Posts Tagged ‘Infosys’

Vishal Sikka’s 5-point strategy for Infosys

August 19th, 2014

Around noon on June 12, Vishal Sikka, named chief executive-designate by Infosys a couple of hours earlier, spoke in a townhall meeting, webcast across all of the company’s development centres.Outsourcing45

An hour later, one employee at the Mysore facility who anxiously heard every word Sikka spoke, was a relieved man. “It was just so assuring hearing him,” the engineer, who joined the software company in 2011, said.

“Not that he (Sikka) spoke of anything grand but whatever he spoke (including) digital transformations, on areas of cloud etc were in such a saint-like manner. That was it. That’s all what we want here,” said the engineer.

It may be marked as the biggest resurrection at corporate India.

Since his appointment, Sikka has taken five key steps, early signs of which seem to suggest that there has been a change in the mood from near-despondency to excitement. Note that on June 12, the day World Cup soccer kicked off, Vishal Sikka was the most discussed subject globally on Twitter.

Sikka since then has tried to win the confidence of senior ranks at Infosys, instill confidence among the software engineers, and even reached out to former company executives, making many believe he has an “inclusive leadership style.”

Finally, in between making three trips to Bangalore, Sikka has also met with several clients and venture capitalists, leaving some to even suggest if Sikka is the new Murthy.

“From what we can tell through our contacts, the mood has changed… employees, clients and investors are definitely excited,” said Ray Wang of Constellation Research. “There is a more can-do attitude than before,” adding that “culture and people are key to success” in any services-focussed IT company.

On the day Sikka was named the CEO-designate, Infosys elevated 12 leaders to the position of executive vice-president with additional responsibilities. Experts then dubbed it as a good start by Sikka for it could help the company stop the exodus of senior talent. Since then, only one senior vice president, K Murali Krishna, has left the company. This is heartening for Infosys which saw at least four senior vice-presidents quitting in the six months starting January this year.

‘Home’ for a week
Immediately after his appointment, Sikka, based out of California, started meeting clients and even got together many of Infosys’s business unit heads to meet them in the US. To be based out of the US, a region which accounts for about 60% of Infosys revenues, Sikka has a ringside view on business. Sikka will be working out of India for “at least a week” every month while his deputy and chief operating officer UB Pravin Rao will oversee daily operations.

Significantly, Sikka, based out of the Silicon Valley which is also home to most disruptive technology startups, gives Infosys boss an added advantage to recruit and make investments in companies, said John Appleby, global head of SAP Hana at Bluefin Solutions, the consultancy.

“You (Infosys) couldn’t have chosen a better man to head the company,” one client told a recently elevated business head at Infosys during a meeting. “During any transition, clients adopt a wait-and-watch approach. This time, we all seeing clients telling us how they look forward to working with us,” the executive said.

“One of the great things I came to understand about his (Sikka’s) role at SAP was engagement with customers,” said Dave Gardner, founder of Gardner & Associates Consulting, a California-based advisory firm. “The companies that will win in this century will be customer-focused, helping clients solve the daunting challenges they face and taking them to a place they could not have realized on their own. This is ingrained in Vishal’s DNA.”

“This made analysts who were negative on Infosys come out with positive outlook on the company, with Keith Bachman, an analyst who tracks Infosys for BMO Capital Markets, writing in an August 8 note that “management changes are close to complete” at Infosys. “We expect (the) new management to offer a new strategy toward the end of the calendar year,” Bachman said in a note, titled ‘The Times They Are Changing’.

As he was meeting clients and Infosys senior ranks, Sikka also had multiple meetings with venture capitalists, seeking their thoughts on how to get the missing innovation strand in an $8.2 billion company. Sikka, in a freewheeling chat with ET on July 31, did mention that he will like to start with the corpus of $100 million to incubate both internal and external startups to help Infosys be at the forefront of innovation.

Well done, boss
On July 15, Sikka first connected with the over-160,000 engineers at his company with his crowdsourcing initiative Murmuration, under which he asked employees to share with him what key areas of innovation they thought clients are focusing on. In the first week starting August 1, since he officially took charge, Sikka okayed promotions for over 5,000 employees.

