
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