Bengaluru: Infosys Ltd has started work to separate its core banking software Finacle from its services business and align it with the company’s products unit, underlining chief executive officer (CEO) Vishal Sikka’s strategy to sharpen India’s second largest software services company’s focus on products.
The Bengaluru-based company will retain the Finacle brand name even when the core banking platform starts to report its earnings along with EdgeVerve, the products, platform and solutions unit, according to two executives directly familiar with the process. The reorganization is expected to be completed in the coming months, after which Infosys will seek shareholders’ approval for it.
“The legal work for the separation (of Finacle) is currently on. The underlying thinking is to have Finacle report (its numbers) along with products and platforms unit (EdgeVerve)… both have similar R&D (research and development) requirements and so it helps to have a structure like this,” said one executive who declined to be named as he is not authorized to talk to reporters.
Currently, Finacle’s sales are clubbed along with its banking, financial services and insurance business, which accounts for 33.1% of Infosys’s $8.25 billion revenue. Although Infosys does not disclose revenue generated from its core banking product, Finacle’s revenue over the last three years has seen a decline: from $314 million in 2012 to $297 million by the end of March 2014, estimates advisory firm NelsonHall. This was on account of weakened demand from banks to invest in core banking solutions and Infosys’ inability to tap the US, the biggest market for such software.
Since being named the first non-founder CEO of the country’s second largest software firm in August, Sikka has undertaken major changes to arrest a decline in growth and revive Finacle. Last September, he told analysts at a customer event in Berlin that he planned to “double investments” in Finacle. A few days later, Sikka in October tasked his former SAP AG colleague Michael Reh to help revive the fortunes of the core banking platform, after the then head of Finacle, M. Haragopal, decided to end his over two decades of association with Infosys.
Another Infosys executive said the company has already asked an external consulting firm to help roll out the road map for Finacle, including identifying “team members” who would lead the core banking platform when it is separated from its services business.
Mint independently could not confirm the mandate given to the consultants even as a company spokeswoman declined to comment.
Significantly, Infosys under founder-chairman N.R. Narayana Murthy last year made EdgeVerve a subsidiary but retained Finacle with the company’s services business.
Infosys’ decision to now move out Finacle is part of larger organizational changes implemented by Sikka, who aims to transform Infosys into a next-generation services company.
Earlier this month, Mint reported that Sikka has tasked Sanjay Purohit to oversee Infosys’ consulting business and decided to bring in its Lodestone unit within the company and merge it with the company’s small consulting business. The management also decided to discontinue Infosys Labs as an independent entity and is in the midst of merging the three units of the R&D division with its delivery-side operations. Starting 1 April, the platform arm of Infosys Labs, comprising nearly 300 executives, will report to Abdul Razack, the former SAP executive tasked by Sikka to steer the company’s platforms and big-data practice. The 200-strong Centre of Excellence (CoE) under Infosys Labs will report to S. Ravi Kumar, the new head of delivery-side functions. The third and the last arm, the intellectual property (IP) cell, will work with Infosys’ legal cell.
“Vishal continues to add pieces to the jigsaw of repositioning Infosys,” said Thomas Reuner, principal analyst at Ovum, the London-based information technology researcher. “Vishal has assembled his team of key executives and added trusted lieutenants from SAP to spearhead the critical platform business as well as the drive for more automation.”
Hearteningly for Infosys, some of the measures taken by Sikka have started delivering results. In the October-December period, Infosys said that Finacle growth saw a “rebound” and the management expects increased demand, especially in analytics, mobility, compliance and payments in the coming 12 months. “Pipeline in Europe is looking healthier with a number of banks trying to gain flexibility,” chief operating officer U.B. Pravin Rao said in a post-results meeting with analysts on 9 January.
Currently, Finacle is used by more than 180 banks in emerging markets, including Asia-Pacific and the Middle East. These markets, along with customers in the UK and other European countries, account for about 90% of Finacle’s revenue, while the US accounts for the remaining 8-9%, according to an Infosys executive.
Since Purohit moved to Palo Alto to oversee Infosys’ consulting business, the EdgeVerve subsidiary along with Finacle is being overseen by Reh. The products, platforms and solutions business accounts for about 4.6% of the company’s revenue.
