Five key dimensions in which Digital Pinnacle Enterprises™ in manufacturing have invested more and reaped higher returns compared to their peers
Five key dimensions in which Digital Pinnacle Enterprises™ in manufacturing have invested more and reaped higher returns compared to their peers
A large proportion of retailers are ignoring the threat from cyber attacks; they need to invest in data security to gain customer trust
Innovation builds a strong base over which digital investments in technology and talent enable development and execution of the right customer strategy. Retailers should focus on four key data strategies to propel business growth.
Digital Pinnacle Enterprises™ – the best digitally performing retail organizations – differentiate from the rest in four key areas
The management squabbles of Infosys occupied headlines this year, culminating when CEO Vishal Sikka resigned in August. The same day, the company brought former co-founder and ex-CEO Nandan Nilekani in as non-executive chairman of the board, and I blogged that Infosys was taking a big step toward stability. Nilekani declared in a post-earnings conference call yesterday that Infosys is on course despite the distraction in 2017 and is refreshing its strategy. What does this mean and what are the chances it will succeed? Here’s my take.
The Digital Strategy
The company’s strategy refresh is basically the same strategy to move to the digital world as it adopted when Sikka was CEO. Despite the desires of some company executives to maintain its market leadership in the labor arbitrage business, it is now crystal clear that the IT services industry is moving to a digital model and Infosys must move quickly to digital. But there are some differences in the strategy under Nilekani.
Aggressively acquiring digital companies is a key component of the strategy. The public conflict among Infosys founders and the heavy board scrutiny restrained Sikka’s execution in this effort. With the reconciliation with the founders, Nilekani has a clear path to execute on these necessary acquisitions.
Another nuance in the strategy: senior leadership is reorienting toward Infosys-developed talent rather than the outside team Sikka recruited. This emphasis on returning to the company’s Bangalore talent roots and deemphasizing Palo Alto talent will likely improve company morale in the short term and will save money. But it’s questionable whether this strategy will be effective in the long run, as Infosys needs digital skills and experience to lead the company into a leadership position in the digital marketplace.
Another area of the strategy – building and selling software-based solutions – appears to be gaining momentum. However, if much of the talent recruited by Sikka leaves and is replaced by traditional Infosys talent, these efforts may stall.
The Short-Term Picture
In the short run, I believe that Nilekani’s execution of the firm’s refresh strategy will improve. He has stature and enjoys the confidence of investors, employees, and customers. The reorientation back to Bangalore talent removes a major sore spot for Infosys traditionalists and removes an irritation in the short run. The halt to the open, public war among leadership, the board and the founders, will benefit the firm in the short run with improved morale, less customer and market confusion and a less constrained senior leadership team.
Adopting a more aggressive pricing posture was a major factor in accelerating the growth rate under Sikka. Although this was not specifically called out in any Infosys communications about strategy yesterday, it is clear from market intelligence that the firm continues to pursue new business aggressively and does not appear to be looking for the pricing premium that it traditionally looked to capture. Continuing the aggressive pricing posture will position Infosys to win new business and retain existing business.
The Long-Term Issues
Let’s look at the other side of the coin for the issues I mentioned above. The firm’s ongoing effort to return cash to shareholders may constrain Infosys in investments in developing intellectual property and acquiring digital companies and recruit and retain the talent required for becoming a digital leader.
To ensure flexibility and breathing room to gain share in the digital market, Infosys also needs to reset expectations on margins. The new leadership must be willing to challenge the entrenched company culture that is deeply rooted in the legacy labor arbitrage model. The culture must commit to a technology-led approach and very different digital delivery and new business models. In addition,
Much of the firm’s future success depends on its selection on the new CEO. It appears Infosys is looking at internal or ex-Infosys candidates to be the new CEO. If true, this is a departure from the strategy that resulted in hiring Sikka. At that time, the firm thought an outsider was necessary to challenge the entrenched culture and accelerate change. A CEO drawn from the industry or with an Infosys background may not be as aggressive in leading change. On the other hand, such a CEO may command more loyalty and face fewer internal challenges from divergent interests of the founders, investors, and employees.
