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

Over three years ago, Infosys 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.

Salik 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.

(Cross-posted @ Horses for Sources)

LinkedIn Twitter
Founder and Chief Executive Officer of HfS Research, the leading global research analyst organization covering global sourcing strategies. Acclaimed Industry Analyst and Consultant who scribes the leading blog for the services industry "Horses for Sources".  Previously worked  at AMR Research (Gartner Inc),  Deloitte Consulting’s BPO Advisory Services, the  Everest Group and  IDC .  In 2010, Phil was named “IIAR Analyst of the Year” by the Institute of Industry Analyst Relations (IIAR). This is the most coveted global award for industry analysts in technology and services.