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Back in the Reckoning

Infosys makes a comeback to the Top 5 of the BT500 listing, after a five-year hiatus.

Back in the Reckoning

The headlines were swift and brutal in their pronouncements. On the day when Infosys announced its latest quarterly numbers, analysts and commentariat were quick to write the obituary of the Indian IT industry. The results were tepid and, more importantly, lowered annual guidance for the second time.

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However, to paraphrase Mark Twain, reports of the industry's death are greatly exaggerated.

The story is by now familiar to most of us. For a decade and a half, starting in the late 1990s, Indian IT could do no wrong. From a mere $5 billion in exports in 1999/2000, last year Indian IT companies did $110 billion in exports. Like clockwork, quarter-on-quarter, the industry reported double-digit growth rates. In the process, it created billions of dollars in wealth and white-collar employment for millions.

For a number of reasons, including its much-storied founders' middle-class origins, Infosys caught the imagination of the nation and became the poster child for the sector. For a while the company walked on water, before shifts in the technology landscape, hungrier competitors and nepotistic tendencies of co-promoters taking turns at the top job in the company - among other factors - dented its vaunted reputation.

A little over two years ago, the company appointed its first outsider and non-promoter, Vishal Sikka, as CEO to boost growth. While it is early days, things seem to be looking up. For the first time in five years, Infosys grew at a faster pace than India's largest IT services company, TCS, though admittedly on a lower base.

While the avuncular Sikka, who is based in California, prefers to wear a round neck T-shirt and a jacket for his public appearances and flits in and out of India, the backend operations are run by a soft-spoken, buttoned-up three-decade veteran of the company, U. B. Pravin Rao. He pooh-poohs all talk of demise of the industry. "(IT) industry has been going through a structural change and this has been happening for the past couple of years. Pace of change has been faster than all of us have been able to reinvent ourselves. Having said that, it is premature to say that the IT industry is dead or dying," he says.

Rao, COO of Infosys, emphasises that of the 10 largest IT services companies globally, six of them are Indian. "Historically, if you look back, Indian IT industry has always reinvented itself from the time of Y2K to the dotcom boom and the subsequent (dotcom) bust to package implementation to various other challenges over the years. We are living in interesting times but I am confident that Indian IT will continue to stay relevant, " he adds.

THREE-PRONGED STRATEGY

Rao points out that last year, Infosys grew the fastest compared to its (Tier I) peers, "the fastest in several years". This has been possible because of its 'Renew and New' strategy, which has meant providing greater value in existing offerings by 'freshening' them up and investing in newer ones.

While 'Renew and New' is the broad horizontal transformation theme that the company has tried to pursue, Rao says that in practice it has meant trying to achieve three core objectives.

First, try to move away from being mainly a people solution provider to a people-plus paradigm, which has meant investing extensively in tools, platforms and technologies; second, create ecosystem partnerships beyond independent software vendors (think Microsoft, Oracle, SAP, etc.) to work with academic institutions and startups; the third and final prong is cultural transformation.

The 'People Plus' strategy involves using automation, machine learning and artificial intelligence (AI) to remain competitive in large parts of the market that are commoditised. In the recent past, it has debuted Mana (its AI platform), Skava (digital services platform) and Edge (cloud-based enterprise software solution). Investing in those tools has meant that Infosys releases up to 2,500 people each quarter to be deployed elsewhere, according to Rao. "I know the number is not impressive for a 200,000 people organisation, because most of the automation has been at the low end. However, this is like Siri on your iPhone. There is a learning curve and each effort gets better and better," says Rao. But Sudin Apte, CEO and Research Director of Offshore Insights, a research and advisory firm, says that he is not impressed with the Infosys automation story. "Vishal (Sikka) speaks at 30,000-ft level. On ground, though, they have mostly done low-end testing automation. I think they are doing lip service regarding (automation)."

Infosys, though, says it is early days yet and progress on its 'People Plus' strategy is likely to only accelerate.

INVESTING IN PARTNERSHIPS

Infosys points out that it is going beyond traditional ecosystem partnerships like those with independent software vendors. It has pushed for relationships with academic institutions like Stanford University and Berlin University apart from working with start-ups. Next generation leaders of the company are being trained with the help of Stanford Graduate School of Business.

Infosys for the first time also set apart a dedicated $500-million fund to invest in and partner with startups. So far, the company has invested in nine start-ups for a total of $46 million. "Obviously apart from the money, we bring two key things to a start-up - engineering prowess and most important is access to our clients," says Rao.

Unlike in the past, the company has also been more open to acquisitions, having made a few of them in the recent past including Panaya, Skava and Noah Consulting. Infosys has about $5 billion in cash on its balance sheet. Dinesh Goel, Partner and India Head at ISG, another research and advisory firm, strikes a note of caution and points out that the $345-million Lodestone Consulting acquisition the company made "has not panned out". Goel says "they brought a package implementation consulting company. It was the wrong choice at the wrong time".

Sudin Apte CEO, Off shore Insights

"Vishal (Sikka) speaks at 30,000-ft level. On ground, though, they have mostly done lowend testing automation. I think they are doing lip service regarding (automation)"

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Pravin Rao COO, Infosys

"(IT) industry has been going through a structural change... Pace of change has been faster than all of us have been able to reinvent ourselves. Having said that, it is premature to say that the IT industry is dead or dying"

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CULTURAL TRANSFORMATION

More important than the external challenges might be the transformation that Infosys is trying to do internally. Rao says that the company has invested in a programme called 'zero distance' to break silos and cross-pollinate successful practices. "The idea is to ensure that each group doesn't try to re-invent the wheel. Initially we rolled this out to 10,000 programme managers who were encouraged to look, learn and improve. Dr Sikka personally leads the effort," he says.

Apte of Offshore Insights points out that Infosys has several other challenges to tackle including leadership churn and underinvestment in sales and marketing. "A few departures do happen. Some may not have been able to cope with changes, while others we will miss but have enough talent in-house," adds Rao.

For now, it is clear that Infosys is at a fork in the road where it has to make choices. The choices it makes, will decide whether it will struggle or thrive. The initial moves, though, appear promising.

@venkateshababu

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