Can Infovish disrupt the Indian services model and rediscover its mojo?

Wow.  When the rumors leaked out about Vishal Sikka being tapped up for the Infosys CEO job, we thought this idle speculation, but a possibility that Vishal could have some role where he could absorb the nuances of the services business to potentially take over in a couple of years.

But – lo and behold – the old guard have decided it’s time to make a dramatic change and a big bold statement to the world by placing the popular tech innovator, Vishal Sikka, in charge of rediscovering that elusive Infosys mojo that has been absent for some time now. So… is the Infosys monarchy behaving like a Premier League soccer club and making a panic play to stave off relegation to the second tier of providers, or is this the boldest move yet from one of the TWITCH* provider family to make a late run at the Champions League?

Infovish Pros

Vishal is a technologist and much admired by technology-driven executives.  His recent departure at SAP demonstrated how loved he was by the techno-purists and was seen by many as SAP selling its technology soul to appease the money-men. He was a driving force behind SAP’s HANA (Hasso Plattner’s brainchild) and  the firm’s emerging Cloud capabilities – and his absence at the recent Sapphire event was even more depressing than Bill McDermott’s keynote speech.

Vishal will be key to driving Infosys’ platforms strategy.  You only need to look at the acquisitions made by the likes of Accenture and IBM over the last couple of years to realize that Cloud-based platforms that underpin analytical, consultative value-add services are the long-term future of services.  One of the brighter spots in Infosys’ recent troubled history has been its investments in its Edge platforms which target key industries such as insurance and manufacturing, and horizontal competences such as procurement and marketing.  Having a real tech products guy at the helm will do wonders for helping Infosys develop out these platforms further and develop a “products culture” for that part of the firm.

Something needed to change – and fast.  Despite a pretty decent financial performance in the market over the last 18 months (though lagging its major Indian counterparts), it was still abundantly clear that Infosys was struggling to break from its legacy past and make the changes necessary to rebuild company moral, reinforce strategic direction and re-invigorate the whole company culture and ethos. With TCS and Cognizant continuing their surge, Wipro getting its own act together and the emergence of Tech Mahindra and HCL as genuine contenders for deals that Infosys would have easily won in days-gone-by, the firm was getting squeezed and executives continued to leave the firm at a frequent clip – some volunatily, but most forced out. Infosys had managed to become cast as a “legacy” provider by several industry observers, which is not a place anyone wants to be in this cut-throat market.  Vishal is an outsider, he is new blood, he has youth on his side. He gives them the immediate facelift they were craving.

Infovish Cons

Vishal is not a services guy.  Technology products people often struggle to understand the nuances, challenges and culture of IT and business process services.  Most view services as the grunt work that does the plumbing, while all the important stuff gets done in the innovation lab. HP practically committed Hara-kiri when it appointed  Léo Apotheker, a software executive (also from SAP), to fix a company whose primary business was services and hardware.  Léo ended up blowing $10bn on Autonomy, for no fathomable reason, before being hastily ejected, and Meg Whitman is still cleaning up the mess he left behind.  While we laud the bold approach Infosys is making by putting a technology products innovator at the helm, the firm is still primarily a services business with a services culture.  The CEO needs to understand what make millennials tick, how to develop training programs, how to keep wages low and morale high, how to develop succession plans and “up and out” models that work, how to inject analytical and creative thinking into its staff.  In addition, 94% of Infosys staff are still India-based and they need to figure out a people strategy that is global, not just tailored for the Indian employment market. However which way we look at this, services is about people first, and Vishal needs to figure out how to make Infosys a more attractive career proposition for the best college graduates and experienced executives, than the likes of TCS and Accenture.

Vishal needs to balance the realities of the present world with the one we’re moving into.  Infosys isn’t IBM – it isn’t at the sheer size and scale that it can throw all its eggs into the Cloud basket and take its eye off the ball with its existing business. Infosys needs to keep one foot firmly planted in the reality of today’s business, while also developing for the future. While we all know the future is less about effort-based services and more about platforms with distinctive, value-add services, most of today’s buyers are still focused on global scale with their global sourcing strategies and that is where the bulk of the money is – and will be – for a few years to come.  Even on today’s analyst call, Murthy declared that “10% of revenue being product driven in 5 years would be a good achievement”, which is statement enough that Vishal needs to place a lot more focus on the 90%. Vishal needs to take a pragmatic view of the pace at which Infosys can really change and evolve – coming up with the big vision is one thing… executing on it is another.