“It is better than it was,” said an engineer working at the Electronics City campus. “Now we are wondering what he is going to do and the promotions made it better. I was worried about the company, with all the bad news. Even my mother was asking what is happening, but it seems better now,” said the employee, who joined the company last year.

Another woman engineer, who started with the company in 2012 said promoting people is certainly a great morale booster. “I mean, everyone was talking about leaving. All the bad news made lots of people leave. But now you hear less of that,” said the employee.

“Vishal promoting executives and connecting with employees is a great move as it does away with the insecurity any leadership change brings,” said Vijay Vijayasankar, Arizona-based vice-president of global channels and business development at MongoDB. “Even at SAP he had a knack for spotting talent from within the company and promoting them. I’m sure at Infosys too he would do the same.”

In the same week, Sikka wrote an email, titled “A new beginning” to former employees of Infosys, highlighting the great work done by them, a move some dubbed as reaching out to those people to return to the company.

“There are simple changes that are being made to help folks feel more empowered and creative and to reduce the hierarchies so that the organization can be more innovative and creative,” Wang said.

In his first interview with ET, Sikka did mention about how he wanted Infosys to also create new intelligent software in more advanced areas. Some experts believe this is “heady stuff” and the company will continue to focus on its traditional approach of winning more “bread and butter” outsourcing deals, with Bachman of BMO Capital Markets estimating the company should retain its 25% margin for fiscal year 2014-15.

His old univ
On August 3, Sikka, along with 20 senior executives, left for the US on a fortnight-long trip. On August 14, the team was at Stanford, where senior staff was given an overview on design thinking from the ‘D School’ at Stanford. Interestingly, D School was set up in 2005 after Sikka’s mentor at SAP, Hasso Plattner, gave a $35-million donation.

Plattner continues to be a professor at the school. Sikka too has said he wants to continue teaching in a consulting role at Stanford. People who know Sikka say this first session at his alma mater suggests Infosys may look at forging a deeper partnership with Stanford, a university famed for its links to successful startups.

“Even while at SAP, Vishal ensured a strong partnership with his alma mater,” said Vijayasankar, who was Sikka’s colleague at SAP. “Now (he may) want to have more employees visiting (the) campus, exchanging ideas. He himself will like to speak with some of his colleagues/professors.”

But all this and more notwithstanding, some doubt if Sikka will be able to live up to high expectations. “I think he (Sikka) has a couple of months and that might be difficult,” said Frances Karamouzis, vice president at Gartner. “Because when you make major changes, the impact of that takes time. But the reality is that the patience of typical industry watchers is one or two quarters.”

Nonetheless, Gardner said “the best is yet to come” for Infosys. “Vishal is doing what outstanding leaders do: listen and learn. He’s working tirelessly to meet his team, the employees and Infosys clients. In the world of Nascar auto racing here in the US, Darrell Waltrip, a former driver and now a TV analyst, offered, ‘Sometimes you have to slow down to go fast’.”


HCL Technologies: How company beat slowdown

August 14th, 2014

When 46-year-old Anant Gupta took over as CEO of HCL Technologies from Vineet Nayar, he inherited a high-flying company. Eighteen months on, Gupta has built on that momentum. Operating margin has improved from 22.1% since he took over in January 2013 to 26.3% for the year ended June 2014.

Together, Gupta and Nayar have presided over a margin gain of 9 percentage points since 2008. This is a period that saw IT industry association Nasscom lower annual growth projections for the IT services business from around 16% to 12%.

In this period, Indian leader TCS improved this metric from 25.8% to 30.7%, while the number two player, Infosys, fell from 33.2% to 27.2%. HCL is narrowing the gap, leveraging its improving capabilities and bigger customers.

Back in 2010, HCL had only one $100-million customer; now it has six. In the same period, its count of $50-million clients has gone up from six to 15. “Old contracts started maturing (HCL was able to bag more business from a client) and that led to higher profitability,” says Dipen Shah, senior vice president & IT analyst, Kotak Securities.

