Infosys Divides in Two — a Bold Move
Infosys made headlines recently, announcing the separation of its products, platforms and solutions (PPS) business into a subsidiary called Edgeverve Systems. It’s a bold move, but in many respects it makes sense. Here’s my take on the implications and potential net result of the spinout strategy.
As I explained in an article in The Times of India, Infosys’ PPS business — platforms, cloud products, and other digital services — are fundamentally a different kind of business than the firm’s historical labor arbitrage, skills-based business. The two models have different value propositions, selling maneuvers, adoption patterns and investment profiles.
Separating the two kinds of business allows Infosys management to keep the focus unconfused and allows Infosys to become masters of both business models. It allows them time and investment to develop its Edge series digital products in anticipation of demand, rather than focusing on revenue from the PPS business (historically only 5.2 percent of Infosys’ business).
It also allows management to continue focusing on the labor arbitrage business while revenue grows over time from the new-generation offerings of the Edgeverve subsidiary. Cognizant, TCS and other providers have demonstrated that there is still plenty of room left for growth in the labor arbitrage model. Although the growth is slowing, it is growing faster than the overall services industry.
Infosys recognizes that growth in its labor arbitrage business will be harder and not like the good old days; but at the same time, they recognize that they can do better. By separating the two business models of Infosys, Infosys acknowledges that they can and should go faster in the labor arbitrage, skills-based space. And this is coupled with a focus on going after larger transactions.
Two notable potential outcomes
If Infosys executes this spinout strategy successfully, I think it will result in better growth than they would otherwise get. The net result hopefully will be faster growth in both areas and more focused and nuanced value propositions for serving their clients.
As I said at the beginning of this blog: it’s a bold move, but it makes a lot of sense. So if it’s successful, I think it could lead the way for other service providers to separate their historical businesses and new-generation digital businesses.