The Bottom-line: The big vision is easy, executing on it is another ball-game entirely

Services firms are so much more than development labs – they are people environments the size of small cities that need very smart management which can manage their costs, while providing great careers for the brightest talent around.  Vishal needs to make sure he has the right management under him which knows services back-to-front to create a world class services organization that can support its home-grown disruptive and innovative platforms. He must resist the temptation not to surround himself with yes-men, but with people who can challenge his vision and make sure they are evolving it in the right way to be as competitive as their rivals.

*TWITCH refers to Tech Mahindra, Wipro, Infosys, TCS, Cognizant, HCL

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18 Comments

  1. Posted June 12, 2014 at 2:33 pm | Permalink

    As noted, with 94% of staff based out of India, Infosys is still an Indian enterprise. The corporate cultural is largely Indian and would be new to Vishal who, though being of Indian origin, has spent most of his professional life outside India. The corporate culture in India is so distinctly different from that in the west that there are hardly any success stories of western CEOs being able to deliver exceptional results for Indian corporations. Tata Motors and Jet Airways are some examples where these were attempted. Vishal’s ability to circumvent this would also be key for him to be able to deliver results in one of the most trying times in Infosys’ history.

  2. Posted June 12, 2014 at 2:35 pm | Permalink

    Phil,

    This was expected, nothing in panic but a well planned shift. A culminaton of all the events set in motion back in June 2013, actually way back in 2011. Things have been planned right, including moving out time entrenched senior execs, who had been mentored by the outgoing founders but could become a challenge for the incoming CEO. Speed in making these changes and in executing to this point (onboarding a new CEO) was critical and it has taken a full year (that was the plan it appears), but I feel Chairman Murthy should have stayed on till June 2015 or in that quarter. While the founding team has worked to the utmost to create right conditions for the incoming CEO (including stepping down, promoting the younger folks and giving them more resp., restructuring the ops platform, addressing the board etc.), the next three quarters are crucial and he will need help to start right. I guess they wanted a quick, clean transition and a full power start for the new CEO, without Mr. Murthy’s presence. But there is going to be no third time coming back for him, if this does not work ahead.

    Also there was aother board level change; so the dynamics of the board ahead, the way they and the new CEO work together is also an important determinant of how things play out. Finally, the point you make about smart leadership, man management is also a critical factor in success ahead. (SAP was a different tech. company/role, yet even SAP continues to grapple with people issues), management skill is most relevant in this/any services business not just product/tech. experience.

    Interesting you point out the future span outlook for the WITCH players. By nature both technology/services firms will go through transition every few years or else die/merge. It’s like a natural law and by making such a move Infosys has signalled their clear intent – they want to act, make people and strategy changes, to be best positioned to come out of this decade strong and be the one that survive. Apart from TCS and Infosys, the other firm to watch is HCL – there could interesting moves in future.

  3. Dinesh Goel
    Posted June 12, 2014 at 11:37 pm | Permalink

    In my view, it’s a good move from Infosys. Someone like him while having spend most of his professional careers in the west, still has origins in India and hence a great blend for a business which is increasingly becoming global. Having a technology and innovation exec at the helm is actually a positive for a company like Infosys so long as he turns out to be a good blend of business acumen and technical expertise. All the decisions of founders to step down from executive roles and Board positions are laudable. It’s another Lou Gerstner type opportunity though the plot and characters are different. Let us wish all the best to the new leadership team at Infosys in regaining its lost sheen in an ever changing and fiercly competitive industry.

  4. Yatin Ubhaykar
    Posted June 13, 2014 at 2:15 am | Permalink

    The journey from commodity, product, service, experience and transformation has to be undertaken by all businesses in the years to come. With strong product background and a quick-to-learn attitude of the scholarly VS, he should be able to lead the organization successfully!

  5. Posted June 13, 2014 at 5:14 am | Permalink

    The biggest challenge in front Vishal would be to strike a right blend between a typical IT service model to a an ultimate product journey.

  6. Lalit S Kathpalia
    Posted June 13, 2014 at 6:30 am | Permalink

    Phil,

    My two cents. Firstly beautiful blog and interestingly fleshed out. The challenge which Vishal has is that in a company where products are considered secondary and services are considered primarily as business how would he accomplish a TRANSFORMATION in the MINDSET of the deeply grooved mind based on Services. Also SERVICES are an easy option to get MONEY IN fast to please shareholders rather delivering CLIENT VALUE. So in such circumstances how does he make a TRANSFORMATION from a SERVICES company to a PRODUCT and SERVICES company. And one major hindrance is that despite the TOP level Exits the SERVICES delivery team is essentially the same.