At the worst of the 2008 slowdown, HCL paid $658 million to beat Infosys and buy Axon, a UK-based business software consulting major. This buyout helped HCL grow its business consulting practice (services that use IT for specific business outcomes). Says Anant Gupta, “Strong focus on IT transformation deals over the past several years helped the company grow faster than the competition as growth in traditional application development and maintenance contracts withered due to pressure on client IT budgets.”

Even as HCL entered new domains with Axon, it kept an eye on its cash cow: The infrastructure management services (IMS) business. As part of this, HCL provides computer support, software upgrades, anti-virus protection, and manages data centres and networks.

For Freescale Semiconductor, for example, it does this in 20 countries. IMS has grown from a $196-million business in 2007 to a powerful $1 billion revenue engine now, accounting for 30% of HCL’s revenues and growing at the same rate.

An increase in sales and marketing spends, from $386 million in 2010 to $662 million in 2012, helped HCL win deals in the tough period. In 2011, HCL replaced IBM as British pharma major AstraZeneca’s outsourcing partner for data centre services in 60 locations globally.

As the partnership matured, HCL was able to bag additional services.

HCL is also using its employees more. Employee utilisation has averaged 84.5% in the last four quarters, against 75% three years ago. “Productivity improvements helped margins expand,” says Sarabjit Kour Nangra, VP research, Angel Broking.

HCL tackled its lagging BPO business as well. It reduced voice work from a peak of 45% in 2009 to below 30% now; it exited low-end services like customer care. After three years of losses, the BPO business, which accounts for around 8% of the company’s $5 billion revenues, turned profitable in 2012-13.

To sustain performance, HCL will have to accelerate its lagging software services business, which accounts for less than 5% of revenues. “Sustaining margins will be a challenge as there’s not much room to extract more juice from initiatives like employee utilisation,” says Shah. Adds Ankita Somani, IT analyst at MSFL, a brokerage, “While HCL has done well in the past, there’s too much dependence on IMS. It will need to broadbase its growth.”


Infy betters TCS, Wipro in revenue per employee

August 14th, 2014

IT services firm Infosys has been consistently improving its revenue per employee in the last few quarters. Its numbers are better than those of its top two Indian competitors, Tata Consultancy Services and Wipro, due to higher returns from consulting and systems integration (C&SI), says a company official.

Revenue per employee is a function of various things, including price points, portfolio of services, onsite-offshore mix, utilisation and client mix. However, “our proportion of revenues from C&SI is higher than leading offshore peers,” said a company spokesperson.

Reduced hiring

Reduced hiring by Infosys in comparison with TCS, especially during the last two financial years, has helped the Bangalore-headquartered firm boost its revenue per employee metric. However, attrition remains a challenge.

The recent improvement in utilisation for Infosys was mainly due to an increase in attrition, which forced other employees to bear the increasing workload, said Bozhidar Hristov, Analyst, Professional Services Practice, Technology Business Research, US.

If Infosys wants to maintain healthy (above its peers) revenue per employee and utilisation, it will need to pick up hiring of both freshers to support large-outsourcing deals and laterals to add value to C&SI opportunities. It should also invest in automation tools and IP-backed assets to sustain non-linear growth.

Infosys is leveraging its expanded foothold in Europe following the acquisition of Lodestone to boost brand awareness and drive high-value C&SI sales. In comparison, while TCS’ ability to provide operations execution remains its key lever, consulting on operations hinders its ability to expand high-value C&SI sales, said Hristov.

Automation helps

According to Moorthy K Uppaluri, CEO, Randstad India, in the IT sector, revenue per employee indicates the overall growth of the company, employee productivity and the non-linearity of the business model. Most IT majors have been winning large, multi-year project-based engagements, and they have built efficiency through automation to execute these projects. This has had a positive impact on the revenue per employee equation.

Companies are investing in development of products in core banking, IT infrastructure management and IT accelerators for emerging technologies to improve non-linear revenue. Such measures have helped improve the revenue per employee consistently, by around 15-20 per cent over the last five years.

A higher onsite ratio of employees also impacts this metric as for the same number of people, the billing is much higher, he said.

