27 Oct 2017 15:54 IST

Infosys quietly buries Sikka’s $20-b revenue target

Some say Sikka’s team was not able to get their delivery and sales team on the same page

Former Infosys CEO Vishal Sikka’s stated target of $20-billion revenue by 2020, which was later revised to an aspirational one, has been given a quiet burial. As per its revised guidance, the IT major expects revenue growth of 5.5-6.5 per cent in constant currency terms for the full year, slashing 200 basis points off the top end of the earlier forecast, which puts the $20-billion target out of reach.

In the last fiscal, when Sikka was CEO, the company had revised its guidance in almost every quarter. Sikka had initially set a target of $20 billion in revenues by 2020, operating margins at 30 per cent and revenue per employee at $80,000. He later claimed that the $20-billion target was more of an aspirational one.

All of this found no mention in the second-quarter results, the first since Sikka quit the company. As things stand, Infosys has revenues slightly more than $10 billion (FY18E: $10.92 billion), revenue per employee is $50,000 and operating margin is at 24.6 per cent.

When addressing journalists and investors, Non-Executive Chairman Nandan Nilekani — while satisfied with the company’s performance in the backdrop of management upheaval — repeatedly stressed on making quick changes to everything from go-to-market and execution to building or discarding some of the existing things. “I do not want to get into comparison of strategies. I think the experience that all of us had is how to build a strategy which is built both bottom-up and top-down,” he said.

UB Pravin Rao, Interim CEO and Managing Director, said the company sees softness in the second half of the year due to a combination of holidays and reduced client spending on technologies. But what he left unsaid was that the transformation within Infosys has been yielding no results.

In a note to investors, HDFC Securities said large-account bucket leakage (sequential decline in $50/10 million buckets and in top 2-9 accounts in Q2), increased competitive intensity, and senior-level attrition are growth risks for the company, which is in transition mode. It clearly shows that the IT major will focus more on stabilising itself following repeated changes in the management structure.

A lot of what Nilekani alluded to could be interpreted as a realistic assessment of things on ground, both from the company’s ability to get deals as well as execute complex projects. “In the recent past, while changes had been happening, it was being driven from the top, and a lot of them were not convinced by (Sikka’s) approach,” said a senior-level Infosys executive.

Some industry observers pin down the problem to the fact that while Sikka’s strategy was in order, his team, mostly drawn from his previous employers, SAP Labs, were not able to get their delivery and sales team on the same page. “There were communication issues which bogged them down,” said Kris Lakshmikanth, CEO, HeadHunters India.

Lessons from Wipro

Infosys could take a leaf out of cross-town rival Wipro when it comes to certain aspects of transition. For example, while former CEO TK Kurien started putting in place a strategy in the new landscape, current CEO Abidali Neemuchwala has taken it forward, and is setting the company up for the future. While Wipro still lags behind industry peers, its efforts are starting to pay off. In Q2, digital raked in 24.1 per cent of Wipro’s revenues. In comparison, Infosys reported around 11 per cent.

Another area of contention is with regard to client additions (refer table). While additions have been inconsistent, Sikka maintained in the 2017 annual report that client surveys showed that satisfaction levels were at a 12-year high.

Nilekani has admitted to some of the gaps and in the analyst call said Infosys will have a presence in Palo Alto, California, where Sikka was based. “We see the Palo Alto office as a listening post to the latest developments in technology happening in Silicon Valley — about the latest development in machine learning, AI and the likes,” he said.

“Infosys will have a process by which we can bring them to our enterprise customers as to how they can use this well — because the real challenge is how to take these technologies that are emerging and use that to create business benefit for our customers.”

Recommended for you