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Infosys repeats history, but this time goes for a services man in Salil Parekh

December 03, 2017 | Phil Fersht

Over three years ago, the Infosys board made the brave decision to look outside of its organization to bring in an "outsider" to transform its business and ready itself for whatever wave of disruption was coming to challenge a services model that still makes ~20% profit margins and grows ~5% a year.   Yes, they appointed Vishal Sikka, and we all know about the ensuing soap opera that followed...

The decision to look outside was made in 2014, and that hasn't changed

Hindsight is a terrific practice to follow, if all you really like to do is chew on historical occurrences to learn for the future. However, in the case of Infosys, the only real lesson to be learned from the whole Vishal saga is the firm needs a leader who understands how to grow, divest, acquire and lead a technology services and consulting business.  Vishal provided the dreams, the style, technical prowess and the cultural impact... what he failed to deliver was being able to apply these skills effectively to a traditional services business. 

Vishal was a software guy and that is the world he lived in - building very expensive platforms and hiring very expensive Californian executives to run them. Having said all that, Vishal did drive a huge amount of change, and most of it was positive - the only major negative was the fact he departed the firm, and everything he contributed left the firm in a state of paralysis.  The only saving grace for Infy has been the confused state of the services industry in 2017, where most of Infy's competitors have been too busy chugging down the Digital Kool-Aid trying to come across as a facade of flashy vernacular, rather than staying true to the secret sauce that made them great in the first place:  driving out operating costs and providing innovations... and all at the same time.

The role of the services CEO is to steer the organization away from outsourcing and towards partnering

Another change to the world of Indian-heritage service providers, is the fact that most clients really don't care all that much these days if the CEO changes - five years ago, they would make a big deal out of it and used it as leverage to change provider, or carve out a further discount for themselves. Today, they buy a service and want it delivered with minimal disruption - noone wants to rock the boat and create a crisis out of nothing. Will IBM customers flock to Accenture if Ginni left?  Of course not. The CEO sets the tone and the strategy, while rest of the firms gets on with servicing the clients.  What's more, differentiation between services firms these days is much more subtle - it's not all about the big vision and fancy speeches... it's about being able to execute at competitive price points and commit to helping clients achieve jointly defined business outcomes. Winning in today's services market is about being much more than outsourcing, it's about clients working with providers as extensions of themselves... as genuine partners in business and technology.

The leader needs to make sure the company is set up with the right investments, people, culture and global resources to achieve this.  Clearly, the Infosys board has felt for some years now it needs to bring in an outsider to get that balance right... there are just too many sub-companies, industry units, conflicting strategies and decades of politics to trust an insider with this massive task.  Having someone who hasn't been sucked into this internal quagmire - and can drive change with a little distance from the intense (and proud) history - is the right way to go.  Again, this is a brave decision.

Salil Parekh: a pragmatic and sensible choice with the right experience-set

Salil Parekh ticks all the right boxes without upsetting the apple cart - it's the external play, without the risky unknowns that a guy like Vishal brings. Firstly, Salil is not just a services man, but also a real consulting man. This is a sensible, pragmatic move that will help build and grow Infosys' higher end consulting business. Salil has lived through two successful mergers - EY and Capgemini in the 2000's, and more recently the Capgemini / IGATE merger, where there was very little client overlap and the two firms really complimented each other.  Infosys has held back from opening the $6bn warchest - a lot of this was because they didn't have the right guy at the helm whom the board trusted to make the biggest decisions that are still facing the firm: making the higher end consultative plays with the right acquisitions; making the right investments into its automation and AI capabilities; and positioning the firm as a true innovative and trusted partner in an uncertain world being ravaged by the seismic impact of Brexit, political instability and disruptive business models fuelled by digital tech and blockchain. 

Yes, these are massive challenges, but the services winners of the last three decades have thrived on change, disruption, and uncertainty, which is exactly where the Infosys of 2018 and beyond needs to focus.  Salil also has a career filled with cultural affinity across American, European and Indian business, which is so essential in today's environment. Keeping Pravin Rao as COO helps maintain the best elements of Infy's work ethic and culture, but Nilekani clearly wanted some new blood to inject a new direction for the firm. This is also a clear shot across the bow at Capgemini, a firm which Infosys can go after aggressively in the market.