Rituparna Chakraborty, Senior VP & Co- Founder, TeamLease Services, said the top IT companies have vastly improved productivity.

Wipro this year had a flat headcount for revenue that last year would have required it to hire 10,000 people.

The role of HR for most IT companies is shifting from selecting to upskilling.


HCL Tech is IT’s stock market star

August 13th, 2014

Among the big Indian IT companies, HCL Technologies has been the undisputed star of the stock markets in recent years. It’s the smallest of the top five, and has tended to receive the least public attention – overshadowed by TCS’ and Cognizant’s strong performances.

But the $5-billion, Shiv Nadar-promoted company’s rise has been phenomenal. Over the past three years, its share price has risen by 249%. In comparison, TCS was up 139% and Infosys, the worst performer, just 34%. The gap between HCL and the rest was equally significant over the past year. HCL rose 64%, TCS and Cognizant both grew around 35%; Infosys was once again the laggard at 15%.

There’s good reason for this. Its revenue growth has been consistently high, and above the industry average growth. But what’s been remarkable has been net profit growth, which was 42%, 50.5% and 30.9% in dollar terms in each of the past three years (Infosys’ respective figures were 1.5%, 0.5% and 14.5%).

The company’s operating margin – one of the best measures of the efficiency of a company’s operation – used to be 14% three years ago, when Infosys’ was close to 30%. In the past quarter, it was 24.2%, just a shade behind Infosys’ 25.1%. In just the past year, it improved the operating margin by nearly 4.5 percentage points.

Investors use a measure called the price-earnings (PE) ratio to evaluate the relative attractiveness of a company’s stock price. It is a valuation multiple that reflects earnings/profit growth and the predictability of this growth. Infosys and Wipro have traditionally had a much superior PE ratio, but Pramod Gubbi, director of sales in brokerage firm Ambit, says he expects HCL Technologies’ PE ratio to cross that of Infosys and Wipro over the next four quarters. In other words, investors will then be willing to pay a higher price for a dollar of HCL earnings, than for a dollar of Infosys or Wipro earnings.

Varun Vijayan, IT analyst at the brokerage firm PhillipCapital, notes that HCL Technologies has outperformed its peers, expanding its margins and improving operating cash flows in the past two years. “They have been closing $5 billion worth of deals in each of the last two financial years, and a large chunk of it is coming from new clients and expanded scope of work in some of the service lines,” he says.

HCL discovered its pot of gold in an area called infrastructure management services (IMS). It recognized – much before most of its Indian peers – that this was a space ripe for large-scale outsourcing, and also one where Indian vendors could outbid global players like IBM and HP. IMS involves the management of the entire IT infrastructure of a company, including equipment, data, related policies & processes – an area that’s not core to most companies and yet an increasingly important part.

In the past few years, IMS has grown extremely rapidly for HCL, many of the contracts being those that were previously handled by global IT majors. HCL Technologies CEO Anant Gupta recently told TOI that a big reason for this was that HCL had no vested interests in the space. “Unlike some of our global competitors (read IBM, HP, Dell), we don’t have to sell servers, storage or networks to customers, so customers have confidence we will give them the best options,” he said.

The pace of growth in the space has slowed down a bit, but it is still winning big contracts. In just the past few months, it won a $500-million contract from Pepsi, a $400-million contract from DNB Bank, Norway, and a $400-million contract from Alcatel-Lucent.

Gubbi says HCL is still several steps ahead of peers with respect to selling and delivery capabilities in IMS and that IMS still has a lot of headroom for growth. Dipen Shah, head of private client group research in Kotak Securities, however notes that HCL Tech’s growth from infra services has slowed down in the last two quarters while Wipro is showing some good momentum in terms of deal wins. “We are seeing contrasting trends with regard to these two players. Though PE valuations of Wipro and HCL are somewhat similar, we will need at least 2-3 quarters to see how the action pans out,” he says.

Gubbi is also impressed by HCL’s innovative approaches towards relatively commoditized service lines such as application support and maintenance, and says it is able to cross-sell application management services to its IMS customers. HCL’s ALT ASM offering focuses on a ruthless cut down of waste in application support and maintenance, and is said to be seeing significant traction.

