Bogey of resignations could haunt Infosys

Top management jobs at Infosys are getting harder to save. The company is attracting the wrong kind of visibility after a string of top management exits which are leading the industry to believe that much of its troubles are internal. And, also that Infosys is not clearly articulating what really ails the company.

While its peers TCS, HCL and Cognizant have been performing steadily in the aftermath of the global economic slowdown and flagging demand from the all-important financial sector, Infosys regardless of the blip in its fortunes, still finds itself in the predicament of being unable to clearly predict its fortunes or smooth out operational bottlenecks.

The internal issue stems from fears of succession and uncertainty once incumbent CEO S D Shibulal retires in 2015. There has also been increasing resistance among some of the erstwhile top brass to the entry of Executive Chairman N R Narayana Murthy’s son Rohan Murty and a possibility of his further elevation in the organisation sowing seeds of distrust and uncertainty in their minds.

Former chairman K V Kamath stepping down on the day of Murthy’s return to the company is the one unmourned development amidst the spate of resignations flooding executive chairman’s inbox.

For, Kamath’s stewardship of the company revealed no real direction to its senior executives on penetrating new niches in the market and failed to acquire client projects where it could successfully implement Infosys 3.0, the company’s business transformation strategy where IT services would provide a roadmap for projects which impacts the business of the company’s clients. The strategy was in the words of Shibulal to be "relevant to clients in all facets of their enterprise”.

Articulate? Not really

Instead, Infosys 3.0 ended up widening the gulf between its consulting arm and the bread-and-butter software development and maintenance business leading to operational mismatches as well as some amount of client dissatisfaction, according to those familiar with the issue. The result: Stephen Pratt who piloted the consulting arm since its inception is among those who left Infosys in recent months.

A common thread running through all the problems facing the company continues to be one of articulation without elucidation. Hints have been given none too broadly in the last two years that demand has improved in the US and signs of an uptick are being seen in Europe which is likely to result in higher revenue growth.

These have not been really validated to some extent till the second quarter ending September 30, when Infosys post Murthy’s return won 5-6 large deals worth $50 million, with its top client growth at 3.3 per cent and top 25 client roster growing 3.8 per cent. Company officials after an eternity exuded confidence on growth verticals like industry, aerospace, chemicals, automotive, even manufacturing. IT services and systems integration, the company’s mainstay cash cow, have also performed creditably, which lends credence to the idea that Murthy’s return has worked a reasonable amount of magic.

But a variety of heterogeneous painpoints will continue to crop up all over again in coming months, which should make Infosys cautious (and hopefully, optimistic), not least as a function of the exodus of top level managerial talent. These have been painpoints blamed for past poor performance – financial sector customer demand flagging, high attrition levels, timing of employee pay hikes, discretionary client spending patterns and recurring visa issues (not to mention alleged H1-B violations) –, and where the company needs to tread the cautious path while resolving and articulating them to its clients and the public.
 
Management pressures

While the stoically suave Balakrishnan was a prominent candidate in line for the top post at the company, the material impact on client acquisition could be minimal as he was not heading a big chunk of the company’s revenues. But Balakrishnan had vast experience in direct client engagements and replacing him and others is a new challenge for a company in the throes of reinventing itself.

“It (Balakrishnan’s exit) may have some effect over a medium term. Senior level exits remain a concern with the company,” says Ankita Somani, IT analyst with Angel Broking. While the marked decline of the bellwether’s fortunes has been steady well before Murthy’s return, much of the stumbling blocks to its progress, both internal and operational, remain in place. And, key members of the senior management who can again rise to the occasion have moved on.

Add to this the company’s inability to give a reliable guidance on its performance other than being “cautiously optimistic”. Infosys’s business model has relied to an unduly high degree on contracts which are still under negotiation or in extracting more juice from contracts in hand. Murthy has worked towards changing this model and the consequent pressure on top management is apparently taking its toll.

And, a management transition of this scale cannot be forever explained away as part of “strategic restructuring”, believe industry watchers, who feel that Murthy must try to arrest more high-level exits by focussing on operational realignment without sacrificing its tried and tested hands. Not that this will be easy.