Last week’s announcement that SAP executive Vishal Sikka would be taking the top spot at Infosys may be an indication that the Indian outsourcing provider is capable of making fundamental changes in an attempt to regain its prominence in the offshore IT services industry. After all, Sikka will be the first non-founding CEO in the company’s history.
“Something needed to change — and fast,” says Phil Fersht, CEO of outsourcing analyst firm HfS Research. “He is new blood. He has youth on his side. He gives them the immediate facelift they were craving.” (Disclosure: SAP is a client of Stephanie Overby.)
In recent days, the Bangalore-based company also announced a dozen new executive appointments.
But it will take more than a few new faces to transform Infosys. While these executive appointments are important, says Thomas Reuner, principal analyst within Ovum’s IT services practice, what’s required is a complex orchestration of changes in a very competitive environment.
Founded in 1981, Infosys became the face of India’s booming post-Y2K IT outsourcing industry. New York Times columnist Thomas L. Friedman credited Infosys co-founder and former CEO Nandan Nilekani with inspiring his 2005 business best seller, The World is Flat.
But in recent years, Infosys has struggled to keep pace with its Indian and western rivals. “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 morale, reinforce strategic direction, and reinvigorate the whole company culture,” says Phil Fersht, CEO of outsourcing analyst firm HfS Research.
“The firm was getting squeezed and executives continued to leave the firm at a frequent clip — some voluntarily, but most forced out,” Fersht says. Infosys had come to be considered an old school offshore outsourcing provider by some.
New Infosys CEO, Vishal Sikka, Has His Work Cut Out For Him
Sikka is well-connected and well-liked by CIOs, say observers. But he will have his work cut out for him, most immediately in improving the deal pipeline at Infosys. “His first task is to fix the sales engine,” says Reuner.
Infosys has been overly dependent on smaller projects rather than large outsourcing relationships. “If you depend on discretionary spending, you’re in trouble when you encounter economic headwinds,” Reuner says. “They need a healthy percentage of their income to be predictable. We haven’t seen them win many large deals of late.”
Infosys also needs to further strengthen its platforms strategy, according to observers. “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.” Infosys’ recent investment in its end-to-end Edge platforms were a step in the right direction. But “they’ve been struggling to execute on that,” says Reuner. Sikka’s technology product background could help.
Software executives, however, can struggle to make the transition to services. Consider Leo Apotheker’s short stint at hardware and services firm HP. “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,” says Fersht.
“However which way we look at this, services is about people first. 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.” Sikka must make the company’s front-line employees happier and stabilize the organization, agrees Reuner.
At the same time, Infosys needs to embrace increased automation. “This is more of a threat to current IT services and BPO delivery models, where advances in robotic automation software are enabling clients to reduce their already offshored services by a further 20 to 30 percent by replicating manually operated processes in robotic software solutions,” says Fersht.
“As robotics become more mainstream, because of client requirements, those providers with strong ability to replace labor with robotic process automation are going to be at an advantage.” Last year, Infosys struck a revenue-sharing partnership with robotic automation provider IPSoft, an indication that it recognizes that need to accelerate its automation option, says Reuner.
Time Will Tell if New CEO Will be Capable of Transformational Change
Sikka doesn’t take over until August. So it’s too soon to say whether the new CEO will be capable of making such transformational change. “Stabilizing the company is one thing,” says Reuner. “Catching up with peers who put in stellar results quarter after quarter is another. Even if you fix the internal problems, you still have the competitive pressure.”
While co-founder N R Narayana Murthy has officially stepped down, he could remain involved in decisions behind the scenes, which could thwart turnaround efforts, adds Renuer. “I don’t see him just playing golf.”
“Sikka needs to balance the realities of the present world with the one we’re moving into. Infosys isn’t IBM; 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,” says Fersht.
“Vishal needs to take a pragmatic view of the pace at which Infosys can really change and evolve,” says Fersht. “Coming up with the big vision is one thing. Executing on it is another.”