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FEATURES/Boardroom | May 28, 2013 | 41505 views

Did Infosys Get it Wrong with its 3.0 Strategy?

The strategy that is supposed to cement its future is hurting its performance today
Did Infosys Get it Wrong with its 3.0 Strategy?
Image: Getty Images
Building 44 on the Infosys campus in Bangalore is at the centre of the Infosys 3.0 strategy

A

s you drive on the flyover to the sprawling Electronic City from Bangalore, you can’t miss the shiny, glass buildings on the Infosys campus. One is a pyramid, another looks like the bow of a ship and yet another has a big hole right in the middle.

What lies inside this building, which goes by the number 44, holds a key to the future of the 32-year-old software company. Inside, Infosys Experience Centre showcases a range of new products that its engineers developed in the last few years, some of them a direct outcome of its Infosys 3.0 strategy.

One application helps Infosys clients reduce incoming calls by nudging end users to solve problems without having to reach out to a contact centre. Its algorithms use unstructured data (from Facebook, for example) to figure it all out. Another app lets a client (say a bank, which is squeamish about telling a third party what it plans to do with its customers, and yet is interested in emerging technologies such as social, mobile and big data) build its own big data application using algorithms in Infosys’s library. It’s as easy as dragging and dropping the databases you want, the visual tools you want to use.

Inside the building, engineers trade jargon like Hadoop and NLP as they walk around. One can feel the raw energy of a well-funded startup. It is a feeling one associated with Infosys 10 years ago, when it seemed it couldn’t take a single misstep, and journalists mobbed around the top management to ask them questions on… how to run the world.

Today, the questions are different: They are based on a suspicion that perhaps the top guys don’t know how to run Infosys.

While its peers are sprinting, Infosys seems to be limping. Its revenue growth is slower than the industry (which means it is losing market share); its operating profit is dropping too. It has let Cognizant—a company founded 13 years after Infosys—run past it. Once known for consistently beating its own estimates and market expectations, it missed its revenue guidance a number of times before deciding to temporarily stop giving guidance. The market has beaten down its stock.

This sense of gloom is in stark contrast to the scene inside Building 44. And here’s the interesting part—the polar opposites emerged out of a single seed: Infosys 3.0. The same strategy that is cementing the future of Infosys is in a way leading to its poor performance today.

Agreed, this is not the most popular explanation for the company’s woes. The prevalent reasons revolve around its leadership or its aggression or its portfolio mix. There’s a bit of truth in all these, but none of them explain why these weaknesses should matter so much to Infosys.

Take leadership. No other IT CEO among the top five companies has been as pilloried by stakeholders as SD Shibulal. (In the company’s recent annual strategy meet in Mysore, he had to face tough questions from founder NR Narayana Murthy.) According to Glassdoor, a website that lets employees vote on their CEOs anonymously, Shibulal has the lowest approval rating among his peers—51 percent (N Chandrasekaran of TCS has a rating of 88 percent, Cognizant’s Francisco D’Souza 92 percent, Wipro’s TK Kurien 78 percent, HCL Tech’s Anant Gupta 68 percent). Critics say Shibulal is an operations man—without marketing background and lacking vision.

However, studies show that employee ratings are often biased by company performance, and a company’s performance is determined by the strategic decisions taken in the past. No one expected Shibulal to infuse new vision into Infosys. He was there to execute a strategy conceptualised when Kris Gopalakrishnan was the CEO. And, by all accounts, he was the right man for that job. “Shibu is one of the most determined people I have met. If he starts something, he will finish it,” Subhash Dhar, then the head of sales and marketing, told my colleague Mitu Jayashankar when Shibulal took charge.

Consider the second reason: Lack of aggression. So much was made of Infosys’s reluctance to make a big acquisition that when it acquired Lodestone last year, there was a sense of triumph among its leaders. (“I don’t think ‘Infosys’ and ‘conservative’ should be used in the same sentence anymore,” said Shibulal.) But the growth in other companies was not driven primarily by acquisitions. In 2008, HCL Technologies acquired British SAP consulting firm Axon, but its own growth was driven by infrastructure management. Cognizant makes only tuck-under acquisitions, good to open doors, but too small to drive growth straightaway. In a note to its clients, JP Morgan pointed out that TCS has not made a single worthwhile acquisition since Citi’s BPO arm in 2008; and in any case, its growth was driven not just by BPO.

