Tag: SAP

Infosys Appoints Dr. Vishal Sikka as CEO, Making a Brilliant Pilot a Swimming Coach | Sherpas in Blue Shirts

In a landmark move with far-reaching implications, Infosys appointed ex-SAP CTO Dr. Vishal Sikka as its new CEO and managing director, making him the first non-founder at the helm in the firm’s 33-year history. Accompanying this change, the founders are getting out of the new chief’s way. Current CEO and co-founder SD Shibulal will leave by end of July, while NR Narayana Murthy will vacate his role as executive chairman on 14 June, continuing in a non-executive board role until 10 October to ensure a smooth transition.

The fact that Infosys engaged an executive recruiter to look for a successor reflects a dramatic shift in ethos for the firm. It represents the strategic decision to bust up a certain inward-looking culture that has come to represent Infosys. That Infosys reacted to market and customer expectations by bringing in an external technology visionary bodes well for the critical imperative to change to a customer-centric culture, rather than firm-centric. 

What Works 

The Gujarat-born Dr. Sikka holds a Ph.D. in artificial intelligence. He spearheaded the development and marketing of HANA, SAP’s flagship analytics product. His experience in these areas could give Infosys a sizable edge as service providers look to establish credentials in next-generation technology avenues such as big data, analytics, cloud, robotics, and artificial intelligence.

He seems to have been given a wide mandate, per the large-scale changes in senior management that are accompanying his appointment. This will allow him to exercise a free hand as he attempts to reshape the beleaguered company. Infosys’ long-standing strategic imperative to let the founders control the firm has been widely criticized.

He joins a long list of industry outsiders taking charge of IT majors. Louis Gerstner was unanimously credited with turning around IBM’s fortunes when he took over in 1993, after previously leading RJR Nabisco and American Express. Closer to the Indian IT services landscape, Vivek Paul, a GE-alumnus transformed Wipro, fast tracking growth from a US$150 million company in 1999 to over US$1 billion in sales in five years. Last year, Apple announced UK fashion chain Burberry’s CEO as the head of its retail and online business.

Appointing an outsider tends to bring fresh perspective to inherent legacy issues plaguing companies. Free from the baggage and expectations associated with firm veterans, Dr. Sikka can look to usher new life into Infosys. 

What May Not

Since he comes from primarily a products-driven business, it will be interesting to see how he adapts to the IT services industry, which has inherently different business dynamics and challenges. The focus will be on streamlining project management, client delivery, and sales efforts. Dr. Sikka’s experience in driving sales and marketing at SAP will be a crucial asset in this regard. Being a CTO of a products-based company is an entirely different ball game than leading a global services behemoth, as product-driven businesses rely primarily on the strength of intellectual assets, while services businesses are an amalgamation of resource management, delivery, and expectations handling.

In spite of the large-scale management changes, Dr. Sikka has his work cut out as he navigates disgruntled senior management. How he soothes frayed nerves and reassures them will be essential for stability. A cultural shift he will seek to implement will revolve around Infosys’ limited risk appetite for investments. Infosys needs to invest significantly in boosting its expertise in next-generation solutions through alliances and possibly acquisitions. Although it has made some notable acquisitions such as Lodestone, the firm has generally been fairly risk-averse in exercising its significant cash pile.

The role that NRN Murthy assumes will also determine the efficacy of Dr. Sikka’s roadmap for revival. If Murthy remains strictly in a mentorship role overseeing the transition, without overriding Dr. Sikka’s strategic decisions, the sailing should be smooth. However, if those lines blur, it could create a vicious cycle of conflict, decisions embargo, and execution paralysis.

Another important but often ignored challenge of such senior-level changes is the risk of culture mismatches outweighing the business positives. Echoing Peter Drucker’s “Culture eats strategy for breakfast,” bringing in a rank outsider can have controversial implications. For example, John Sculley joined Apple from PepsiCo, and during his time had long-standing disagreements with Steve Jobs due to divergent management styles and priorities, ultimately resulting in Jobs’ exit in 1985. The entry of a new top-level entrant is not easily accepted by the old guard, leaving open the possibility of wilful sabotage. Dr. Sikka will need to build bridges with senior stakeholders to avoid stepping on toes.