I expect execution of the firm’s company to improve in the short run. However, Infosys still faces an uphill battle as it must change to succeed in a fast-changing industry. The significant flaws that became apparent in the Sikka-led strategy have yet to be addressed. If these flaws continue, they will constrain Infosys as it moves forward.
While enterprises that correctly embrace digital stand to gain great rewards – not the least of which is survival – Everest Group research shows that the road to success is not a straight shot.
As an organization begins its digital journey, its initial investments are focused on streamlining the existing IT landscape to prepare for future digital initiatives. During this phase, enterprise IT generally focuses attention on traditional internal-to-IT success measures (cost, control, and compliance), and there is little need for redesign, nor much involvement from the broader organization. As a result, perceived barriers to adoption are few, and enterprises feel confident about the outcome of their technology investments – the journey looks clear and easy.
But just as the enterprise thinks it is on a clear path to digital nirvana, it hits a speedbump that threatens to wreck its transmission and send it spinning off the road. Once the initial streamlining work is done, the next phase requires the IT and business functions to work together to achieve digital goals, which requires significant change.
Suddenly, what seemed easy becomes much more complicated, requiring the enterprise face challenges such as:
And lest you think you can find an alternative path to avoid this barrier, beware: our research indicates that nearly half – 43 percent – of North American enterprises are caught in this murky area we call the “Digital Trough.”
What should you do when you’ve hit the Digital Trough?
Just as failure to address problems with your car’s undercarriage can lead to erosion of your transmission, failure to address problems in the Digital Trough can lead to erosion of executive support for your digital transformation.
Here are a few strategies you can use to continue your digital adoption journey and reap the longer-term rewards of digital transformation:
The last point addresses the necessity for a pervasive approach to digital adoption (see our So You Think You’re Digital blog) as the benefits of a converged, end-to-end digital strategy significantly outweigh those of an isolated, piecemeal approach.
Once past the Digital Trough, our research suggests that the path to digital success is smoother…and well worth the trip.
To learn more about digital adoption patterns in North America, check out our just released research report, North American Digital Adoption Survey – How pervasive is your digital strategy.
Our readers are also very interested in hearing about your experiences with digital adoption. Are you suffering the impacts of the Digital Trough? Feel free to share your thoughts and comments.
Photo credit: Flickr
I’ve blogged extensively on how the industrialized arbitrage market is maturing rapidly. One of the many frustrating aspects of a maturing services market is that a dominant portion of procurements for larger opportunities come through RFPs. These RFPs require sophisticated and elaborate responses with large deal teams and solutioning teams working at the provider’s expense to create a compelling response. This cost is growing, and what’s worse is that it’s not unusual for providers to lose 66 percent of these costly bids.
In the large-deal segment, it’s not uncommon for service providers to spend $1 million – and in some cases as much as $10 million – to respond to the RFPs. These costs are often disseminated through the service provider and not easily recognized; they are borne by the individual delivery teams and therefore can creep up or grow unmonitored by the service provider. When viewed objectively, the costs amount to a substantial amount of money.
At Everest Group, we’ve done a significant amount of work on competitiveness and improving providers’ win rates. For world-class performers, the win rate is around 33 percent of their opportunities – which means that they lose 66 percent. Let’s take the low end of this range as an example. If it costs $2 million to respond to an RFP and solutioning for a winning bid, it costs $6 million for a deal the provider doesn’t win.
These unreimbursed “dead deal” costs are an increasing drag on providers’ profitability and are a significant contributor to service providers’ growing cost of sales.
The implications of this are very significant for service providers seeking to maintain their growth by bidding for larger transactions.
Yes, there are numerous solutions. One is for providers to pursue only the opportunities that they have a realistic chance of winning.
Can the industry shift away from these dead deal costs, instead giving solutioning free to the client in the RFP response?
Effectively, the provider would move to a more consultative structure in which the highest value is not given away in a free solution but is paid by the client in consulting services.
