Slideshow: Here are 8 things that are going terribly wrong for Infosys

A top executive at Infosys will leave the company next month, adding to a spate of senior-level departures since co-founder NR Narayana Murthy returned to run the company.Chandrashekar Kakal, senior vice-president and a member of the company’s executive council, has conveyed his intention to quit, effective April 18, Infosys said in a filing with the bourses. It did not give a reason for his resignation. Shares of the company were down 0.2 percent at Rs 3295.90 in the morning trades on the BSE today.

Here are eight things that are wrong with Infosys

[caption id=“attachment_79845” align=“aligncenter” width=“600”]  Infosys’ revenue for the fiscal year ending March could grow at the lower end of its 11.5 to 12 percent projection, Thinkstock Images[/caption]

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1. Infosys once again lowers revenue guidance:

Last week, Narayana Murthy saidInfosys’ revenue for the fiscal year ending March could grow at the lower end of its 11.5 to 12 percent projection, sending the company’s shares down as much as 9 percent in single day.Infosys indicated that the company has continued to see weakness in client spending throughout the current quarter ending March 31, 2014 and may only be able to meet the lower end of its annual revenue growth guidance.This has put doubts in investors’ minds about a sustainable turnaround at the country’s second-largest IT services company.

According to Ambit Capital, Infosys’ commentary on internal and external weakness comes at a time when the IT industry lobby Nasscom has indicated a better demand environment and its peers expect FY15 to be better than FY14.

[caption id=“attachment_79846” align=“aligncenter” width=“600”]  nfosys would continue to be driven by traditional plain-vanilla services that are getting increasingly commoditised. Thinkstock Images[/caption]

2. Loss of focus from traditional plain-vanilla services

While newer areas such as analytics and cloud computing are important, the company did not focus on large revenue yielding opportunities like thetraditional IT services work. In an investor conference earlier this month, Murthy reiterated thata majority of growth for Infosys would continue to be driven by traditional plain-vanilla services that are getting increasingly commoditised.

Infosys 3.0 focuses on new technologies and platforms such as cloud computing and mobility, and was launched when SD Shibulal took over from S. Gopalakrishnan in April 2011 as chief executive. The company wants one-third of its revenue to come from these new areas in the next three-five years.Infosys will now hive off its products, platforms and solutions (PPS) business into a separate subsidiary at the beginning of next financial year since the culture and compensation structure of a products and platforms business has to be different from that of a services entity.

[caption id=“attachment_79847” align=“aligncenter” width=“600”]  There’s been too much focus on cloud and analytics. Thinkstock Images[/caption]

3. Infosys lost its pricing premium over competitors

Earlier Infosys used to commanda premium in pricing of 20-25% compared to other Indian competitors but in2013 Infosys started cutting prices for the first time for select clients in order to avoid losing business and market share to rivals such as Tata Consultancy Services and Cognizant. This clearly means Infosys isnow chasing big deals even at lower pricing to grow the topline - something it was trying to move away from in its bid to seek non-linear growth under a strategy called Infosys 3.0.

A little over two years back, Infosys was the investor darling for being the company that “under promised and over delivered”. Infosys’ margins were constantly over 30 percent, which means for every one rupee of revenue, the company earned over 30 paise. Over the last few quarters, Infosys has constantly failed to deliver on the margin front, while TCS has surprised the Street.

[caption id=“attachment_79848” align=“aligncenter” width=“600”]  Too many senior-level exits. Thinkstock Images[/caption]

4. Too many senior-level exits:

Since Murthy’s return to Infosys last June, the Bangalore-based IT major has witnessed nine high-profile exits. These include V Balakrishnan, former CFO and board member, Ashok Vemuri, who joined iGate as CEO, Stephen Pratt, executive council member and Basab Pradhan, head of global sales and marketing. And as part of its ongoing restructuring, early this year, Infosys discontinued its executive council. The council was a forum of senior employees within the firm that Murthy expanded in October last year, adding 12 new members to the council to introduce fresh faces among the senior management.Such high-profile exits have caused discomfort among employees and stakeholders and also hinted at a greater level of management confusion.

[caption id=“attachment_79851” align=“aligncenter” width=“600”]  Thinkstock Images[/caption]

5. Infosys has been slower to adapt than its competitors

As Forbes India wrote last year, “All major players embarked on new strategies around five years ago. HCL Technologies…decided to put its force behind infrastructure management and re-bids. Cognizant …added more verticals and geographies like consulting and infrastructure management in Europe. TCS was more global and had a finger in all these. Its efficiency-driven CEO R Chandrasekaran reorganised the company into smaller units of USD 250 million each. In all these cases, the restructuring was done to make the individual parts grow faster. There was no big change in the direction (and when there was one, it fell on a separate business unit, or a set of business units).” Infosys, however, chose the harder option of changing direction with its 3.0 strategy.

[caption id=“attachment_79852” align=“aligncenter” width=“600”]  High attrition rate. Thinkstock Images[/caption]

6. High attrition rate

Infosys’ attrition rate has been quite high for several quarters. Infosys’ attrition rate stood at 18.1% in the December quarter, higher than the 17.3% in the September quarter and 15.1% in the year-ago quarter.This is the highest attrition rate for the Bangalore-based company in the past two years. At the end of the third quarter, Infosys said it had 1,58,404 employees, adding 6,682 employees during the quarter.

Moreover, Infosys’public criticism of departingexecutives may further hurt rather than help employee morale and relationshipsin the company.

[caption id=“attachment_79853” align=“aligncenter” width=“600”]  Revenue has dipped[/caption]

7.Infosys revenue growth rate fell by 77% in the last 2 yrs

Infosys Executive Chairman N R Narayana Murthy recently said the company’s rate of growth declined 77 percent during March 2011 to March 2013.

“Under normal circumstances, our operating margin should have been 41.5 per cent. But it ended up as 23.5 per cent as of date and that means it is a drop of approximately 45 percent.Therefore, revenue growth went down by 77 percent and margin growth went down by 45 percent during the period 31st March 2011 to 31st March 2013. These are matters of great concern for us,” he told investors at a Barclays meet.

[caption id=“attachment_79854” align=“aligncenter” width=“600”]  Reuters[/caption]

8.Predictability under Murthy has remained weak

According to a brokerage, Infosys’ predictability has remained weak - as within two weeks of reiterating its growth plans to investors,Infosys suddenly found that its business momentum is week for the curent quarter.

“Clearly information dissemination or predictability has not improved materially under Mr NRN Murthy the way street expected,” it said.