    One interesting takeaway is that a company that sells TRANSFORMATION is not ready to implement the same to itself. Reason- CHANGE MANAGEMENT is HARD

  7. Jim Donaldson
    Posted June 13, 2014 at 8:34 am | Permalink

    Phil,

    Fantastic viewpoint and well balanced. I take the attitude that Infosys needed a younger and more dynamic leader. Let’s hope Sikka “gets” the services business!

    Jim

  8. Gaurav
    Posted June 13, 2014 at 8:55 am | Permalink

    Fine analysis, Phil – the best I have read.

    At first I was skeptical about this appointment, but Infosys had to do something. There is less and less to choose between the services firms these days and if Vishal can create a better culture and personality for Infy this may be a very good move.

  9. Paul
    Posted June 13, 2014 at 9:33 am | Permalink

    Vishal might be good for hobnobbing with CEOs and delivering nice speeches to rouse the staff, but this appointment alone will not turn around the firm. Needs a much more fundamental set of changes form top to bottom in the organization,

    Paul

  10. Jennifer Worth
    Posted June 13, 2014 at 11:13 am | Permalink

    Phil,

    Changes at the top only work when there is a strong management team to implement the new strategy and also challenge the new leader to make the right decisions. My concern would be whether they can bring in some new blood to help Vishal execute his roadmap. Simply relying on long-term Infosys management concerns me,

    Jennifer Worth

  11. Kevin Thiebold
    Posted June 14, 2014 at 7:45 am | Permalink

    Infosys is a once-proud brand and needs that “special something” to get is moving forwards again. Like you said – finding its mojo! If Vishal can bring back some of the lost pride and create a culture on innovation and hard work, this might just work for them.

  12. Ramesh
    Posted June 14, 2014 at 8:08 am | Permalink

    Lipstick on the pig? Just adding a visionary at the top doesn’t solve its problems.

  13. Phil Fersht
    Posted June 14, 2014 at 9:30 am | Permalink

    @Manish – you’re definitely correct about these transitions services firms go through every few years. End of the day, this is a people business and the culture, moral and talent strategy dictates the success of the firm. However, as you also point out, Infosys is a very Indian business, and whether a leader from largely a Western culture will have the desired culture impact and ability to execute is very much in question. 80-90% of the business is still about executing commodotizing services that must be sold and delivered at very competitive prices – and that part of the firm needs the main attention in the early days. Services in today’s environment is 20% vision, 80% execution.

    Vishal will need a lot of support from the board and very strong execution-focused management under him to help steer the ship,

    PF

  14. Phil Fersht
    Posted June 14, 2014 at 9:33 am | Permalink

    @Jennifer – agree that Vishal alone won’t be the answer. Needs to bring in some services talent from rival firms to help change the embedded mindset,

    PF

  15. My two cents
    Posted June 14, 2014 at 4:26 pm | Permalink

    Vishal is good technically but innovation and execution is needed.
    Note: HANA is a brain child of hasso. The execution was done in Germany ,China and Korea .

  16. Rahul Patwardhan
    Posted June 15, 2014 at 1:47 am | Permalink

    The pros and cons are well described and valid.

    Infy needs to transform towards platforms driven business, but can’t take its eye off the ball of its existing bread and butter business at the same time. The duo of Vishal and Pravin I think and how they are able to play the perfect foil for each other will determine how well Infy manages the balance. No one has pointed towards this. Will they work as full partners or compete – that will be key.

    Secondly, to give itself al lot more leeway to be able to make the very difficult transformation happen, if I was Vishal and the Infy board, I would do a large acquisition to scale up Infy into the top 5 services firms league using its huge cash chest (or being smarter to make a big merger deal) targets could be a CGI, or a CapGemini, as that would simultaneously achieve top 5 ranking plus top 5 in every regional market. With this in the bag, there will be a much bigger platform to pull support from investors and clients globally – and hence more willingness to let Vishal drive the transformation of the services model from a highly Indian people based swear model into a platform and industrialized truly global delivery model.

    Big leaders and big companies need to gave the guys to make big moves, something Infy never had demonstrated for a long time. This is the acid test – will Sikka and the board be different going forward?

