Mention Infosys, and we don't need to be told what's good about it. After all, Infosys has been voted as the "most respected company" and the "best to work for" by prestigious publications. It is perceived as a company that is honest, transparent and has the best practices in the sector. No wonder the stock market loves the scrip.
Even the uglier aspects of the Infosys saga are well known: the Phaneesh Murthy sex scandal, the allegations about how Infy bribed its way to bag a contract in Africa, not to mention murmurs of yet another sex scandal involving another senior manager in the company, which provided fodder for the gossip mills but never really got written about.
But the real Infosys story is largely about things that are grey in colour, that get talked about in hushed whispers among former and current employees, trends which are debated among experts but never penned down in the form of papers or reports (This is also true for the Indian software industry, despite the hype it has received in the past, but more about that some other time). I got on to this slightly seamier side after working on a cover for Outlook’s print edition. The piece looked at the company objectively, and was critical of the management for transforming engineers into robots, and the Orwellian world it was creating at its campus.
But it was the barrage of letters we received in response to this cover which was truly amazing and insightful. Employees cribbed about how Infosys has become a boring place to work for and how satisfaction levels are at an all-time low. Former Infoscions alleged that Infy founders are not all that clean as the public perceives them today. That forced me to take a relook, to talk to more people in a bid to ferret out the real truth. The questions on my mind were not about the founders’ past or allegations against the company, but about the morale of its employees and the exact nature of work that Infosys is doing.
I started out by looking at figures on global IT spending trends. A recent Frost & Sullivan report on key technology trends for 2003 was an eye-opener. It stated that software maintenance will emerge "as one of the fastest growing business opportunities… as enterprises seek to draw benefits from past investments." And then it added that maintenance budgets will account for 50-53% of the IT spends in 2003. Since global IT spend this year is expected to be $225 billion, India’s share will still be a miniscule 4-5%. Logicallly, the bulk of the work that comes to Indian vendors will be in the area of maintenance, as was pointed out by a study done by two JNU professors.
Infosys should be no exception. In fact, it should get a larger slice of the pie since its core competence is in software services, rather than consulting. So people who insist that Infosys is mainly doing maintenance jobs are probably correct. There’s yet another indicator to show that the share of maintenance contracts may have actually increased in the past two years due to the current slowdown. Talking to Infosys’ competitors based in Bangalore, one gets a sense of how this "most respected company" may be going down the value chain, instead of climbing up.
Several CEOs in mid- and small-size firms told me that there was a new trend of how Infosys was competing for small projects that it would not even have looked at a few years ago. These were projects in the range of $100,000-200,000 and, what’s important, Infosys was undercutting the already low prices being offered by the smaller competitors. In a bid to increase turnover, and show consistent growth, Infosys was ready to get whatever projects it could. This made sense since the company could utilise its idle "bench" to do these projects. After all, it was paying the benched employees for doing nothing. With these projects, some income would flow in.
But then, isn’t this logic contrary to recent belief that Indian software firms are getting bigger orders from Fortune 500 companies? This is true. But, there’s a catch. As Nandan Nilekani, Infosys CEO, himself explained: "The orders are bigger, but they are spread over longer period. So, if I get a $100-million order spread over 7 years, the annual turnover is only $14-15 million. Which is what I was getting from the client anyway. The only difference is that clients are now willing to have long-term relations with software vendors, which provides some sense of security."
Also, one must remember that these long-term contracts are being given to Indian software firms in return for lower billing rates and, hence, lower margins. Two, the client will have more leverage on the Indian vendors since no company would like to lose a huge contract. More important, long-term contracts invariably include a huge proportion of maintenance jobs. The reason: one can reasonably estimate maintenance budgets over the long term, not how much a firm will spend on developing new applications or cutting edge software. Unless, of course, a client is switching on to a new software like the Citibank’s contract with Mphasis.
So, the switch is towards earning more stable revenues from maintenance jobs. A company like Hughes, which prided itself on doing cutting edge work, too has decided to focus on low-end maintenance contracts. At a micro level, a look at a few divisions in Infosys itself will highlight that maintenance has become the company’s mainstay. The best place to look for such signals is in the telecom space. Globally, cuts in IT spends have impacted this sector the most. And several software companies that concentrated only on telecom clients (like Hughes) have been the worst hit.
So is the case with Infy's telecom division. Work is difficult to get, clients demand more value for money, and Infy’s engineers are forced to do things for free for several big clients. But these workers are also perturbed that they are doing regular, boring jobs. As one of them told me: "Earlier, there was a lot of excitement about doing cutting-edge, breakthrough stuff. But that’s no longer true. Whatever innovative ideas we have, we pursue it on an individual level in our spare time and discuss it amongst ourselves. The organisation does not offer that scope."
Things are also bad because Infosys has now created a new work atmosphere that allows little freedom to their employees. Apart from monitoring everything that they do in the current projects, even their future is decided by the organisation. At this stage, one may well ask that if it isn’t it true about all organisations. Yes, it’s true, but the real fun of working in a technology firm was the freedom to change your career midway, get into new spaces and gain more knowledge along the way. But, in Infosys, engineers work in the same sector, do the same job and, even handle the same client, for years. I met several employees who have been a part of a Cisco or a Nortel team for 4-5 years!
As the cover story mentions, this strategy is great for the organisation: It can constantly benchmark employees, take corrective action to correct or hone their skills, and predict the future in a more accurate manner. However, it kills the employee and his innovative streak. Boredom becomes the norm and, automatically, morale plummets. Possibly, this is what’s happening in Infosys today. So, the company may be great today, but one cannot be sure this will remain the case in the near future. Unless, Infosys itself undergoes yet another change, and retains its core-strengths.
(Alam Srinivas is Business Editor, Outlook)