Infosys at Crossroads
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Case Code: BSTR430 Case Length: 22 Pages Period: 2009-2013 Pub Date: 2013 Teaching Note: Not Available |
Price: Rs.500 Organization: Infosys Ltd. Industry: Information Technology and Consulting Countries: India Themes: Managing internal and external challenges |
Abstract Case Intro 1 Case Intro 2 Excerpts
Introduction
Bangalore-based information technology and consulting company, Infosys Limited (Infosys), announced that it had recorded revenues of US$ 1.79 billion for the second quarter (Q2) ended September 30, 2012, of financial year (FY) 2012-2013,. The revenues had gone up by 2.9 percent from the US$ 1.75 billion it had recorded for the Q2 of FY 2012. Commenting on the results, SD Shibulal (Shibulal), CEO and Managing Director, Infosys, said, "Global economic uncertainties continue to face the industry. We have increased employee wages, used some of our cash in a transformational acquisition of a consulting business, and enhanced our investment in R&D and solutions. These initiatives will position us well in the industry and provide a strong platform for future growth."
Infosys, founded in 1981 by N Narayana Murthy (Murthy) and six others, was reportedly announcing disappointing results for the fourth quarter (Q4) of 2012 on several performance parameters – reduction in volumes, weaker employee utilization, weaker pricing, and lower revenues from its key US market as well as the Banking and Financial Services (BFSI) vertical. Moreover, the company, known as the sector bellwether for providing quarter guidance which it usually exceeded, not only failed to meet its guidance for the Q4 of 2012 but also gave a lower revenue guidance of 5 percent growth for the FY 2013. This was lower than the guidance of 11 to 13 percent projected by National Association of Software and Services Companies (NASSCOM) for software and services companies for the FY 2013. After reporting disappointing Q4 results for the year ended March 31, 2012, the company stopped making forecasts saying that the economic environment was too volatile. Tata Consultancy Services (TCS), which did not usually make any forecasts, was considered as the new sector bellwether by Gartner India (Gartner), since the company's revenues grew by 3.4 percent to US$ 2.73 billion for the Q1 ended June 30, 2012, of FY 2013 from US$ 1.97 billion for the same quarter of 2012.
The company's internal restructuring, done with the aim of transforming itself into a consulting major focusing on high value businesses rather than catering to cost-reduction projects, also backfired as the global companies were keen to make investments in projects that could help them cut costs. Industry observers pointed out that the global clientele preferred working with IT companies with lower margins in the wake of the weak global economic environment. Analysts opined that Infosys' premium pricing strategy and risk-averse culture had only added to its troubles. The company was also criticized for its failure to motivate its employees with delayed and small pay rises being pinpointed as the cause for increasing rate of attrition at the company. To add to the woes of the company, which was already grappling with several issues, players such as Cognizant Technology Solutions (CTS) and Accenture plc. (Accenture) were increasing their presence in the Indian IT market, making it even more difficult for Infosys to survive in the intensely competitive Indian IT market...
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