This article appeared in the Forbes India magazine issue of 31 May, 2013
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Comments (15)
Narayanan Jul 9, 2013
The problem with infosys is clear, regionalism. which leads to nepotism. In today's global scenarion, this character can destroy any organization.
Infosys has negligible presence beyond Pune. Obviously, a lot of people in India never care about such a dark skin preference company.
Kishore Kumar Jul 8, 2013
Spot on analysis, but why the promo pitch for Cognizant? The H1, H2, H3 of Cognizant is clearly a temporization mechanism without committing to any real strategic directional change. For instance, while Frank is "in charge" of H3, what exactly is the H3 strategy that he has articulated? None. It is two years now since Cognizant this meta-strategy yet there is no clear statement on where Horizon 3 is heading. This is not a winning strategy but a total absence of any strategy.

Infosys indeed erred in moving to the future without securing its present but that is not whole story. The platform-based, non-linear business model (which is key to Infosys 3.0), while it is attractive to the vendors, is simply not making business sense to the buyers. American companies have invested billions in their existing systems and are in no hurry to trash them and move (disruptively) to the hosted solutions offered by Infosys or anybody else. At best, hosted solutions open up a new market - Small Medium Businesses - which are under-invested in technology today, but this is not the target market for Infosys et. al. Therein lies the real problem for Infosys 3.0.
Dr.a.jagadeesh Jun 2, 2013
Very interesting post. There was a saying in the past that Every employee is a carorepathi (because of the high value of Infosys share value in the boom) but now more and more employees are leaving Infosys.
Dr.A.Jagadeesh Nellore(AP),India
Ad Jun 1, 2013
Spot on Jared !
On top of that The So called 5 Muskteers of Infosys forgot to empower Middle management. Even a paper for printers need Muskteer approval.
Other issue being a mind set of Take-Take-Take from Customers and employees and when it comes to giving, give lectures and mumbo-jumbo noise with no tangible outcome.
L Prasad May 31, 2013
This tragedy has unfolded over the last decade, because INFOSYS' top management has a STRUCTURAL ORIENTATION rather than a SYMBOLIC one. They think like glorified ADMINISTRATORS, not INSTITUTION BUILDERS.
Anand Iyer May 31, 2013
Numbers are moving quite fast at Infosys. 1.0, 2.0, 3.0..... The company has lost the theme for almost a decade now. It woes have only remained moderated because of weakening of rupee and exhaustion of goodwill.

Research houses like CLSA, Anavaran have been screaming an AVOID on this counter for past few years. From where I see, the best case scenario for INFY is the one propagated by Anavaran Investments where INFY gets acquired by some existing giant like TCS or people looking to diversify to service sector like RIL, Vedanta etc.
Jared May 31, 2013
Some how, people are linking 2 separate events with Shibu. The current situation can be linked to several of the below listed
1. Shoddy heiring from 1990's which has placed impotent middle management.
2. Stupid decisions like iRace that has been driving talent out since 2006
3. Policies against employees(yes that is rite). This one is a major killer as the employee is treated like dirt.
4. Re-iterating the 1st point, because of high pressure from higher echelons, the middle management is trying to save the situation by fixing the wrong problem.
5. Because of terrible middle management, the meritocracy is lost. Reducing the company to a boot licker's paradise.
Infosys Employee May 30, 2013
There is nothing called Infosys 3.0 at all. It is just a covering for Shibulal as he anyways going to step down in 2 years. Initially they said they want to drive Product sales, and then Consulting (this is why they have removed "Technologies" in name) and now confusion! The problem as many thinks is not Top management but Middle level management and HRs. In the name of policies, the managers are given ultimate control and one has to lick them to get a good appraisal. No one knows except employees that how many clients have terminated their contracts without renewing. Infosys is a pathetic company run by managers who doesn't know even ABC of IT yet became managers just out of experience. No need to mention about HRs who just thinks the duty is to pass some emails on policy changes. Why do people stay then taking pea-nuts? An attrition rate of 16% is enough to say how bad the management is at ground level. Not just that the bench strength is very very high.

