From time will tell to now is the time
In late 2013 TBR published The next 5 years: A successful strategy for Infosys that examined what it would take for Infosys to catch up with multinational corporation rivals such as Accenture and IBM. We believed Infosys needed to build up nearshore Americas capacity and capabilities, acquire consulting capacity in Europe, and invest in IP — and we were right. More than five years later, Infosys is aggressively executing in all of these areas. But success did not come easy, as the company witnessed a spate of executive departures, including its CEO. Additionally, revenue growth fluctuated: 5.8% in FY13, 11.5% in FY14, 5.6% in FY15, 9.1% in FY16, 7.4% in FY17, 7.2% in FY18 and 7.9% in FY19. While Infosys is showing appetite to transform its sales strategy through aggressive hiring and training of sales and support staff, the company’s delivery framework remains fragile.
Investments in onshore and nearshore personnel in the U.S. and Europe, including the opening of Innovation Hubs (five in the U.S. and two in Europe) to support Agile-based projects, are positive steps forward. However, it appears these investment decisions were forced on the company by market demand and peer pressure. Recent purchases, including 75% of Netherlands-based ABN AMRO subsidiary Stater, Nordic-based Salesforce consultancy Fluido, and U.K-headquartered digital agency Brilliant Basics, suggest Infosys is well positioned to grow its revenue share from Europe-based operations from its current 24% to 30% in the next two years. These investments have taken a toll on company margins, which declined from 25.8% in FY13 to 22.8% in FY19.
Departing from a margin-first culture is not easy, especially as founder N.R. Narayana Murthy remains involved in board decisions, although behind the scenes. Infosys is trying to offset some of its resources investments by expanding proprietary and co-developed industry-centric IP, but monetization of such offerings is a challenge. Former CEO Vishal Sikka tried to rotate the entire 200,000-plus services workforce to act as a software-like company with the associated KPIs and culture changes, but he failed.
March marked the end of Infosys’ first year in its three-year go-to-market strategy, during which it vigorously shifted the composition of its sales to digitally enabled awards, which contributed 31.2% of total sales in FY19. Navigating the dynamically evolving IT services market will not be an easy task as the company balances execution with operational efficiency to meet stakeholders’ expectations. While the company had the last five years to stabilize its performance and realign portfolio and skills to market demand, the accelerated cycle enabled by adoption of digital transformation initiatives has invited many new participants into the IT services space, forcing Infosys to look for blind spots.
Infosys is far from reaching the scale of Accenture and IBM. However, the company still has a chance to secure a top 3 ranking among its India-centric peers either by doubling down on what it does best — participating on the services supply side — or becoming an exclusive partner for managed services to one of the many consultancies aggressively moving into the IT services space.
TBR published initial findings on Infosys’ 1Q19 quarterly earnings in its recent Infosys Initial Response. TBR will dive deeper into Infosys’ resource management strategy in the April 2019 edition of TBR’s Global Delivery Benchmark.