Infosys Admits Making ‘Strategy Errors’

Infosys, India’s second largest IT company, admitted it had underestimated the effect of bringing in new and upcoming technologies. This could be one of the reasons that led to the shrinking of market share and decline in profits.

Infosys chairman NR Narayana Murthy had earlier said that the Bangalore-based company was lagging behind due to a lost focus on its “bread and butter traditional IT services.”

“We underestimated the effects of the adoption of these new technologies and the change in the business model,” he said in a note to investors in the company’s annual report for 2013-14.

“These newer services created smaller projects since many of the engagements were pilots. They also changed the revenue profile since clients preferred a subscription model to buy Cloud services. Our traditional business, IT services, slowed down, perhaps due to a lack of focus,” the co-founder said.

More than three years ago, Infosys had introduced its 3.0 strategy, which aimed at expanding the focus and was looking to “move higher in the value chain.” Chief executive SD Shibulal had earlier said that the strategy would be “relevant to clients in all facets of their enterprises.”

Many experts have, however, called the strategy’s timing inappropriate. Several observers have also questioned the weakness in execution of the 3.0 strategy. According to Partha Iyengar, India head of the IT research firm Gartner, “When Infosys says they want to be a product company, based on a thin stream of IP (intellectual property) scattered around the company, it is a difficult choice. To be a product-led company in the true sense, you need to have an absolute industry-leading product. Also, you cannot move to a product mindset company when you are such a mature player.

“The CEO transition is an important move that the board has to act on in the coming year,” said Iyengar. “With Murthy as executive chairman, the risk in the transition is reduced,” he added