There are people who have been on bench doing nothing for nearly 2 years! Work Balance is a tremendous joke at Infosys. Whether you are on bench or working for project, you have to spend 9.30 hr every day. If i calculate travelling time also, close to 12 hrs, almost half a day per day I've to spend at Infosys. A training batch was called recently, so do not be surprised if you hear Infosys has fired some more employees again. Infosys is in a much worse phase than anyone else can imagine. Frankly, insiders have no clue about the Present, leave about future!
K A Prasanna May 30, 2013
Infosys is not getting right any thing in the last one decade. All companies are born to die. I think Infosys will die prematurely.
Saurabh May 29, 2013
I can only think of one thing when it comes to Infy Strategy. That is ' HOW TO MINT MORE MONEY FROM CLIENT AND GIVE LESS TO THE PEOPLE WHO ARE ACTUALLY GENERATING THE MONEY. Basically Infy's fundamentals are WRONG. It spends hell lot of money in Infrastructure i.e. the buildings ONLY. You can see hundreds of staff shampooing the tiles day in day out, cutting every inch of the trees that grow in campus, having thousands of security guards, CISF commandos etc etc. The list is endless. It needs to understand that there is Revenue Leak due to wasting money on all these wasteful expenses. Other companies are saving all these real money so their Q end numbers are good. They can afford to spend money on employees. At Infy the money is drained out in nonsense manner and Infy is very proud of the same. The Mgmt is least bothered about giving any real benefit to client. The only aim is to LOOT as much as possible by inflating the estimates and if client rejects the proposal then WHO CARES. There is a big disjoint between sales and delivery team so most of the proposals fail to realise. Cheap politics, lack of vision, lack of interest is taking the toll. Now the revenue that Infy is showing in market is basically the revenue that they generated by laying of thousands of people accross globle, by not giving hikes, by stoping the gratuity (earlier it was for every resource irrespective of the time spent in company) and many other ways that you can expect from Infy. There were rumours that Infy paid some xyz increment at onsite last year. You can check the reality. Not a single penny paid till date. It's almost more than 6 months. The biggest issue is if one resource is really working hard for the project, then mgmt will make sure he works hard for ever without any REAL benefits. Basically there is no focus at all. It's like CHALTA HEY attitude. CHAL RAHA HEY NA....CHAL NE DO...Sr, Mgmt is loaded with tons of stocks and are getting huge dividends( tax free) so are least bothered about the employees not getting any monetary benefits. Infy makes sure the real people leave the company and the JOKERS run the show. There are many Sr. Mgrs who are least bothered to come to office and are full of EGO. If someone tries to resist or give some better idea, then he/she is fired. You can't just stand up to the old timers. The overall culture is kick the new comers..Hell lot of policies, processes, rules etc. have created so much of chaos that there will be hardly anyone (apart from the BnBs - Born and Broughtups) who would like to continue in Infy. The mgmt should start doing INTROSPECTION . There should be a HOLISTIC approach to tackle issues, whether it's people issues, delivery issues, business issues etc. I can only foresee that if this continues, then the GOLDEN AGE will come when Infy will be taken over by some other company, or will get busted. If someone starts looking at Infy, then he/she can write a big novel ...based on true stories....God Bless All
Reshan Maipa May 29, 2013
Infosys surely has the potential to surpass all other companies. But the day the employees start working for Infosys and not Infosys-sub units is the day Infosys starts progressing. Salary, growth, technology everything is goverend within the unit. Even if another unit has opportunities, there is no way a prospective employee can apply or be considered since his parent unit wont release him. kudos to divisional politics.
Dan May 29, 2013
After the Infosys 3.0 initiative there was a change in the Organisation Structure which I believe is the major reason for the Lackluster Performance.
Bigger Units like Enterprise Solutions ,BFSI etc were split into many smaller units each alligned to Industry Vertical.
The idea was to create independent ,competitive units but this strategy backfired.
The resources are split into smaller units and this has made it difficult to bag and deliver big projects.
There is lack of co-operation between the small units when it comes to sharing of resources .As a result lot of Clients are experience delays in resource allocation and at times unsatisfied with quick fix replacements -unexperienced and untrained resources.This hampers repeat business from the clients.
There might be a shortage of a particular skillset in one unit ..where as the multiple people with the skills might be on bench in another .
Lack of Co-operation , delivery managers ego , Lack of leadership to enforce co-operation are the main culprits.

Regards,
Dan.
Current Infoscion May 29, 2013
Actually Infy 3.0 strategy is working but not way its founders have expected . When Infy 2.0 was launched, we were no. 2 behind TCS, with 3.0 we are no3 behind TCS
Krishnan May 28, 2013
@Sameer verma - You have raised very Valid points .