So here's a quick checklist of all the challenges and opportunities that must be urgently addressed

Immediate challenges:

Put forward an Infosys Brexit plan to support clients as panic starts to set in.  With such a strong European presence, Brexit could be the biggest opportunity yet for Infosys to support global business in distress

  • Decide quickly which of Vishal Sikka's initiatives to keep investing in, namely the Nia platform, the Design Thinking strategy;
  • Keep driving forward its localization investments, especially as DevOps increases the demand for immediate access to onsite resources;
  • Decide how much emphasis to put on EdgeVerve;
  • Evaluate the success and effectiveness of its BPO business and determine where to take that business;
  • Determine Infosys' approach to "Digital" - is it worth playing the mimicry game, or is there a window to attack the market with a different approach?  A lot of building blocks are there, but it is not as articulated and joined up, when compared to Accenture, Cognizant and Wipro;
  • Definitively nail-down Infosys' approach to automation and AI (including AssistEdge and Nia) and set appropriate investment levels to make it work;  
  • Assess current leadership team;
  • Identify its competitive set and determine who is wants to emulate and to compete with.  Is Infy still the "Indian Accenture", or time for a renewed focus?
  • Evaluate the recent investments in Californian talent and infrastructure.

Medium-term challenges:

  • Align the strengths of aligning Infosys' DNA and culture with the future strategy and direction of the firm (without upsetting the Founders);
  • Ensure the right investments are made across industries based on Infosys' strengths;
  • Continue to globalize the firm across North America, Europe and India;
  • Make significant investments in consulting, either through a major acquisition or a series of smaller tuck-in additions.

The Bottom-line: Infosys can correct-course, given the current market turmoil, but cannot afford another mess

If there is one saving grace that came out of Infosys' annus horribilis of 2017: it's the fact that everyone cares about them - and the firm is still chugging along as well as the rest of its competitive set. Just spend time with its executives and you'll quickly see how proud its people are of their firm and their brand - you don't get the same arrogance and complacency that some of its competitors give off. The firm has a big chance to make a big move in 2018 with the right man at the helm, but Salil must move swiftly and definitively - and keep these Founders in line - or we'll just see history repeat itself... a fate not worth contemplating. 

There is no doubt that several of its competitors have closed the gap on them (and some, arguably, are slightly ahead), but Infosys still stands proud and has a rare chance to learn from its own - and everyone else's - mistakes. IT services is a savage business, but Infosys' standing and financial resilience have gifted it a second chance to rise again.

Posted in: Analytics and Big DataBusiness Process Outsourcing (BPO)

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1 Comments

16 Comments

  1. Gans Subramanian
    Posted Dec 03, 2017 09:13 AM | Permalink Reply

    Very good article. You have hit it on the nail.

  2. Arun Ramchandran
    Posted Dec 03, 2017 10:30 AM | Permalink Reply

    Sharp, insightful and practical viewpoint, Phil Fersht! Having worked directly with Salil for over four years at Cap, I agree with you that he is the right choice for Infosys at this time and will bring a calm and steely determination to his new role. Not only does he get strategy, but also shown himself to be superb operationally and thorough in execution. Feel happy for both Salil and Infosys: best wishes for a successful turnaround!

    Arun

  3. James
    Posted Dec 03, 2017 11:05 AM | Permalink Reply

    Phil

    Superb analysis. Def agree Infosys got away with the Vishal mess, but they can't afford another one. Seems like a decent appointment,

    James

  4. Renil
    Posted Dec 03, 2017 12:36 PM | Permalink Reply

    The key to growth for companies is to CO create solutions silently with customers. This will enhance the value that the customers perceive of a service company. Salils consultancy penchant will help develop this. But his challenge will lie in rejuvenating the company workforce that is sunk deep in delivering mode 1 projects for customers. The aging workforce and leadership needs to shrug off the traditional mindset and move into nimble, risk taking projects.

