Retail shareholders in India generally sing paeans of their companies at AGMs. However, over the past three years, some Infosys shareholders have been persistently questioning the company’s continued lacklustre performance, drawing comparisons with TCS.

This year was not any different. Shareholders did question India’s second largest software exporter, asking why TCS is sprinting far ahead while Infosys is lagging.

The numbers tell a big part of the story. TCS started off FY19 on a strong note, with the June quarter earnings beating analysts’ expectations. Infosys, on the other hand, sputtered and performed just in line with analyst estimates.

What changed

In 2009, Infosys’ market capitalisation was 1.5 times bigger than TCS’. Less than a decade since, TCS (at $100 billion) is 2.6 times larger than Infosys ($41.72 billion).

So, all things being equal — the shifts in technology, old business getting redundant and strict curbs on US visas — how has TCS managed to stay ahead in the race?

“TCS has done the best job of understanding how to build and leverage organisational assets to compete. Customers around the world perceive and experience it as being a very strong company,” said Peter Schumacher, CEO at Value Leadership Group, an offshoring expert.

Breaking it down, TCS laid its bets on technologies like big data, AI and mobility for enterprises across all industries much ahead of Infosys, which has made some unconvincing attempts branching out (for example, the Panaya acquisition). “You have to see the storm before it comes and that is what good CEOs do,” said the CEO of a large multinational captive in India which does business with TCS.

Internal problems

The gap between TCS and Infosys was further accentuated due to internal problems plaguing the latter in the last four years — from a confusing shift in strategy to a public spat between the co-founders and former board members.

Contrast this with TCS, which, in the seven years under N Chandrasekaran leadership, turned into an industry bellwether. Its revenue grew almost four-fold, from ₹30,029 crore in FY10 to ₹117,966 crore in FY17, representing a CAGR of 21.6 per cent.

However, before comparing them, it is important to first note the fundamental cultural differences between the two organisations. TCS has always been a larger and more stable company with a stronger focus on governance enabled by a somewhat more conservative risk appetite.

“Over time it has innovated, taken calculated risks such as the major investments in global delivery centres made in South America, ventures in Japan and even some acquisitions (French IT services firm ALTI),” said Sanjoy Sen, Doctoral Research Scholar, Aston Business School.

It didn’t help that the technology industry itself has turned on its head, making the business model of bodyshopping increasingly inconsequential.

TCS, meanwhile, has continued its march over Infosys. Areas such as digital, where client spends are moving up, have raked in around ₹26,000 crore for TCS, against ₹18,000 crore for Infosys.

Leadership change

Even after Chandrasekaran, in an unexpected move, left TCS in early 2017 to take over the reins of Tata Sons, the company has continued to perform well, now under CEO Rajesh Gopinathan (refer table). “Now it is not about getting the work done at the lowest cost, but about hand-holding clients and telling them how their businesses can thrive,” said Rohit Turkhud, Partner, Fakhoury Global Immigration.

Based on Value Leadership’s recent discussions with leading CIOs in Europe, TCS is perceived as being the best firm by far. Infosys is playing in the second league and corporate decision makers expect it will continue to lag.

Collaborative culture

“They (TCS) have done the best job creating an open, collaborative, learning culture. In contrast to Infosys, customers recognise that TCS has a track record of transforming successfully and building organisational capabilities internally,” said Schumacher of Value Leadership.

Though the financial services sector is among TCS’ largest success stories, it has slowly but surely developed a wider and more balanced client portfolio. For instance, it has developed business in the aerospace and automotive sectors, and collaborates with sister companies like Tata Technologies.

Infosys probably started with a similar culture in its early days, albeit smaller in size and more hungry. However, multiple changes in leadership and related governance challenges, together with large-scale infusion of senior executives with a quick-win mindset, have impacted the company, said Sen of Aston Business School.

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