I think the Infy upper management is competent enough but lacks vision . Employees are not motivated enough due to bad policies . Infy needs a compelte overhaul and start from scratch . Just to bill the client they have started with 9.15 hours compulsary policy but it is like a cheating to clients because in th menatime the employee studies for certifcation , eats lunch , gyms etc. so if there is work , then the employee will itself sit for 10 hours or more , then why to make 9.15 hours mandatory.

Second is the wastage in Bench . Bench employees have to mandatory come to Office and waste there time in Library or cafes or no place to sit in overcrowded campus but they can never sit at home . This is a shame becasue in Accenture the employee can sit at home and when there is ajob the manager will call him accordingly.

No work from home proactive policy. The meployyess should be encouraged to work from home so that the company resources are saved.

No formal dress code should be there and Employee should be able to work in casuals . Formal binding of dress code makes it more of a forced work culture.
Infy surely needs to look into it HR policies as Sales people are leaving too .

Infy software engineer get very less pay and no hikes for years. This is not the way to retain the talent when you have 8 billion$ of cash pile .

Apart from negative and comple employee dissatisfaction there are still postives in Infosys too . It is still a beand name to be recognized and has good brand value .
The certification system is very robust and aloows the employees to excel.
The EnR system and the course are top class . The course material is even better than the MIT online courses.
Beautiful campuses at different locations.

Still I will reiterate that above Hr policies should be changed and the company will itself focus on growth. The upper managemt is not competent or bad , they are good but now in highly globalsied world , we need to be more acceptable to changes . I have seen many infy managers to be highly hard working which creates a good impression in there team but cannot say for all the managers. Some employees ( including managers) are really top class but they are few.
Samir Verma May 28, 2013
Appreciate the well written article.

Just wanted to highlight a few points,

1. Core issue is the frustration of employee and its not just the pay which has not increased as such since april 2011.
Its more to do with work culture, it has degraded a lot and managers tend to delay things more than often with new system restrictions in place to cut down cost.
Today if you visit any campus, people arent motivated or even bothered enough to work more hard since the company acknowledges investors more than its real assets.

2. They are trying to get into a Product space from services, it requires a very different work culture which is free and independent. But they are treating it the same way while you see the products, platforms been appreciated by clients etc but not getting picked up because of this.

3. Margin Misconception: In media it is made to show that infosys is 30% plus margin oriented but it was only till 2007-08. Today they are picking up projects at 10% margin as well. So the point of losing is estimation and poor client interaction. It does not believe in building relationship through Pre sales team which is indeed very important. They are the front runners for the company.

4. Top Management, I dont believe it is incompetent but is busy in personal benefits and favours. To be honest we cant see any leader in anyone of them. They were good operational managers. Vision is different.

5. Expansion issue, it has become the biggest issue, big campus are good when its all at one place but IT does not work that way and there inability appose to competitors to expand globally for presence and locally for people benefit is hitting hard with high operating expenses as well.

6. No Go as of Now, if you talk to management, they seems to be optimistic but practically for any initiative they have stopped even analyzing. 90% of initiatives have been cut down.

7. Pay Structure: well, its very difficult to judge for its good. As you grow, you salary grows. But in infy, it goes instability in salary due to variable pay and also it pays in 4th and 5th month for variable pay of 1st-3rd month. This keeps a lot of people in JL4-5-6 dissatisfied and leave them with no primary motivation to work more.(not refering to market pay in this, it will be pathetic).

8. Performance evaluation: people are mandorily put in poor performance bracket due to politics or too many similar people that is very risky.So any employee is just looking to switch asap. This was not the case before.

Many more... but lets talk of what next?
Infosys has core 3 issues:-
No growth in traditional areas
Low growth in new technologies
Employee satisfaction all time low

Acquire Acquire Acquire small and midsize firms to deliver plug and play solutions with focus on license fee.
Spend money heavily on building sales team near the client rather than off shore with a resource full information hub to quickly response to clients' doubts
Give a hike to employees, remove 9.15 or reduce it to 8hours a day, and some very idiotic policies that irritates them

All 3 are risky in nature and require 2 quarters to show results but markets(so called investors) will get returns immediately.

Infosys is very conservative. They are simply not ready to invest money in anything else but Bank FDs(check annual report). Lodestone was push from market and KV Kamath(though i believe he is good for nothing) neverever received any mail from him about anything.
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