These are intriguing thoughts. This structure would be difficult to accomplish – but well worth the journey if it can be changed.
“Google is not an unconventional company. We do not intend to become one,” said Larry Page, co-founder of Google, in his original founders letter in 2004, when Google went public. He reiterated that last week, when, on August 10, Google announced a new operating structure, creating the new entity Alphabet, with Google as a wholly-owned subsidiary.
Much has since been said about the company, its leadership, its transition, and its people. However, the more I read about Google (or should I say Alphabet now) and its reorganization, the more I am inclined to draw parallels between the internet behemoth and service providers, both Indian-heritage and multinationals. The way I see it, here are a few lessons service provides could take from the reorganization:
Most, if not all, large organizations seek to carve out subsidiaries or focused business units to reorganize themselves. These units, with their respective heads, are then entrusted with the responsibility to scale the business. With “digital” being an almost-abused cliché, it is not difficult to hear about service providers hiving off separate digital business units. This unit or subsidiary is like a “child” of the “parent” service provider, which retains control of the child.
Google defied the norm. Rather than creating a specialized business unit, it created an entirely new holding structure, effectively making Google, previously the parent, the child, and creating Alphabet as the parent. This umbrella organization now retains control, with the child (Google) getting a tunnel-vision focus.
Lesson for service providers: Service providers that have attained enormous scale and that are at a stage where they can cause industry turbulence by their initiatives would do well to consider possibilities beyond the conventional norms and innovate even at that scale.
Simplicity and control:
When an organization grows too large, it becomes a management challenge to control it. Simplification becomes a necessity. By breaking down its business units into multiple, independent, and accountable entities, Google has created an operating structure that is much like a conglomerate.
Seems simple enough, right? The challenge, however, is that the leadership of such an enterprise has to relinquish control of at least some of its units. By entrusting Mr. Pichai with the responsibility of running the world’s largest internet-based engine, Mr. Page has relinquished control of the company he co-founded. Surely, founders ceding control has to be personally challenging; however, the need to look beyond itself into something grander has clearly worked well for Google so far.
Lesson for service providers: Management of colossal corporations should hand over control of highly functional cash cows to their number-twos and invest their time on pursuing grander ambitions. When the senior leadership (or the board) is loath to relinquish control, it indicates either a lack of faith in its next-generation leaders or an obsessive need to retain control or both, all of which culminate in lack of relevance and eventual obsolescence.
Culture of radical innovation:
The mention of Google always has the word innovation lurking around and for good reason. Google has always been known to be innovative in the way it perceives and solves problems. When it seemed to reach its comfort zone, it stirred the pot vigorously and conveyed its discomfort with status quo or even incremental changes.
Lesson for service providers: Service providers should embrace such an outlook towards change and not be hesitant to adopt a radical approach. If a US$66 billion enterprise with one primary revenue source can do it, so can a much nimbler service provider with lesser risk exposure and higher market stability.
Google has illustrated that moonshot vision and out-of-this-world ideas are not a necessity to become what it is. Pursuing what they believed were smart ideas and chasing them with relentless passion has given us products that have almost become a necessity.
Often, during our interactions with service providers, we discuss their vision and philosophy about next-generation technologies and services. We seldom see those being relentlessly pursued, as the ideas fall victim to the next flavor of the day, management changes, or “change of strategic direction.”
Lesson for service providers: The trick lies in being fast and nimble so that the idea is commercialized before the market moves on, and also relentless, so that innovators aren’t distracted by the whirlpool of daily business.
Last but not the least nicety of Google’s restructuring is its ability to placate its investors. While the same can be said of many other firms, it is Google’s call to action and time to market that stand out. By creating a more accountable structure, Google alleviated a lot of investor concerns, which had been growing owing to the company’s cash-burning yet low-yielding moonshots.
Lesson for service providers: If your initiatives, especially in the digital landscape, do not resonate with your investors, it is time to reconsider those. Service providers should create a more accountable structure for their digital initiatives and appease both customers and investors.