Infosys Is Having Its Midlife Crisis

Indian outsourcer Infosys is looking for growth in high-value services as some of its traditional businesses, such as application maintenance, become commoditized. The company also needs to convince customers and investors that it can deliver on its new business strategy, which it grandly calls Infosys 3.0.

• Company: Infosys Ltd.
• Headquarters: Bangalore, India
• Employees: 156,688
• 2012 Revenue: $7.4 billion
• CEO: S.D. Shibulal
• What They Do: Infosys is an Indian provider of IT, back-office and consulting services. Offerings include application development, infrastructure management services and business process outsourcing, product engineering, and systems integration and consultancy. Sixty-two percent of its revenue comes from North America.

The company wants to break away from having to hire people by the thousands to earn more revenue. The model worked well for Infosys and its Indian peers for several years because of the low cost and easy availability of staff in India, but it’s getting harder to recruit high-quality staff.

Infosys CEO S.D. Shibulal plans to focus more on consulting and systems integration, to partner with customers in achieving their business objectives through risk-sharing pricing models, and to develop reusable platforms and intellectual property. “3.0 is designed around a simple principle, and that is to increase client relevance,” he says.

Facing the IT Services Challenge

In the short term, a difficult worldwide market for IT services and a turbulent transformation to the new business strategy are costing Infosys in terms of revenue and profit. The company’s revenue growth of 6.6 percent last year was much lower than the 15.2 percent posted by rival Tata Consultancy Services and the 18 percent reported by HCL Technologies, according to Gartner research.

To face those challenges, Infosys brought back former CEO N. R. Narayana Murthy as executive chairman. Murthy says he will “add value” to Shibulal’s role as CEO.

Customers should keep an eye on the company’s staff attrition rate, says Sudin Apte, principal analyst and CEO of research firm Offshore Insights. Infosys reported employee attrition of 16 percent in the first quarter. “If the attrition rate reaches 20 to 25 percent, then customers may see key people leaving from the teams that are working for them,” Apte says.

Transformation Continues

Working remotely with Infosys’ IT services teams in India has not been difficult, says Carl Hoburg, who at the time he was interviewed was CIO of NovaSom, which provides home testing services for obstructive sleep apnea.

Infosys helped the startup migrate to the Salesforce.com cloud and develop firmware for new wireless devices that collect patient data. Hoburg says he’s been impressed by the company’s professionalism, customer service and technology expertise.

Infosys is, however, regarded by some analysts as risk-averse and not very aggressive in pricing. “Their ability to execute on their strategy is taking time, and we have often seen that proposals that involve new pricing models and other mechanisms do not get approved by the finance and legal teams,” Apte says.

The company has also been too busy with its internal transformation, including management changes, while its competitors have been investing in client-facing functions to attract business, he says.

Infosys may also face problems from a proposed U.S. immigration bill that would tighten requirements for H-1B and L-1 visas. The company has facilities in key markets like the U.S. and hires locally, but it still sends many people from India to work on client projects. About 60 to 65 percent of Infosys’ staff working in the U.S. have H-1B or L-1 visas, Apte says.

Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.