The rocky road to digital transformation - CEO Infosys under fire

Profile picture for user gonzodaddy By Den Howlett February 13, 2017
Summary:
Infosys is never far from the media spotlight. This time, media is focusing on the wrong topic. Instead of worrying about internal disagreements about Panaya's acquisition cost, media needs to focus on Panaya's impact.

vishal-sikka-oct-2016
Vishal Sikka - CEO Infosys

Vishal Sikka, CEO Infosys is having a rough ride at the moment as he endeavors to transform the 200,000 person strong company from legacy outsourcer to that of preferred and value add supplier to global businesses.

A good part of the difficulty Sikka faces comes in the form of a whispering campaign that sometimes characterizes his tenure as an ongoing battle between proud founders who don't always understand the nature of current market dynamics and a board that is accused of poor oversight. All this aided by a partisan and ignorant media searching for clickbait headlines.

The latest example comes in the shape of question marks over Infosys 2015 acquisition of Panaya, a software automation enablement company, the valuation of which has recently been linked to the October 2015 departure of Infosys CFO, Rajiv Bansal and subsequent severance package.

According to the media, Bansal raised 'uncomfortable' questions over Panaya's valuation at the time of acquisition. I have no intention of getting into a public debate about the rumored so-called hush money paid to Bansal on his departure but I will comment on the acquisition itself.

When Infosys acquired Panaya, it was a good deal for everyone. Panaya is a company that I and colleagues have known since its early days. We have met with numerous customers who all claim that Panaya has not just shaved but carved out time and expense refactoring code in upgrades scenarios. We like when customers win so Panaya has remained a favorite of ours.

At the time of acquisition, Panaya had its challenges. Principally it needed tying to a much larger organization in order to sustain growth, but at its core, the technology was sound. For its part, Infosys needed a software play that would serve to elevate it beyond that of a 'lift and shift' outsourcer. Panaya helped kickstart that process. While the price may have seemed high at the time, the fact remains that we are talking about both a willing buyer and willing seller. Last time I checked, those usually make for good deals.

Panaya's claim to fame was always its superior ability to automate large parts of enterprise wide upgrades requirements. We talked about this at the time of acquisition when we said:

Influencers among the SAP Mentor community immediately gave it a thumbs up. This from Thorsten Franz on Facebook:

As far as enabling upgrades goes, with Panaya, Infy can estimate, plan, and execute those projects better then SAP. Being able to adopt new technology  install upgrades) becomes more and more of a strategic asset for customers, so Infy can in fact claim to be an enabler for strategic missions.

Some inside SAP might wince at such suggestions but they need get over it and recognize that its partner is helping to enable the ‘simple’ mantra.

Sikka was quoted as saying:

“This will help amplify the potential of our people, freeing us from the drudgery of many repetitive tasks, so we may focus more on the important, strategic challenges faced by our clients.”

A key part of Infosys transformation strategy is an emphasis on process automation as a value add enabler. Internally at Infosys, questions were raised about the deal value Panaya might add in any proposed project. Senior consultants I met who were closing down SAP and Oracle upgrade deals told me that Panaya often helped push them over the winning line. That sometimes meant bundling Panaya into a deal at apparently zero value back to Infosys.

One Infosys consultant echoed comments I consistently heard during 2016 when he said:

I don't understand why those who are scrutinizing deals are bitching about Panaya. These people don't understand that enterprise deals are changing and if that gives the appearance of giving something away (Panaya) then they haven't read the profit projections or don't get what deal making is about. Either way, they need to shut up and be happy that we're winning.

Another consultant said:

What do they want me to do - lose a $5 or $10 million deal for the sake of a $50,000 tick in the Panaya box? It's not going to happen.

What matters is whether Panaya has helped Infosys as evidenced from the financial results. During a recent call with Phil Fersht, leading analyst in the outsourcing market, he provided me with an analysis of how Infosys has performed under the leadership of current and past CEOs. (See graph below.)

infosys performance - sikka et al

As you can see, while revenue growth has seen its ups and downs since Sikka took up the CEO position, Infosys has managed to stabilize margin at a time when prices are under intense pressure. Part of the reason comes from becoming more efficient at service delivery which in turn plays directly to Sikka's automation mantra. The latest financial results confirm that trend.

On the ground checks with customers reflect a welcoming of Infosys change in service delivery. GE for example has consistently said that Infosys helps it fast track spinning up new companies while at the same time help keep it current on back office technology requirements and in an efficient manner.

Regardless of the sniping around Panaya and Bansal's departure, Sikka remains focused on the long haul. At the most recent financial analyst call, he said:

It is not enough to simply outperform the downward pace of that spiral pretty soon that will become table stakes. What is even more important is to ensure that the automation continues to impact the deeper and higher level work.

To my mind, that is by far and away more important than focusing upon internal disagreements that might provide salacious fodder to an otherwise lazy and uninformed media who introduce distractions that management does not need.