Murthy's drive may reap fruits before time

Barclays says efforts to reduce costs might yield results as early as the quarter ending March

Infosys’ cost-optimisation initiatives, started after the return of co-founder N R Narayana Murthy as executive chairman, might reap dividends earlier than expected.

Based on a recent meeting with Murthy, a report by Barclays has indicated cost optimisation could be seen much earlier than Murthy’s estimate of 21 months. It added some early results might be visible by the quarter ending March.

Quoting Murthy, the report said Infosys had identified three areas to reduce employee costs, as he believed the company’s “billing rate premium over its peers is unlikely to return”, as clients were more focused on near-term gains now. Infosys is reducing the number of senior staff at onsite locations, as well as the use of subcontractors by improving its internal training mechanisms. The company is also reducing the number of people at onsite locations in business-enabling functions.

“Murthy believes the first two prongs of his strategy could take close to three years to fully deliver according to his expectations. On the other hand, while he had earlier (in June 2013) thought cost optimisation could take 21 months, Murthy said he now believes it could be quicker,” the report said.

Between FY11 and FY13, Infosys’s operating margin has fallen by 360 basis points, primarily due to a significant increase in employee costs.

Murthy, according to the report, further said the recent senior-level exits weren’t a cause of worry, as the company had enough number of senior managers to fill the vacuum. He is also understood to have said most senior managers who left the company “were either not comfortable with the changed circumstances or…the company thought there was limited value addition (by them)”.

Since Murthy’s return to the company in June this year, Infosys witnessed a slew of senior-level exits, including those of its global sales head Basab Pradhan; board member and global head of Americas and manufacturing Ashok Vemuri and, recently, Stephen Pratt, who headed the utilities and resources vertical for North America.

REBOOT & RESTART

* Cost optimisation could happen more quickly than the earlier guidance of 21 months, with some early results to be visible by the March quarter of the current financial year

* Infosys is reducing the proportion of senior people at onsite locations as well as use of subcontractors by improving its internal training mechanisms

* The company is also reducing the number of people at onsite locations in business-enabling functions

Source: Barclays