  5. Rakesh
    Posted Dec 03, 2017 06:22 PM | Permalink Reply

    Phil -

    All this is great, but the biggest roadblock to Infosys rediscovering its mojo is the “Old Man” founder and his “my way or the highway” approach. How Salil manages NRN will be what determines his success

  6. Mandeep Singh
    Posted Dec 03, 2017 04:43 PM | Permalink Reply

    Spot on Phil. And as an everyday competitor in the marketplace, as much as I would like to crush them where ever I meet them :) I understand that a strong Infy is necessary for the Indian IT story to best these turbulent times. High respect for the firm and it's people.

  7. Warren
    Posted Dec 04, 2017 03:06 AM | Permalink Reply

    This really is a good analysis, Phil. You're one of the last places where fake news does not exist =)

    Keep it up

  8. Aashish Bansal
    Posted Dec 04, 2017 10:36 AM | Permalink Reply

    Digital Kool-Aid, that's gonna hurt a few feelings at the playground!

  9. Shammy Narayanan
    Posted Dec 04, 2017 05:10 AM | Permalink Reply

    In Salil they had found a temporary solace to boardroom battle...real challenge is his ability to navigate through new market dynamics....

  10. Abdul Azam
    Posted Dec 04, 2017 06:42 AM | Permalink Reply

    Till the meddling of the founders is going to persist, its going Vishal SIkka way :( The new CEO must be given a free hand.

  11. Rajendra Vijay
    Posted Dec 04, 2017 08:27 AM | Permalink Reply

    Completely agree. Hope new CEO gets the real 'free' hand, unlike his predecessor.

  12. Chitbhanu Nagri
    Posted Dec 05, 2017 04:25 AM | Permalink Reply

    Phil

    Interesting perspectives and a good read to get insights into the Infy developments & current IT Services challenges.

  13. Phil Fersht
    Posted Dec 05, 2017 04:25 AM | Permalink Reply

    @Aashish:

    But I never said there was anything wrong with Kool-Aid =)

    PF

  14. Phil Fersht
    Posted Dec 05, 2017 04:28 AM | Permalink Reply

    @Abdul - no CEO gets a free hand these days... they have to align all the stakeholders of the organization. Hopefully the board LISTENS to him though ;)

    PF

  15. Phil Fersht
    Posted Dec 05, 2017 04:29 AM | Permalink Reply

    @Shammy - every board likes to squabble... it's just corporate life. Infy's problem is that it's always in the bloody media

    PF

  16. Manish Mehta
    Posted Dec 05, 2017 01:51 PM | Permalink Reply

    At the outset - great checklist of challenges and opportunities! Really excellent and should help Infosys forward - they should talk to you.

    Back in June 2014 on your Infovish blog we discussed some of this and I felt Infosys would come out stronger towards the end of the decade. Clearly things have not turned out that way! (But I was perhaps right on the point that the billionaire founder/s should not have left the company in a rush handing off to a new CEO, like they did then).

    Yet, why would you hire a software/tech company CEO and ask him to NOT play to his strengths (why hire him at all then)? To be honest, it did sound like (especially if you watched the quarter results he presented and the results in the recent quarters) that he was applying his strengths to the services business far better than most feared he could, atleast as best as he could. Ofcourse, no CEO is flawless (moving in expensive SAP managers who may not fit - this seems to have been one of them mistakes) but it seems like this is one "experiment" (if we may call it that) which we cannot really determine the true outcome. For two reasons, one because it was truncated from five to three years and well obviously because of the whole stupid Panaya fracas which clearly consumed the CEO/the board/the whole company for most part of the past year and colors the picture so much or should i say contanimates the petridish beyond repair. And that is vexing... we will never know what could have been.

    And to the point that the CEO does not matter as much, well....maybe so, but it sure seemed like heaven and hell was moved to change the CEO. So, does it matter or does it not (maybe not so much to the customers i agree) to the folks that matter:)? Actually, you are right on the point there, large/mature services businesses are better off making safe bets and need more of the execution rigor than dazzling innovation at the top. But then again, if you read the analyst press for the past few years - almost all fault the Indian firms for poor scores on innovation/uncreative, tame leadership! Seems like they can get one or the other but not both?

    Interesting that the firms doing well (CTS, TCS, HCL) all seem to promote CEO's from within...but irrespective all that, totally agree with your bottomline summary. Hope it all works out for Infosys and they can regain their mojo!

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