Swimming in Choppy Waters Ahead 

Essentially, whether or not Dr. Sikka manages to snap the once industry bellwether out of its funk will depend on his ability to make the transition from a technology visionary to an empathetic business leader combining technical expertise, client management, and people development, while maintaining the focus on innovation and thought leadership. He will try to take Infosys out its comfort zone, bridge service gaps with more nimble rivals, and ultimately reassure clients that their business is in sound hands. He needs to show that a brilliant pilot can be a swimming coach as well.

Infosys Acquires Lodestone: It’s Not about the Money; It’s about Sending a Message | Sherpas in Blue Shirts

With over US$4 billion in cash reserves, Infosys had a history of keeping analysts on their toes speculating on the moves it would make. However, after its botched attempt to acquire Axon (which HCL won in a competitive bid), Infosys chose to sit on its money pile for so long that some bored analysts joked that the cash would hatch into chicken!

Infosys has experienced a fair amount of criticism recently due to its below par performance compared to its peers. With good news few and far between, Infosys had to set the ball rolling in the endeavor to resurrect its image as a market leader. Let’s take a look at its acquisition of Lodestone – a Zurich-based management consultancy that advises international companies on strategy, process optimization and IT transformation – fares not only from an overall strategic perspective but also from an image management perspective.

Geography focus: Europe

With three quarters of Lodestone’s revenue coming from Switzerland and Germany, there are no prizes for guessing Infosys’ geographic focus. Alongside European logos, Infosys will acquire local leadership, language skills and reputation in a market (Continental Europe) that has been traditionally tough for Indian service providers. It is not surprising that this acquisition follows Cognizant’s purchase of Galileo earlier this year, which enables it expansion in France, and Wipro’s acquisition of a Citibank’s datacenter in Meerbusch (Germany).

Our verdict: A good move. Infosys was not gaining traction with its strategy of organic growth in Europe. Has it done enough to position itself in Europe? No. It will have to thread together a string of pearls (products, business consulting, systems integration, etc.) through acquisitions to even convey the message that it has truly arrived in Europe. Lodestone is not going to be the silver bullet for all of Infosys’ ailments in the region.

Competency focus: SAP consulting

With a post-acquisition turnover of more than US$1 billion in SAP programs, Infosys positions itself among the top players in this area. SAP is one of the fastest growing programs within Infosys, and this move should help cross-pollinate market access and expertise between Infosys and Lodestone. However, Infosys has demonstrated visible sluggishness in its ability to manage growth with increasing size due to its single-minded focus on margins. Will it fail this challenge too?

Our verdict: Not likely, because SAP consulting is indeed a high-margin business, which makes this acquisition very much in line with Infosys’ stated strategy.

Financials of the acquisition

This is an area in which even the strongest Infosys bashers must give it credit. Looking at the revenue multiples paid by service providers for some of their recent acquisitions:

    • HP-Autonomy: 11x
    • HCL-Axon: 2.2x
    • Wipro-Infocrossing: 2.6x
    • TCS-Citi BPO: 1.9x
    • Infosys-Lodestone: 1.6x

Our verdict: Cautious, but a good deal. However, it remains to be seen how many successful acquisitions Infosys can make with this scrupulous strategy. I believe Infosys will need to acquire multiple companies to bolster its high-margin strategy; and that will require it to go shopping with an eye on its competitors who have shown themselves to be much more aggressive.

Infosys famously walked out of the Axon deal (and lost out to HCL) by refusing to negotiate its price ceiling. And its intense focus on the premium pricing of its services has led to further entrenchment of this “non-negotiable” image among its clients, as it has chosen to walk away from projects rather than budge on pricing. Burdened by this image, Infosys can pick only one from the following two options:

  1. Be apologetic about what it has done, and go back to the negotiation tables with competitive pricing for clients and open purse strings for acquisition targets
  2. Show aggression and speed in acquiring high-margin capabilities, and push ahead with its stated strategy, i.e., to increase its revenue share from value-added, high-margin services

The latter is what its leadership says it is doing. And I think that strategy is spot on. That is why I believe the highlight of this acquisition is not the money Infosys spent on it, but rather more about the message it is trying to send – Infosys is still in the game.

