Will Infosys' new strategy pay off?
The spate of resignations in senior management ranks over the past several months has not upset Infosys Chief NR Narayana Murthy. Instead, in a meeting with global investment bank Barclay he informed the investors that the company is reworking its existing global delivery model to substantially reduce costs for its clients and become more competitive, yet again. Infosys calls this model the Value Global Delivery Model or VGDM through which the company will focus on a new model of reducing costs by trimming the number of senior employees and subcontractors it employs at on-site locations, and initiate more night shifts in its offshore facilities in India. This way, he believes that the company is well positioned to regain its lost market share.
The company had seen six senior-level exits in the past five months since NR Narayana Murthy returned as Infosys Chairman to revive the company’s sagging fortunes, has been making several changes at the top level since then.
After Basab Pradhan, Head of Global Sales at Infosys, announced his decision to quit Infosys in July this year, there has been a series of high profile exits. In August, Ashok Vemuri, who was heading the company’s operations in the Americas went on to join iGate as CEO, while Sudhir Chaturvedi, Infosys’ vice president and financial services head for the Americas, also resigned in the same month. Infosys’ Head, BPO sales, Australia Kartik Jayaraman and BPO head Latin America Humberto Andrade quit the company in September. Earlier this month, Infosys’ highest paid executive Stephen Pratt had also quit after a nine-year stint at the company.
The Chairman explained that in new business strategy, there will be a reduction in the amount of onsite effort the company makes in relation to the offshore effort, because onsite effort - the work done at client sites - is a lot more expensive. The company had to take this decision given the probability that US visas will become more expensive and more difficult to obtain if the bill is passed.
Infosys CEO S D Shibulal informed investors that the company has embarked on a transformational journey where a number of internal changes focused on cost optimization, increase in productivity and quality and other changes will happen by the creation of a new global delivery model although these initiatives are very much in the early stages and will take some time for the results to show up.
Although some in the industry agree that in the current setup, the only way Infosys can maintain high margins is through a determined cost optimization effort, the company’s margins have dropped sharply over the past two years. However, the recent exodus of senior leaders has been raising several doubts about the ongoing changes in the company. While Murthy commands a lot of respect in the industry, many are expressing concerns about the recent developments. It is difficult to say whether Murthy can bring back the magic at Infosys. Investors and shareholders are waiting for the results to start reflecting.
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