  17. NP
    Posted June 15, 2014 at 2:50 am | Permalink

    Vishal is well connected. The first thing he’d try and do is to use those connects to close deals and create a positive vicious cycle… Get people busy… Cut the noise… Everything else will follow

  18. ServicesOrProducts
    Posted June 30, 2014 at 8:14 am | Permalink

    Great blog!

    Unfortunately, the reality is that services companies can never run a product business, successfully. Not just yet! The DNA of the two businesses are dramatically different.

    I’m sure the learned and experienced readers of this blog and Phil and his brilliant team already know this very well. But I I have had the good or misfortune of working on both sides of the industry and have been “inside the ring” :-)

    The metrics of measurement of a services company are VERY different from that of a product company:

    a. Product businesses typically commands high gross margins, usually well above 65 to 70% which is a very enviable figure for IT services companies to achieve. But in order to get there it requires the company to have the foresight to stay invested for a lengthy period of time. There is intense competition among the different business units and service lines in any service business for investment dollars. As companies that live and die by the quarterly results, IT services companies are forced to demonstrate results QoQ. Most companies shy away from taking long term bets and trade it off for immediate investment into “accounts” where they can see quick growth. Yes, they do develop “frameworks” and “solutions” and “reference architecture”, but they are NOT products. Some companies have developed fairly mature solutions in the infrastructure management space, but in my limited experience, I have not seen mature “productized” solutions beyond that space!

    b. The goal of any IT service company is to deliver IT services at the lowest possible unit cost. Since people are the raw material, a huge portion of their COGS is people related. The more experienced a resource is, the more expensive it becomes for them to “staff” the engagement. IT services companies always look for staffing the engagements by broadening the base of the pyramid i.e., more with less experienced resources. The intent is noble when the processes and the solutions are industrialized and mature enough that any junior resource can be injected into the pyramid, gain knowledge rapidly and start being productive (i.e., “start billing quickly”). However, the success of a product business comes from the knowledge and the depth of the resources. So the more senior the resource is, the greater the product knowledge, the greater her contribution is and the richer the product is. Traditional IT services companies do not operate in this model. They always look to rotate out more experienced resources so they can calibrate the resource mix. The goal is not to deepen the bench, it is the contrary. Look at any transcript of an analyst call (the Wall street or Dalal Street ones!) and the two things they ask about every quarter, without fail, are “utilization” and “bench” :-)

    c. In an IT services company, despite all the talk about “verticalizing” business units, resources are treated as horizontal technology resources (i.e., Java or Mainframe etc). They are generally aggregated under a “vertical”, but make no mistake, their competency is not “verticalized” technology, it is “horizontal” technology. Even if an IT services company has a “product”, the resource never considers herself as a “product” resource and they compare themselves with their peers in the IT services parts of the company, who move on from one “project” to another “project” after their “company prescribed rotation period”. So, the resources are not enthused to stay on to the “product” business for years together! More over, the opportunities to go “onsite” are very limited in a product business as the limited opportunities are time-bound product implementation related or post implementation support related. This is unlike a services engagement where contracts run into a few years and if a resource is “ramped down” from one engagement onsite, they are quickly moved on to another engagement. There is little motivation for the technical resources to work in a product division within a services company because of this fundamental aspirational issue;

    d. The seasonality in product business is severe than the ones in IT services business. You might have license revenues in one quarter and nothing in the next quarter. IT services companies like to ramp people up and down based on revenue flow (move to different account etc). When they start doing that in a product business, the IP goes out the door (unless the product is so industrialized that you can inject a newbie and can make her productive ASAP!). IT services companies don’t like this seasonality and have a hard time digesting the fact that revenues can actually fall, which unfortunately is a reality!

    So Vishal Sikka’s addition to Infosys is great…but even if Infy achieves 10% of its revenue from product business (as NRN has stated) it will be a great accomplishment. The product business needs to be structurally different from the services business in order for it to truly succeed. BTW, it will be interesting to “peel the onion” and truly see what constitutes the 10% revenues – true revenue from product business means they have to be license revenues, annual renewals, SaaS rent and truly deploying a product. Not some rub-off revenue from a “framework” which is double counted (i.e., how do you count business intelligence work done in a Banking vertical? Is it counted as revenue for Banking “vertical” or revenue for Business Intelligence “horizontal”? What you find most often is that both parties stake claim to that revenue, usually one party as a “shadow” revenue).

    Good luck to Sikka, nonetheless. He is an awesome technologist and a great leader!! If he can turn this around despite the above odds, he is truly the miracle worker :-)

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