What will Infy Do After they are Gone?
New Response
Some indications of the emerging, new Infosys are already coming in. Ask Dhar. His elevation to the EC came just a year before the worst downturn in living history hit the world. It has been baptism by fire. And the decisions he has been taking have been unlike any at Infosys of the past.
Dhar found himself in a rather awkward spot with one of Infosys’ oldest customers — a telecom giant in midland Europe. The client was under serious pressure to reduce costs and the Infosys contract was in peril. Dhar knew he had to act fast. He was aware that a host of rivals had already offered to cut their price by 25-30 percent. If Dhar did not respond on time, Infosys would be edged out of other juicy contracts that were on the table.
He then did what would have been once unthinkable inside Infosys. Rather than reduce his per hour billing rate (which would have hit revenues and profits), Dhar decided to change the way the client was billed.
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Ashok Vemuri, Board member- Infosys Technologies (China) Company limited. | |
For a third of the value of the contract, he promised the client an upfront cost saving. Infosys would now charge the client on the number of technical problems it would solve instead of charging for the number of hours it worked in doing that. In sum, he was proposing an outcome-based model.
Now, the risks were considerable. To ensure that they still earned a profit from the account, Dhar had to bet on far fewer engineers than usual to use their native intelligence to pull off the job. But there was no guarantee that they would be able to accurately predict the rhythm of the job. In fact, in the first six months, the company might even lose some money working this way. But in the long run, Dhar believed it was the best thing for both the client and his company. “It’s always been at the back of our mind to move to this model, but we never had the incentive to do it. This downturn has given us the reason,” says Dhar.
Infosys is hardly the first company in the industry to try out non-linear models. If anything, it’s coming to the party very late. But now, the EC has given Dhar the mandate to push up the contribution of such outcome-based contracts from 3-4 percent of revenues to 20 percent in three years, translating into a $1 billion target. By all accounts, it’s a huge bet.
Handling Discontinuity
The man in the corner office, Gopalakrishnan, is fully aware that Infosys needs a new way of working. The slowdown has exposed the chinks in Infy’s armoury. While it has preserved its profits; it had to sacrifice revenue growth. Its rivals Wipro and Cognizant are growing faster.
For the first time in three decades, Infosys said its revenues will shrink by 3-7 percent this year, rather than the 30 percent growth the business saw two years ago. “These are signs that in future profitability and revenue growth may not go hand in hand,” says Forrester’s Apte.
Business is much harder to acquire and clients are no longer willing to pay like they used to. The seemingly infallible Infosys had to learn to put some more skin in the game — something that its ultra-conservative culture wouldn’t easily allow.
Gopalakrishnan has put together a five point plan for getting Infosys ready for the next stage. This includes increasing the share of higher value services like consulting, delinking revenue growth from staff addition, pursuing large deals of above $500 million, improving efficiency and finding new locations for talent.
He is banking on his trusted ally and friend, COO S.D. Shibulal to lead the new strategic initiatives. “Whatever made us successful in the past may not work in the future,” says Shibulal. Each of the senior VPs in the executive council leads one such initiative and reports to the COO.
Infosys’ operating profit margins have been steady over the past five years, though analysts reckon they could have slipped but for its superb financial management.
Clearly, faced with discontinuous change, Infosys now needs to dance to a new tune. But can it effect the transformation with straying too far from Narayana Murthy’s Holy Grail?
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I predict Infosys to be a stale business in 2-5 years time horizon.
