Reviving Infosys Won’t Be Easy For Vishal Sikka

Even after Infosys’ announcement to appoint Vishal Sikka as its CEO and MD, the IT giant’s stock came under selling pressure on Thursday. It seems investors are worried that it might be too late for Sikka to be able to revive the company. Sikka has to face the following major challenges in his endeavour to inject new life into Infosys:

The challenge of growth
Infosys has been able to increase its number of clients, but this has not resulted in higher revenue growth. Its sequential revenue growth lagged behind that of other IT companies like TCS, Cognizant and HCL Technologies.

The changing nature of deliverables
The global IT outsourcing industry has shifted from traditional wage arbitrage to multi-year deals. Presently, Infosys derives more than 7% revenue from remote infrastructure management (RIM), compared to its peers who get 12-34% revenue from this segment. This makes it imperative for Sikka to concentrate on increasing the company’s exposure to RIM.

Higher employee attrition rate
Infosys has not been able to control the rate of attrition in recent times. The attrition rate was 18.7% in the last quarter of FY2013-14. Talent management and retention will be a challenge for Sikka.

Descending profitability
Over the past few quarters, Infosys has been suffering a steep fall in operating margin. In the last quarter of FY2013-14, it reported an operating margin of 25.5% as compared to more than 30% in the same quarter of FY2009-10.

Sikka will have to wade through these challenges as he looks to bring back the glorious days of Infosys.