With its four-pillar strategy that pivots around “Digital”, Infosys is refocussing on its client’s needs and has chosen to shift away from products, which was Vishal Sikka’s legacy.
At its fourth-quarter results announcement, CEO Salil Parekh revealed the final contours of a four-pillar strategy, which to a lot of industry watchers had resembled predecessor Sikka’s gameplan.
For example, Parekh outlined “scaling our Agile Digital business, energising our client’s core technology business using automation and AI, employee reskilling and expanding our localisation efforts in the US, Europe and Australia” as his new mantra.
This somewhat resembles Sikka’s “renew and new”, reskilling (using Design Thinking), and hiring in the US was a given once the regime changed in the US.
So, what has changed? Jimit Arora, Partner, Everest Group, explained that as part of the strategy review, the leadership has been decisive in terms of what aligns with Agile Digital. In this regard, Skava and Panaya were not fitting in strategy and hence being divested. This clear articulation of what the company seeks going forward seems to have convinced industry watchers.
“The focus on (and investment in) being relevant to clients as they make pace on their Digital Transformation journeys,” said Sanchit Vir Gogia, Founder, Greyhound Research. Infosys has made two acquisitions in the digital space recently WongDoody and Brilliant Basics. “Several of its previous acquisitions have not been as successful as they had hoped and the leadership wants to refocus in the digital areas,” said Phil Fersht, CEO and Chief Analyst, HfS Research.
Panaya, the Israeli company which Infosys acquired in 2015 for $200 million, along with Skava, fitted well into Sikka’s vision. The automation technology firm was building new line-up of products and tools to make automation for large customers more efficient and cost-effective.
Was it really good, questioned an analyst. The answer in part can be seen from the numbers. Panaya has made losses of ₹83 crore and in a 2015 annual report it was mentioned that Panaya Pty is based in Melbourne but sources told BusinessLine that it is yet to commence operations. Parekh has taken a call to exit the two subsidiaries, write off $90 million in Panaya on a standalone basis and the combined value of both the subsidiaries is $316 million, with liabilities of $50 million. It has been classified as “held for sale” in its books. The decision to sell Panaya is interesting and reflects on the mindset of the new management under Parekh’s leadership.
A merger isn’t just about the technology that comes with it but also the overall fitment in the broader scheme of things like cultural match which is the hardest task amongst all.
“We must give Salil the time to explain and more importantly justify his decision to sell Panaya and not necessarily read it as undoing what Vishal did,” opined Gogia.
However, Parekh has faith in other products portfolio — which includes Nia and Finacle — which he said would remain part of the portfolio going forward.
Have all these changes unnerved clients? For the most part, strategic inflection is largely a non-issue for clients, according to Arora, adding that the number of $50, 75 and 100 million clients have increase modestly (it added six clients in all these three buckets). This comes as music to Infosys’ ears especially when some of its clients have been dissatisfied with its services.
As the strategy has been laid out, Infosys is in the midst of a new normal — wherein technology shifts are rapid, the old model of billing man-hours are getting irrelevant and so is sending techies from India to the US in the backdrop of stricter curbs around H-1B visas.
All this will have an impact on margins. Infosys has acknowledged this by lowering of FY19 operating margin guidance to 22-24 per cent from 23-25 per cent for FY18. Typically, lower margin expectations help companies mine their clients better.
Source: The Hindu