Vishal Sikka began his tenure as CEO of Infosys last week by approving about 5,000 promotions within the Bangalore-based IT services firm in an attempt to improve morale and slow down attrition rates.
But the first non-founding chief executive in the company’s history has much more difficult work to do in the coming months and years if Infosys is to catch up to its Indian and western rivals in the IT services market.
CIO.com asked IT outsourcing industry observers for their best advice to Sikka as he attempts to rebuild morale, rethink strategy and reinvigorate the company.
Forget About Margins
Infosys still generates significant revenues in what Forrester vice president and research director Frederic Giron calls “margin erosion” deals. “Most IT service providers like Infosys cannot escape the long-term erosion of their margins,” Giron says.
“The cloud infrastructure price war that Amazon.com started will continue. Large outsourcers like IBM, CSC and HP have lost a massive amount of market share to their Indian counterparts and cloud-based offerings over the past few years. In turn, I expect large Indian outsourcers to hemorrhage red ink in the near term due to the unrealistic promises of savings they’re making to their clients.”
Infosys’s position as a high-margin provider is alienating customers and will ensure continued slow growth, says Peter Bendor-Samuel, CEO of outsourcing consultancy and research firm Everest Group. The 33-year old company should instead invest it in creating additional value.
Sikka should “focus on revenue growth and market share ahead of margins” in the short term, says Anubhav Saxena, president of global managed services for outsourcing consultancy Information Services Group. Investing in new branding should also be a priority, says Saxena, who spent 20 years in leadership positions at Indian IT service providers HCL and Wipro.
Embrace Automation — for Innovation
There’s an automation arms race underway in IT services, says Giron. But it won’t do Infosys any good unless they use new tools to help clients transform legacy systems into new digital platforms.
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“I would definitely leverage automation and other disruptive technologies to improve client delivery and increase productivity,” adds Saxena. “The objective would be not only to optimize Infosys’s current operations, but also to convert these innovations into services to sell back to client environments and seed higher share-of-wallet offerings.”
“Infosys needs to reinvent its value proposition and target the business decision makers and help them grow their top line,” says Giron. The IT supplier’s deal with L’Oreal is a good template for that, Giron adds, but Sikka needs many more such relationships.
Invest in People
While automation is increasing, IT outsourcing is still primarily a people business. More important than the latest tech trends is top talent. “Services firms 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,” says Phil Fersht, CEO of outsourcing analyst firm HfS Research.
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“I would make sure I had the right management under me, which knows services back to front to create a world class services organization that can support its homegrown disruptive and innovative platforms.” Sikka should surround himself with people who can challenge his vision, Fersht says, looking outside of India to recruit key executives and industry thought leaders.
In addition, Infosys might increase its entry-level workforce. “While many multinational service providers have focused on ‘run-the-business’ functions, Infosys has bet heavily on ‘change-the-business’ services,” says Saxena. As a result, they’ve hired more senior consultants than front- line workers.
“I believe Infosys should take more of a factory approach to achieve a more balanced mix,” Saxena says. “By stepping back and hiring and training more entry-level people with appropriate skill sets, they’ll be better positioned to support expansion and growth.”
Focus on the Customer
Infosys needs to become a more customer-centric outsourcing provider. Bendor-Samuel suggests that Sikka move decision-making into customer regions and down to the account level. He also suggests the company move company headquarters — and its industry leaders — west to London or New York City.
“Revenue growth could be driven by carefully segmenting vertical and horizontal markets and bringing in a disciplined approach to target specific areas for the next 12 quarters in all geographies, including newer high-growth geographies,” Saxena says.
Rebuild the Sales Engine
In order to attract more transformative deals, Sikka will need to transform his own sales and marketing function. The company must build — and reward — new types of client relationships, says Giron. “The sales leadership needs to be changed and or re-skilled in order to drive a more business-centric culture. Infosys needs to move away from a staff augmentation engagement model to ones where the company derives sustainable business value through more long-term incentives.”
The sales team will need world-class thought leadership and marketing to back up their pitches. “As the sales and marketing team articulates the business value of the Infosys solutions as opposed to the lower costs of their human resources, Infosys will have to educate the buyer community about these innovative models,” Giron says.
In addition, says Fersht, Infosys needs to create a clearly differentiated identity from its Indian rivals including Cognizant, TCS and Wipro. “I would invest in sales and marketing to rebuild brand quality and to acquire stellar talent for high-touch client-facing and front-end functions,” adds Saxena.
Infosys’ recent investment in its end-to-end EdgeVerve platforms was a step in the right direction. But Sikka needs to clarify the platform- based strategy. “[It] represents a cornerstone of Infosys’s future growth strategy,” says Giron. “This is a key asset that will help Infosys move away from traditional, human-capital-intensive activities like application development and maintenance.”
Sikka should spin off or sell legacy businesses, such as on-premise app testing, low-value IT maintenance, and help desk work and focus on new areas of digital competency including analytics, mobility and social media that can be delivered on cloud platforms says Fersht.
“This may entail some pain before the gain, as new markets take time to develop and contracts tend to be smaller initially. These [intellectual property] businesses have different business models requiring, different talent models, Investment cycles, management teams, stocks valuations, and different boards,” Bendor-Samuel says.
But this is where Sikka’s software industry experience will come into play. “Infosys needs a strong software strategy — leveraging its own software as well as partners’ and clients’,” says Giron. “And this is the area where I expect the new CEO to truly shine and come up with business models that will transform the company.”
Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.