The contribution of the PPS segment is just 5.3% to the overall revenue of Infosys but this is expected to be the game changer in the near future as the days of plain vanilla IT services offering is fast getting over in the global IT outsourcing and offshoring industry.
A senior official of the company on condition of anonymity told FE, “We would like to bring in a kind of start-up buzz to the PPS segment where innovation thrives and this could be achieved by allowing them to run their business as a separate unit,” adding, “driving innovation in a large company is difficult.”
It is not clear on whether Infosys has firmed up plans provide this autonomy as it is still mulling over the various pros and cons of this new structure. However, the company official was very categorical that there are no plans to hive off PPS as a separate business.
Infosys as part of its long-term strategy has said that it is aiming at one-third revenue share each from its three main segments – IT services, consulting & systems integration and PPS.
The IT major has already installed certain structures within the organisation to drive innovation. In April this year, it had announced setting up the $100-million innovation fund to invest in products, platforms and solution ideas in line with its 3.0 strategy. The company was also very clear that it will not be restricted within the organisation and would also be interested in investing in entities or individuals outside the company who have innovative technologies.
Infosys is no stranger incubating start-ups with ventures such as Yantra Corporation and Onmobile. Yantra was incubated in 1995 within the company and was later sold to Sterling Commerce in 2004. Similarly, Onmobile, a listed mobile value added services company was also incubated within Infosys.
Though observers believe that the company could unleash more value by hiving off the PPS business as a separate company and the scale of operations would also be much higher.
“The DNA of products business is much different of the services, it is very difficult for both to co-exist.”
Analysts said that the product story in many Indian IT companies has always been subservient to services because of unpredictable revenue cycles and long gestation periods.
From a strategy perspective, one major area where the firms have failed was in ensuring separate, dedicated organisations for the products and services businesses. Senior management support, product business unit branding and its leadership have also not been consistent with the rest of the organisation.
The revenue from the product and platform business is typically spread over a longer term and margins are often higher than services.
The margins in licensing out products and platforms can be as high as 40-50%. Infosys spends about 2.1% of its revenue on product research and development (R&D).
The focus on products and solutions has increasingly sharpened also for other peers of Infosys such as TCS, Wipro, Cognizant. TCS has consistently spoken about an all encompassing digital strategy where their entire gamut of services are based on this platform.
Cognizant has been in the forefront of evangelising the concept of SMAC - social, mobility, analytics and cloud – which has become the core part of its strategy, generating $500 million in revenue.
In the case of Wipro, it has gone ahead and picked up minority stakes in companies operating in niche or advanced technology areas. It will be investing $30 million in Opera Solutions, a US headquartered big data analytics company and aims to combines their technology expertise with its service offerings.