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Hunt for new CEO has distracted Infosys: Gartner

'Jury is still out whether Infosys chief NR Narayana Murthy will succeed or has succeeded.'

Gartner vice-president Partha Iyengar thinks it's going to be a slippery slope for Infosys till the new CEO comes around and sees what strategies they can adopt. Gartner vice-president Partha Iyengar thinks it’s going to be a slippery slope for Infosys till the new CEO comes around and sees what strategies they can adopt.

The momentum is building up for the $86-billion Indian IT services export industry with healthy demand for outsourcing and offshoring from its key markets like US and western Europe. This buoyancy has created a kind of disruption among the top-tier Indian IT services companies and much will depend on each firm’s strategy to grab the market opportunity,

Partha Iyengar, vice-president and distinguished analyst, Gartner, said while talking to PP Thimmaya. Edited excerpts.

How do you see FY15 outlook for the Indian IT services industry?

The Indian IT services industry needs to be looked at via two lenses. Earlier, we could talk about IT services as one homogenous industry either doing well or badly, we are beyond that now. Demand is going to come back very healthily and it has already started. The second aspect that will define success or failure is an individual companies’ strategy and capabilities and this is where — if you look at last three or four quarter results in the same market — we have seen some outperform and others starting to struggle. That will continue and it is the new normal.

Is the demand strong in US and western Europe?

The economic environment, a sense of doom and gloom is lifting in the US market. In spite of mixed results, the general consensus is that it is back on track economically. Similarly, in western Europe, a sense of worst is behind them.

There has been huge explosion of interest and outsourcing, especially to Indian companies. In the next two to three years, one is actually going to see the percentage of revenues grow fairly radically, that is already happening to a couple of companies.

The key determinant, unlike the US market, Europe is fairly fragmented where you need much more local sales. How these companies crack the model, which will work there in order to really scale either through acquisition or organic hires will depend on the individual latitudes and needs.

The third aspect is Japan, which is sort of a dark horse. It is third-largest IT economy and there is tremendous amount of activity bubbling there. Though there will be some cultural challenges for Indian IT services provider but that is the market they cannot to afford to ignore. They will have to focus strongly and some of the companies are doing reasonably well.

How do you view Infosys in the current context with NR Narayana Murthy completing one year at the helm in his second innings?

If you look at the amount of traction they had lost in the last three years and how he came back, it has been a massive challenge to turn things around. I think the jury is still out whether he will succeed or has succeeded. About a year ago or six months ago, I was asked about it and I had said the next two quarters will tell. Unfortunately, in those two quarters, we have not a phenomenal turnaround yet.

At this point, it is going to be down to a new CEO and that has really distracted the company at the critical point of its turnaround. Unfortunately, I think, it is going to be a slippery slope for them till the new CEO comes around and sees what strategies they can adopt. The challenge is: Will the market give them that much time? So, clearly it is a race between them getting back to some kind of stability and the market moving so far ahead that they are unable to catch up.

Has the separation started among the top Indian IT companies?

It has already started, you cannot talk about Indian services companies as one unit anymore. You have to talk about individual companies and talk about their fortunes in terms of how they are evolving and how successful or not are they. You will see increasing separation. In the next three to five years, I will not be surprised to see some of the hallowed names, even fall by the wayside, frankly.

Are the new deals coming from traditional sources or new kinds of businesses?

The earnings pages of the companies show that there was a huge pipeline that was blocked for many years. Traditional work is coming back, but closely on back of it, you will find digital enterprise work, data driven work and customer experience coming along very quickly as well. That is actually where the higher profitability and margin will be and also higher stickiness.

So, the companies need to be ready to do both fairly rapidly. TCS announced a digital business division. Creating that kind of capability is the critical requirement but the good news is the first wave of work will be traditional business, they can ramp up with that but very quickly then it will have to be the front end customer facing, front office, IT requirement that will come them. They need to be ready to handle those.

– P P Thimmaya | Financial Express

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