The news on the grapevine is that Infosys already has a lineup of targeted acquisitions in various stages of maturity. It will be interesting to see Infosys’ next move as it attempts to push ahead in what has been a challenging period.

ERP and the Cloud: Enterprise Migration Quietly Begins | Gaining Altitude in the Cloud

Given how much of the typical large enterprise IT budget is consumed by ERP, we’re not surprised to find a growing curiosity among many CIOs to understand how cloud delivery models could reduce costs. On the surface, you wouldn’t think that production ERP applications would be at the top of the list for cloud migration. ERP apps are mission critical, complex and highly customized, often with significant data security and compliance requirements.

That’s why we think one of the more interesting, underreported stories in cloud are the examples of large enterprises that have migrated existing ERP environments to  private, hybrid and community cloud models. We’re actually finding quite a number of quite interesting, global scale ERP cloud deployments particularly among SAP customers. Why SAP? While Oracle is obviously the other large enterprise ERP heavyweight, as we’ve discussed here before, Oracle’s licensing policies are creating roadblocks for customers to migrate to even virtualized models, let alone private or public clouds.

The market for SAP cloud services is surprisingly robust with at least 10 major service providers that deliver SAP ERP capabilities via managed or host private or hybrid cloud models, including IBM, T-Systems, Fujitsu, Accenture CSC, CapGemini and others. T-Systems alone already supports 500 customers and 1.9 million SAP users via cloud-based models. Not surprisingly, most of these service providers started by originally providing SAP hosting services and have since extended their offerings. What’s the customer value proposition for SAP in the cloud?

  • Cost variablization – given the significant capex investments associated with SAP deployments and upgrades, cost variability is central to cloud-based SAP offerings. Nearly all providers offer consumption-based pricing models for SAP cloud services.
  • TCO reduction – many service providers are claiming the ability the reduce TCO for customer SAP environments by 30+% through the typical cloud levers. Several providers have customer references that have achieved these efficiencies and more in live production.
  • Flexibility – service providers are touting the ability of cloud-enabled deployments to more rapidly and easily provide new capabilities to users.
  • Standardization – in conjunction with cloud migration, many enterprises desire to consolidate data centers, rationalize SAP instances and standardize global processes to drive efficiency and flexibility.

Unlike other enterprise cloud use cases focused more on business agility and flexibility, in most cases cost appears to be the major driver of SAP cloud migration. Some of the more interesting examples include:

  • British American Tobacco (BAT) – just last month BAT announced a seven-year, US$160 million deal with T-Systems to consolidate its current SAP deployments into a single, cloud-based instance by 2016. The deal will enable BAT to variabilize its SAP costs through a usage-based pricing model.
  • Domino Sugar – leveraging Virtustream’s virtual private cloud platforms, Domino Sugar has been able to reduce SAP costs by over 30%, while actually improving availability and performance for several thousand users. As with BAT, SAP costs are variabilized and based on actual resource consumption.
  • Shell – to drive standardization, increase flexibility and shift to consumption-based pricing, Shell migrated its SAP environment to private cloud models (delivered by T-Systems) in support of 102,000 global employees across 100 countries.

Other notable enterprise examples include Audi, Freeport McMoran, Siemens,  and Suntory.

Why haven’t we heard more about these and other examples?  With the exception of IBM, most leading SAP cloud service providers and many of the early enterprise adopters of SAP in the cloud aren’t U.S.-based and are outside of the cloud hype and “echo chamber.” Also, details on many of these deployments tend to be tightly held both by both service providers and customers.

While many segments of enterprise cloud appear to be stuck in pilots and proofs of concept, ERP is surprisingly providing some early examples of large scale enterprise cloud migration.

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