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11 views8 pages

Aditya Vardhan 24348-F

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Aditya Vardhan
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CAPSTONE ASSIGNMENT

ADITYA VARDHAN Given by – NISHANT TAYAGI


PGDM 24348 – F (Associate professor)
(2024-2026)
Problems Faced by Infosys -
• Disappointing financial results
Infosys has been delivering disappointing results for some time now. The second quarter earnings
for 2012-13, despite being in line with expectations, failed to enthuse investors. Besides, the
company's outlook of 'cautious optimism' for the rest of the year does not paint a good picture.
The company has pared down its EPS guidance for 2012-13 to Rs 160.60 from the earlier forecast
of Rs 166.46 in the June quarter, due to wage hikes and rupee appreciation. Ankur Rudra, analyst,
Ambit Capital, says, "The company continues to lag behind its peers. The cut in EPS guidance is
disappointing."

• Strong Competition
The company has visibly lost its edge over the competitors. Its market leadership position
has long been usurped by the current IT bellwether, Tata Consulting Services. Snapping at
its heels are smaller, mid-tier players, such as HCL Technologies and Cognizant, which are
growing faster than it. At the core of Infosys' problems is a sustained loss of market share in
its bread-and-butter application development segment. The loss of market share in the
traditional business is a worrying sign for any company.
• Rigid business model - Adamant Model
Ironically, the business strategy that defined the Infosys success story in the past
seems to be playing a part in its undoing. Over the years, Infosys has operated with an
unwavering focus on projects that yield high margins. This premium pricing has
allowed it to maintain a higher EBITDA margin (around 30%) than any of its peers.
However, this rigid pricing policy has been followed at the expense of signing new
deals since clients now lay more stress on value proposition in a bid to reduce costs
amid a prolonged slowdown. Still, there have been indications that the company is
softening its stance on pricing.

• High Cash Reserves


Another gripe with Infosys is its reluctance to part with the overflowing cash reserve
for strategic acquisitions. Its conservative approach towards inorganic growth has led
to a cash pile of about Rs22,800 crore. Recently, however, Infosys has shown
willingness to make better use of its unproductive cash assets when it acquired Swiss
consulting firm Lodestone for Rs1,932 crore. However, this deal is not significant
enough to have much of an impact on the company's earnings. It remains to be seen if
Infosys will dip into its cash pool for more overseas acquisitions to retain its premium
position.
• Stagnating industry - Low Industry growth rate
The problems facing Infosys are not entirely of its own making. The IT industry has
been going through tough times due to the economic uncertainty in key regions
of the US and Europe. This is also responsible for Infosys' troubles since the
company derives 80% of its revenue from these two regions. However, it has
managed to sign six big deals in the previous quarter, which could point to early
signs of demand recovery.

• Outdated business model


Over-reliance on labor arbitrage: Infosys' traditional model focused on cost savings
through offshore labor, which is becoming less relevant.
Linear growth strategy: The company's growth was heavily dependent on increasing
headcount, rather than innovation.
Limited digital transformation: Infosys was slow to adapt to emerging digital
technologies.
Dipen Shah, head of PCG research, Kotak Securities, is optimistic about the
company's prospects. "Infosys is showing a willingness to change, which is a
positive sign. Though the macro scene is strained now, the company should clock
better numbers down the road," he says. Adds Abhishek Shindadkar, analyst (IT),
ICICI Direct: "The transition period is taking longer due to the tough environment.
Over time, the company should revert to historical growth rates.“

• Develop a robust innovation ecosystem.


• Foster an entrepreneurial culture.
• Expand into new markets (e.g., healthcare, finance).
• Develop strategic acquisitions and partnerships.
• Establish Infosys as a thought leader in digital transformation.
• Develop IP-based platforms and solutions.
• Expand consulting services to drive digital transformation.
• Strengthen partnerships with emerging tech companies.
• Invest in R&D, focusing on AI, blockchain, and cloud computing.
• Enhance agile delivery capabilities.
REFERENCES

1. Building the AI-Powered Organization, HBR, 2019


2. How AI Boosts Industry Profits and Innovation, Accenture
3. Andrew Burgess, The Executive Guide to Artificial Intelligence, Palgrave Macmillan
4. Data challenges are Halting AI Projects, IBM Executive Says
5. Andrew Burgess, The Executive Guide to Artificial Intelligence, Palgrave Macmillan
6. AI Adoption Held Back by Company Culture, Talent Shortage, Data Issues”, WSJ, 2019
7. It’s Recruiting Season for AI’s Top Talent, and Things Are Getting a Little Zany”.
8. Andrew Burgess, The Executive Guide to Artificial Intelligence, Palgrave Macmillan
9. Building the AI-Powered Organization, HBR, 2019

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