Video: 5 tips for digital transformation
The name of the game for IT players is digital transformation, but Infosys and its Indian peers have been agonizingly slow in taking the urgent, necessary steps to change their business models and keep pace with industry leaders such as Accenture, Deloitte, and IBM.
Just last week, however, Infosys made two bold announcements that it hopes will propel it from its erstwhile title of industry-laggard to once again a pioneering benchmark for technology services in India, if not globally, like it was in the good old days.
The firm has had a profoundly turbulent ride in recent times. Primarily steered by founders who all wanted their anointment as captain of the ship, but they ultimately managed to mire the firm in stagnation over the past decade until the golden boy, Vishal Sikka, then CTO of SAP, was lured to run it. This, too, ended in ruins, as Sikka, sick to his stomach with feuding founders, quit last August.
Now, under new CEO Salil Parekh, the firm made two important announcements last week that it hopes will resuscitate its fortunes in what is increasingly competitive, perilous, and constantly shifting currents of the digital realm. But will it be too little too late?
At its fourth-quarter results announcement recently, Parekh, a board member at rival Capgemini, sketched a 'four-pillar' game plan to re-conquer the lofty heights that the firm once scaled: Scaling its Agile Digital business; energising core technology business using automation and AI for its clients; employee re-skilling; and expansion of localisation efforts in the US, Europe, and Australia.
Some of this is familiar. Under predecessor Sikka, localization efforts were well underway, as the company, much like its peers, began hiring American employees in significant numbers and opening numerous training and R&D centers in the US. It also embarked on an ambitious AI effort by building its own platform. However, its most significant, recent undertakings -- and a deviation from its old model -- are to finally ramp up its game in the digital sphere and shed old baggage from the Sikka era that it felt wasn't getting it anywhere.
First, it got rid of Panaya -- the Israeli company that performs SAP upgrades, which Infosys acquired in 2015 for $200 million -- as well as Skava (formerly known as Kallidus), a San Francisco-based digital experience solutions company. According to some observers, Panaya was crucial in saving time and money for code upgrades that often helped Infosys snag hard-to-get contracts and helped significantly in Infosys' overall transformation and process automation strategy.
Parekh and his lieutenants were not convinced.
"As part of our strategic review, we put together a set of criteria for our entire portfolio. When we looked at Skava and Panaya, they did not meet that criteria. We then decided to take the actions that we've taken," said Parekh.
"Both Skava and Panaya put together, the revenues from them are not material for us," said Chief Financial Officer M.D. Ranganath during a post-earnings address.
The Indian media has reported it largely as a 'fire sale' with a write-off of around $90 million on the books. In short, Parekh wants to get away from the software-and-people model that Sikka had carved out into a 'Digital First' one, and both these firms don't fit into the plan.
Of course, Panaya has other resonances. It became the centrifuge around which a bitter conflict between Sikka and the person responsible for bringing him there -- industry icon and Infosys co-founder Narayana Murthy -- revolved. To Murthy, the Panaya acquisition smelled rotten, and you can read all about it here in one of my previous stories. The gist of it was that Murthy and Co. felt that the company had seriously overpaid, even though Sikka pointed to third-party evaluations undertaken by Deutsche Bank that validate the purchase.
The said, the South Indian co-founder, who built the firm from ground up with negligible capital, was also perennially unhappy about what he thought was stratospheric compensation being awarded to the top brass, including Sikka. He also thought that the firm had paid the CFO Rajiv Bansal, who didn't agree with the Panaya purchase, some 'hush money' to stifle his opinion with what he thought was an exorbitant severance. So, Murthy waged an all-out PR assault against his own company. To Sikka, this undoubtedly came off as treasonous meddling by the founder, especially considering Sikka had staged what most people thought of as a significant comeback for the firm since his arrival. Ultimately, getting rid of Panaya was probably also an exercise in jettisoning this bitter after-taste that would inconveniently linger during the forging of its new avatar.
Its second important announcement was the purchase of 25-year-old, Seattle-based creative agency Wongdoody for about $75 million. To compete in the newly-dawned digital realm, Indian IT services companies -- Infosys included -- have had to face the twin challenges of easing off on its reliance on easy money from the old era of infrastructure maintenance and application development, which almost overnight become severely commoditised. It hasn't been an easy thing to do considering its immediate impact on margins. There is also the considerable challenge of evolving toward a new business model that involves battling formidable rivals such as Accenture.
Here, the company is seen to have badly stumbled. While Accenture has gone on a scorching acquisition pace, first snapping up over 30 companies for a billion dollars in the past two years and then announcing the intention to spend another staggering $1.8 billion on further acquisitions last year, Infosys has barely touched the vast cash hoard that it has been sitting on. Many of these acquisitions have been in the creative and digital design realm.
Accenture may eventually suffer from some indigestion due to problems in integrating its vast empire, but so far, it is trucking along quite nicely. Infosys, meanwhile, purchased London's Brilliant Basics, which occupies the digital, customer-experience category, but that's pretty much it -- a veritable death knell for winning business in the new era. If you build it, they don't seem to be coming as fast as if you buy it, it seems.
A big reason for this is because Infosys is still not seen as a one-stop-shop for creative digital thinking and doesn't have the kind of strategic consulting chops it needs to satisfy customers who want more than just the plumbing.. Wongdoody, which is a full-service creative and consumer insights agency dealing with multi-platform content that is used to merging data and analytics with creative work, will go some way in filling this gap. But will it be enough?
Infosys is a tenacious player that has been around the block a few times and has a good global reputation. But Indian IT on the whole doesn't seem to have won over industry observers in terms of their ability to play the long game. One such skeptic is Vivek Wadhwa, a Distinguished Fellow at Harvard Law School as well as Carnegie Mellon University's College of Engineering: "I give Indian IT less than five years before it begins to implode. Unless it gets on a war-footing right now to reinvent itself, it will become toast," said Wadhwa.
And these two announcements may just not be convincing-enough indications of Infosys waging an existential war to ensure its survival.
Previous and related coverage
Sikka abruptly resigned amid executive tensions and an "untenable atmosphere" surrounding the company.
His ability to recruit a suitable CEO candidate may depend on how much of an arms-length agreement with the board and management the co-founders of the company agree to.
Co-founder of Infosys Nandan Nilekani will immediately assume the role of non-executive chairman.
No one in their right mind would want to inherit a job that brings with it meddling founders at war with an out-of-sync board, where acquisitions will be endlessly questioned if they happen at all, and a climate of conservatism in business strategy abounds when risk taking is the only antidote for survival.