The division is now headed by Ajit Kumar, an Accenture veteran who came to HCL a year ago. In 2012, HCL brought Prithvi Shergill from Accenture to head HR. These are signs that the company is trying to combine international best practices with India’s outsourcing advantage. For now, the strategy looks to be working perfectly.


Infosys shares rise on $1.8-billion buyback call

August 6th, 2014

Shares of Infosys jumped as much as three percent Wednesday after three top ex-executives urged the Indian outsourcing giant to buy back shares worth $1.8 billion, saying the company is too cash-rich.

The proposal represents the first major challenge for Infosys chief executive Vishal Sikka, who took charge on August 1. He replaced co-founder Narayana Murthy who was recalled from retirement last year to help Infosys regain market share.

An Infosys spokeswoman was non-committal, noting the proposal had come so far from “only three retail investors”.

But “should there be any development that will impact our shareholders, we will immediately inform the regulatory bodies”, she told AFP in an emailed response.

In a letter to media on Tuesday, former officers V Balakrishnan, T V Mohandas Pai and D N Prahlad sought a Rs. 112-billion stock buyback for all shareholders at 3,850-rupees-a-share.

The price would represent a nearly 10-percent premium over the stock’s 52-week trading high.

The two former chief financial officers and an ex-senior vice-president said they believed big institutional shareholders “are supportive” of the proposal, which comes as Infosys shifts from being run by a company founder to an outsider.

Analysts called the proposal a “pressure tactic” on the new chief executive to deliver results for investors impatient at longstanding underperformance by the Nasdaq-listed company — a pioneer of India’s flagship outsourcing industry.

After rising by three percent earlier in the day, Infosys’ shares were up 1.5% at 3,557.95 rupees in afternoon trade.

Regardless of funds needed by Infosys involving future innovation or acquisitions, “we strongly believe the company is clearly over capitalised”, the ex-executives said, according to local media reports.

The Bangalore-based company, India’s second-largest outsourcer by sales, was sitting on Rs. 259.5 billion in cash at the end of the last financial year in March 2014.

Cash-flush firms often buy back their shares in a move that can drive up the share price by reducing the amount of stock on offer and boost sagging earnings-per-share.

But critics say buybacks can flatter the bottom-line performance without delivering profit growth based on investment and development.

Infosys’ shares have underperformed rivals such as TCS by over 70% and HCL Technologies nearly 80% over the past five years, analysts say.

“This is a pressure tactic to leave your conservative approach and do something — an acquisition, expansion. Investors have become impatient,” Daljeet Kohli, research head at India Nivesh Securities, told AFP.

Sikka has said the company must revitalise its “low-cost, mundane” software services while creating higher-earning opportunities in fields such as data analytics.


Infosys Turnaround: Incoming CEO Vishal Sikka Favors Tweaks Over Drastic Changes At IT Giant

July 31st, 2014

Infosys is struggling but incoming CEO Vishal Sikka said his prescription consists more of innovative tweaks than any drastic changes at the software company after he takes over at the end of the week.Outsourcing40

Sikka was speaking at the Bangalore-based IT services giant’s general meeting that formalized his appointment as the company’s chief executive and managing director. He will take over on Friday from incumbent SD Shibulal, the last of the company’s founders to hold the top position.

“I see no reason to make any grand changes to the direction we’ve been going in, but I do see a great opportunity to augment that with new kinds of innovation,” said Sikka, who has been offered over $5 million in annual compensation in addition to stock options to lead Infosys.

When Sikka, who quit as chief technology officer at SAP AG before accepting Infosys’s offer, starts in his new role, it will be the culmination of a tumultuous 15 months since Infosys’s iconic founder NR Narayana Murthy returned from retirement to try and pull the company from the morass it seemed to be stuck in.

When Sikka takes over it will be a break in history as he’ll be the first non-founder chief executive, and from outside the company to boot, to lead Infosys at a time when it’s future hangs in balance.

