Thursday, June 6, 2013

What challenges Infosys s NR Narayana Murthy faces



NR Narayana Murthy's second innings at Infosys serves as a strong positive for the company's shares at a time when it has become tough for the IT company to post healthy growth amid competition and global demand uncertainty.

His appointment as executive chairman sends a strong signal to employees, clients, analysts and investors that the board is serious about reviving the fortunes of a firm that now looks lost in the fast-changing world of enterprise technology.
For Murthy, who turns 66 in August, the cause is noble but the task arduous. The global IT landscape has changed significantly since he gave up executive responsibilities seven years ago. The industry was still humming along on the labour-cost arbitrage and the belief that the shift of jobs from the West to India was both inevitable and sustainable prevailed.

Indian IT companies were exporting $22 billion worth of products and services annually . Industry body Nasscom estimates that this figure has more than trebled as FY13 exports touched $79 billion. But unlike in the past, when higher exports translated to more profits, the past year's growth has come at a time of corporate pain and bloodletting.

Labour arbitrage no longer exists as multinational offshore centres in India are as big, if not bigger, than that of Indian companies. Identifying and enhancing synergies in the client's business and assuming transformational responsibilities while reducing the total cost of ownership are among the key strategies that companies are using to create a services differential.

Given his vast experience and understanding, Murthy should be able to cope with the changed industry dynamics. Murthy will also have to face competition from players such as Cognizant and HCL Technologies, which were relatively modest firms, when Murthy hung up his boots.

Today, Cognizant has overtaken Infosys in terms of revenue size and HCL Tech is leading the infrastructure-management segment, the line of business which has shown higher growth than traditional IT services. What could pose as a bigger challenge, however, is Infosys' own growth in the past seven years when Murthy was not serving in an executive role. Against a revenue of $2.1 billion when he quit, the company garnered $7.4 billion in FY13.

The number of clients has increased to nearly 800 from 460. The client size has also increased substantially. While it reported 15 clients in FY13 with $100 billion or more in individual billings, there were none in FY06. Murthy will also be addressing a far bigger — and perhaps more disgruntled — workforce that is 1.6 lakh strong, against 52,700 in FY06.

He is also not very much in touch with the youth of Infosys, as he has pointed out while announcing the roping in of his son on the board. Addressing the key human resource issues should be at the core of Murthy's strategy, given the company's relatively high attrition levels.

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