Infosys has decided to implement an idea from its rival Tata Consultancy Services‘ rulebook by making the decision to split its business into smaller units. These smaller units will thereby be managed by the company’s next tread of management. Vishal Sikka, ever since he took over as CEO two years ago has wind-swept a team of management exits, the latest one being that of Manish Tandon – who was responsible of healthcare, insurance and life sciences.
The company reacted by directing all responsibility in the hands of its presidents, a move that was questioned by many. “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.
Infosys : Trying to turn into a new Leaf?
Last Friday, Sikka announced his master plan involving breaking up the company into smaller, more independent units with PNL (profit and loss) accountabilities. This being 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 event in Pune.
With revenues between $500 million and $700 million each, the smaller units could have anywhere from a handful to a couple of dozen client. Providing an arrangement that would give Sikka and his presidents the capacity to focus in on the specific needs of a specific cluster of clients.
However Infosys rejected to stipulate the number of units the company would be split into. Back in 2009, TCS had split its company into smaller units which contributed to its industry-beating performance over the last few years, analysts said. TCS CEO Chandrasekaran in an interview 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 consisted 23 ‘mini CEOS‘, each overseeing a unit that collated not more than $250 million in revenue and employed around 3,000-5000 people. Additionally, each unit was specified the task, and given the freedom to grow their units to $1 billion in revenue.
This specific configuration bore big dividends for TCS. In FY10, TCS stated revenue of $6.34 billion compared to Infosys‘ $4.8 billion. In FY16, the variance between the two had broadened significantly. TCS reported revenue of $16.5 billion whereas Infosys came in at $9.5 billion.
Splitting up : What Experts has to say?
Though experts believe that smaller units improved TCS because that was before the transition to newer technologies started breaking through into the industry’s daily bread business.
“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 day’s growth of yesteryear,” said Peter Bendor-Samuel, CEO of IT advisory Everest Group.
Infosys would need to start mounting the digital business and would have to grab a greater share in the traditional businesses in order for it grow more.
“Every large scale system in the universe is a distributed one, a decentralized one, so this is basically what we are doing.“ CEO Sikka said