In the two years leading up to Murthy’s return, Infosys implemented much of a strategy it called Infosys 3.0. This was expected to help the company break away from adding hoards of college recruits, like the rest of India’s outsourcing industry, and bring in disproportionately higher revenue growth from a combination of proprietary software products and platforms and consulting.

But that effort coincided with financial crises in the U.S. and Europe that left the company’s biggest customers in no mood for fancy projects, the strategy didn’t really take off and Infosys lost ground to rivals such as Tata Consultancy Services, paying the price for neglecting its bread-and-butter IT outsourcing business. Sales growth fell close to 80 percent in the two years before Murthy returned, margins were down nearly 45 percent, and Infosys continues to lag its peers in the Indian IT sector.

Murthy vowed in June 2013 that he would reverse the trend and put the company back on track to winning large outsourcing contracts. He offered ruthless cost cutting, productivity improvement in software delivery and renewed focus on sales effectiveness.

Since Murthy’s return, leading up to Sikka’s selection in June this year, some 13 top executives quit, including those who were considered CEO candidates. However, bolstered by a gradually improving US economy, Infosys is showing signs of accelerating its growth, largely meeting street expectations over the last one year. The U.S. accounts for 60 percent of Infosys’s revenues.

“The initiatives taken by Mr. Murthy (and others) over the last one year has started to show results, and we are confident that the team we have in place and recent momentum is in our favor,” Sikka told shareholders from Bangalore. He will continue to be based in California where his family is, and travel as needed, he has said.

Sikka, 47, has a doctorate in computer science from Stanford University and is often called the father of HANA, SAP AG’s in-memory analytics and applications platform. Since his very first interactions with the media and others, he has always argued Infosys is uniquely placed to deliver path-breaking software to its clients.

Shareholders got a broad-brush glimpse of that philosophy on Wednesday: “The world around us is becoming fundamentally reshaped by software … it is happening in every industry that we already operate in, and so I see great opportunity in bringing innovative new kinds of software to our clients.”


Daimler Begins IT Transformation with Infosys

July 29th, 2014

Company have handed over European data centre keys to Bangalore-based Infosys.Outsourcing4

Daimler, the German automobile company that manufactures Mercendes Benz, is making moves towards the cloud after handing over management of its European data centres to Infosys.

Infosys will manage Daimler’s infrastrastructure, data centre, middleware and database operations from its Enterprise division in India’s technology hub, Bangalore.

Daimler previously used HP to support its key systems. Prior to that, Fujitsu Siemens managed its servers and databases from2008.

The contract is the first step Daimler is taking to transform its IT infrastructure. It reflects Bangalore’s growing influence in the European, and specifically German market.

Infosys reported a revenue and profit rise ahead of Vishal Sikka, former SAP technology chief’s takeover as CEO this week.

It is believed that Sikka’s Silicon Valley background and connections will accelerateInfosys’ growth strategy through acquisitions as well as shifting the focus to non-linear services and higher margin IP products.

The outsourcing deal coincides with Daimler’s launch of the world’s first autonomous truck this month, allowing speeds of up to 80 kilometres per hour.

In its financial results, Daimler said the “Truck 2025″ indicates the “long-distance trucks of tomorrow and future transport systems. This is based on the intelligent networking of all existing safety systems, supplemented by cameras, radar sensors and the possibility of communication between vehicles”.

The manufacturer said that the new truck could be available on the road within five years, “but due to the complex situation of heavy commercial vehicles, a timeframe of 10 years is realistic”, it said in its financial results on Thursday.

However, the automotive industry has a lot to learn about software patching throughout the supply chain before connected cars reach critical mass, security experts have warned.

Increasingly businesses are moving the management of their infrastructure off-premise so that IT can focus on product releases like the Truck 2025.

Ruchir Budhwar, Infosys vice president and head of automotive in Europe, said: “Radically changing markets and customer demands are making manufacturers relook at their technology backbones to seek solutions that enable rapid response at manageable costs and without disruption. Such solutions allow companies to react quickly, at low cost and without downtime. Infosys will manage the day-to-day data centre operations driven by a shared vision to innovate and transform these facilities.”

Daimler has kept tight-lipped over the deal, refusing to confirm contract details including cost and time-scale.

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