Narayana Murthy is set to unveil a restructuring at Indian outsourcer Infosys, in the most significant step in his push to turn round the bellwether IT services group’s flagging fortunes

January 6, 2014 11:48 am

Murthy to unveil shake-up at Infosys

By James Crabtree in Mumbai

NR Narayana Murthy is set to unveil a restructuring at Indian outsourcer Infosys, in the most significant step in his push to turn round the bellwether IT services group’s flagging fortunes.A pioneer of India’s early software outsourcing revolution, Mr Murthy unexpectedly returned to the Bangalore-based group last year, retaking the helm at a company he co-founded in 1981.

His reappointment at India’s third-largest outsourcer by revenue followed a period of dismal financial performance and analyst complaints of lacklustre management.

Mr Murthy now plans to shake up a central element of the group’s much criticised Infosys 3.0 strategy, by hiving off a division that develops high-growth services into a separately managed internal subsidiary, according to two people familiar with the matter.

Infosys introduced the 3.0 strategy as part of a plan to move upmarket and take on global IT leaders such as IBM and Accenture, who tend to offer more complex and lucrative IT services.

The strategy involved developing higher-value services, such as management consulting, along with bespoke software packages for particular industries and a greater focus on next-generation technologies, such as cloud computing.

But the approach yielded little success as Infosys, which earned net profits of Rs94bn ($1.5bn) over the past financial year, struggled to convince recession-hit companies in crucial US and European export markets to raise their IT spending, analysts say.

Mr Murthy now plans to place the division at the heart of the 3.0 strategy, known as “products, platforms and solutions”, into a separate subsidiary, with its own chief executive.

“These new types of next-generation strategic IT services need to be run very differently from traditional software outsourcing,” says one of the people familiar with Mr Murthy’s thinking, who asked not to be named.

“He [Mr Murthy] sees that you need separate management, you need freedom to innovate . . . There is a clear logic behind the move,” the person added.

April 2013: Bangalore is the centre of the world’s IT outsourcing industry, where companies like Infosys help run the back end of many of the world’s corporate computer systems. But as other countries catch on to the possibilities of outsourcing, India’s entrepreneurs are finding new ways to use India’s talent and experience in the field. The FT’s James Crabtree looks at how the outsourcing industry is moving beyond software and bringing a wide variety of skilled jobs to India.

News of the plan comes ahead of much anticipated third-quarter financial results this Friday, which are likely to be seen as an important test for Mr Murthy’s strategy.

A spokesperson for Infosys declined to comment, although another person familiar with the group’s thinking stressed that other elements of Infosys 3.0 – including management consulting, and a focus on winning larger global IT contracts – would not be placed into the new division.

Mr Murthy has also strongly defended the company’s approach. “There is absolutely nothing wrong with Infosys 3.0 strategy,” he said in a speech last September.

“Our strategy therefore remains the same; however, what needs to be changed . . . is the execution of that strategy,” he added.

However, the planned shake-up was criticised by a senior Mumbai-based IT analyst working for a global financial services organisation.

“It is a bold move, but unless they plan to do joint ventures or seek external funding, which I don’t think they will, it doesn’t make much sense to set up a new organisation for products and platforms,” the person said.

The new move comes after a period of tumultuous management change following Mr Murthy’s reappointment as executive chairman, in which a number of senior executives have left the group, including chief financial officer V Balakrishnan, who left in December.

Mr Balakrishnan was widely tipped to succeed chief executive SD Shibulal, who is due to retire in 2015, along with Mr Murthy, who says he plans to step back from his position as executive chairman in the medium term.

Last Friday the group also appointed two senior executives to the position of president, including former European business head BG Srinivas, in a move widely interpreted as positioning the duo as the most likely internal candidates to take over the company.

Infosys stock fell 1.6 per cent in Mumbai on Monday.