Infosys has borrowed a leaf from rival Tata Consultancy Services' playbook by deciding to split its business into smaller units, which will be managed by the company's next rung of management.
Since he took over as CEO two years ago, Vishal Sikka has weathered a bunch of management exits, the latest of which was that of ManishTandon - who was in charge of healthcare, insurance and life sciences. The Bengaluru-based company responded by concentrating responsibility in the hands of its presidents, a move that was questioned by analysts.
"Infosys has just three members of its management team ultimately responsible for all the verticals among themselves (all the three are presidents) vs eight vertical heads at TCS," Viju George, analyst with JPMorgan, said in a note dated August 18.
Last Friday, Sikka said he was breaking up the company into smaller, more autonomous units with PNL (profit and loss) responsibilities, something that TCS had done seven years ago when N Chandrasekaran had taken over as CEO.
"It gives us scalability, it gives us isolation and accountability of individuals," Sikka told analysts at its analyst event in Pune. The smaller units, with revenues between $500 million and $700 million each, could have anywhere from a handful to a couple of dozen clients—structure that would give Sikka and his presidents the ability to zoom in on the particular needs of a particular cluster of clients.
Infosys declined to specify the number of units the company would be split into or discuss the names of the next generation of leaders.
IT consultancy HfS' CEO Phil Fersht told ET that breaking divisions into smaller units would help in better coordination for deal pursuits but that the company would also need a consistent set of policies for pricing, outcome definition and key metrics.
TCS had split its company into smaller units in 2009, which, analysts said, contributed to its industry-beating performance over the last few years.
In an interview to a magazine that year, TCS CEO Chandrasekaran had said, "We have over 20 people managing their own profit and loss accounts, each with complete ownership. We wanted to break down the problem of growth to a manageable size, so that there are different people running after the targets".
In 2009, TCS had 23 'mini CEOS', each running a unit that made not more than $250 million in revenue and employed 3,000-5000 people. And each was given the task, and the freedom, to grow their units to $1 billion in revenue.
That structure yielded big dividends for TCS. In FY10, TCS reported revenue of $6.34 billion compared to Infosys' $4.8 billion. In FY16, the gap between the two had widened considerably. TCS reported revenue of $16.5 billion. Infosys came in at $9.5 billion.
But experts say that smaller units helped TCS because that was before the move to newer technologies started cutting into the industry's bread-and-butter arbitrage business. Infosys' slowdown in the past few years was because growth in its digital offerings could not move the needle as its traditional businesses decelerated.
"Creating smaller units may allow Infosys to better focus on some of these new growth areas and experiment with the new business models without disrupting its core business. However, it won't in of itself allow Infosys to return to the heady days growth of yesteryear," said Peter Bendor-Samuel, CEO of IT advisory Everest Group.
He added that for growth to happen, Infosys would need to start growing the digital business and would have to grab a greater share in the traditional businesses. Growth boost aside, CEO Sikka said that Infosys was really just following the natural path for a business of its size. "Every large scale system in the universe is a distributed one, a decentralised one, so this is basically what we are doing."
Since he took over as CEO two years ago, Vishal Sikka has weathered a bunch of management exits, the latest of which was that of ManishTandon - who was in charge of healthcare, insurance and life sciences. The Bengaluru-based company responded by concentrating responsibility in the hands of its presidents, a move that was questioned by analysts.
"Infosys has just three members of its management team ultimately responsible for all the verticals among themselves (all the three are presidents) vs eight vertical heads at TCS," Viju George, analyst with JPMorgan, said in a note dated August 18.
Last Friday, Sikka said he was breaking up the company into smaller, more autonomous units with PNL (profit and loss) responsibilities, something that TCS had done seven years ago when N Chandrasekaran had taken over as CEO.
"It gives us scalability, it gives us isolation and accountability of individuals," Sikka told analysts at its analyst event in Pune. The smaller units, with revenues between $500 million and $700 million each, could have anywhere from a handful to a couple of dozen clients—structure that would give Sikka and his presidents the ability to zoom in on the particular needs of a particular cluster of clients.
Infosys declined to specify the number of units the company would be split into or discuss the names of the next generation of leaders.
IT consultancy HfS' CEO Phil Fersht told ET that breaking divisions into smaller units would help in better coordination for deal pursuits but that the company would also need a consistent set of policies for pricing, outcome definition and key metrics.
TCS had split its company into smaller units in 2009, which, analysts said, contributed to its industry-beating performance over the last few years.
In an interview to a magazine that year, TCS CEO Chandrasekaran had said, "We have over 20 people managing their own profit and loss accounts, each with complete ownership. We wanted to break down the problem of growth to a manageable size, so that there are different people running after the targets".
In 2009, TCS had 23 'mini CEOS', each running a unit that made not more than $250 million in revenue and employed 3,000-5000 people. And each was given the task, and the freedom, to grow their units to $1 billion in revenue.
That structure yielded big dividends for TCS. In FY10, TCS reported revenue of $6.34 billion compared to Infosys' $4.8 billion. In FY16, the gap between the two had widened considerably. TCS reported revenue of $16.5 billion. Infosys came in at $9.5 billion.
But experts say that smaller units helped TCS because that was before the move to newer technologies started cutting into the industry's bread-and-butter arbitrage business. Infosys' slowdown in the past few years was because growth in its digital offerings could not move the needle as its traditional businesses decelerated.
"Creating smaller units may allow Infosys to better focus on some of these new growth areas and experiment with the new business models without disrupting its core business. However, it won't in of itself allow Infosys to return to the heady days growth of yesteryear," said Peter Bendor-Samuel, CEO of IT advisory Everest Group.
He added that for growth to happen, Infosys would need to start growing the digital business and would have to grab a greater share in the traditional businesses. Growth boost aside, CEO Sikka said that Infosys was really just following the natural path for a business of its size. "Every large scale system in the universe is a distributed one, a decentralised one, so this is basically what we are doing."
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