Sikka's dollars and the quest for business from platforms: the Infosys makeover
Infosys has been the darling of stock brokers for over two decades. But here on, it would serve it well to assess the company's performance by predicting the evolution of the IT services industry in capturing business from platforms. Globally, large corporations are changing the way they function with IT services companies. Clients are asking for new technologies that can reduce the number of people deployed onsite and want more accountability from IT. Transformation has been the name of the game and ever since Vishal Sikka took over as CEO of Infosys two years ago, the strategy has been around creating platforms that could automate processes for clients. So automation took the form of understanding client business from within and then integrating technology that could prepare them towards a digital future.
The challenge for Infosys has been to implement design thinking and is yet to move up its services from traditional IT services like application development and maintenance. ADM accounts for 90 percent of its business. Platform as a Service is a business that is still less than $100 million, forming just one percent of its total business. Only Finacle, the core banking solution, is a globally successful business line, which, sources say, is a half-a-billion-dollar business. There is very little IP. However,Sikka said in a press conference, "Organisations will have to prepare for a digital future and they will have to use technology skills that offer artificial intelligence and design thinking."
Analysts have long accused Infosys of integrating technology rather than understanding the business needs of the customer and using this knowledge to implement solutions. Now that's what Sikka has charted to change in the company and has targeted to make the company garner $2 billion from platforms and design thinking. The plan is to make Infosys a $20-billion organisation by 2020. For this purpose they have acquired companies like Panaya and Skava over the last two years to improve revenues from platforms. Analysts say that Skava, an omni-channel service for consumer business, is a big bet for Infy's platforms play. However, some of these acquisitions are yet to acquire critical mass. In fact, internal sources say that Panaya's acquisition is yet to bear any fruit from a commercial perspective.
That said, the opportunity for Infosys exists to get to $20 billion. According to Gartner Inc., more than $1 trillion in IT spending will be directly or indirectly affected by corporates shifting to cloud in the next five years. This will make cloud computing one of the most disruptive forces of IT spending since the early days of Digital Age.
"Cloud-first strategies are the foundation for staying relevant in a fast-paced world," says Ed Anderson, Research Vice President at Gartner. "The market for cloud services has grown to such an extent that it is now a notable percentage of total IT spending,helping to create a new generation of startups and 'born in the cloud' providers."
Infosys has just reported its second quarter revenue numbers and its profits have grown by 4.95 percent to Rs 3,606 crore. But for its stock to look brighter in months and years to come the challenge will be to move from an IT services mindset to a platforms mindset, a task that requires a complete rethink in its current processes.