Challenges galore as Infy loses Sikka

The sudden exit of Vishal Sikka from Infosys has left lot of questions and challenges to be addressed by the management.

India’s second largest IT services company Infosys is left with several challenges to address, following the sudden exit of Vishal Sikka as CEO and MD. Also, the transformation of Infosys from software services player to a product/platform-oriented company has taken a back seat.

Besides putting the leadership rudderless, the exit comes at a time when things were looking up with the fundamentals and an added sweetener of a buyback. The frivolous fight between the board and shareholder promoters has shown the door to the only non-promoter CEO who seeded the transformational journey by adding around 20 clients with $100 million revenues each and took the total revenues to above $10 billion.

But, the moot question is, can the incumbent CEO wriggle out of the clutches of the founder promoters who have emerged as an alternate power centre? Can he bring back momentum on the software-plus-service model of the company backed by widespread adoption of automation, which helped improving productivity per employee?

While the visibly aggrieved company’s board was clear that its founder promoter N R Narayana Murthy will not be asked to join in any capacity, Murthy, on the other hand had been calling for changes to the board, most of which did not happen except for appointment of Ravi Venkatesan as the co-chairman of the company.

Venkatesan, who initially was acting as a buffer between Murthy and the board, was at the forefront while mounting attack on the former. With allegations and counter allegations after the resignation, the business may take some time to be distraction-free, according to analysts.

While the broad agenda for Infosys’ transformation may not change, a seamless transition to the new order appears unlikely, according to a report by Motilal Oswal, market advisory firm. “One can expect a reasonable gestation until things have settled and normal business priorities have ensued,” the report said. Although the company’s chairman, R Seshasayee, assured a smooth transition on Friday, but given the circumstances, it looks increasingly difficult. This is primarily because Sikka set in motion the Vision 2020 for the company in April 2015, with a focus on automation and reaching a revenue target of $20 billion, with an average employee turnover of $80,000 by 2020.

Sikka made a difference by launching more than 25 new services, including big data and analytics, cloud eco-system, API and macro services, mainframe modernisation, cyber security and IoT engineering services. Even though the share of these services comes only 10% as of the June quarter, the incremental revenues of 50% in the past two years came from these new services.

Besides launching its artificial intelligence platform Nia and more than 160 artificial intelligence scenarios deployed with more than 70 clients, Sikkas’ tenure witnessed programmes like Zero Distance, Design Thinking training, programme to drive grass-root innovation, Zero bench concepts and value addition for clients, with a solid partnership with employees.

“Sikka was based out of Palo Alto in the US, and had made multiple prominent additions to his core team in the region. His exit puts in question the base of his replacement and continuation of the relevant core team members,” the Motilal Oswal report stated. It also points to the fact that the company’s financial performance was back to the industry’s top quartile led by Sikka, as he succeeded it with utilisation at an all-time high, attrition reduced, revenue productivity on the up, and margins in a tight band.

The report also puts a question mark over the base of his replacement and continuation of the relevant core team members. In a build-up to Sikka’s resignation, about a dozen top executives who had joined with Sikka from SAP AG have left the company. The latest among the resignation, was that of executive vice president Ritika Suri. Ritika, who earned over Rs 5.1 crore in gross salary in FY17, was heading the company’s corporate development and mergers and acquisitions vertical.

Realising that organic growth in India’s IT space is slowing down, Sikka had set in motion a series of M&As for the growth of the IT doyen. Despite having a huge pile of cash and cash equivalents, the company was apprehensive of going for the buyback, as it was saving money for its inorganic growth, according to one of its directors.

Yet another problem that the company is going to face in the coming days is acquisition of better talent from abroad. Given that Sikka was forced to leave in a continued onslaught from the company’s founder promoter Narayana Murthy, as alleged by the board, it increasingly seems that the board failed to defend Sikka. In such a scenario, it would be difficult for the company to attract anyone from outside for the top job.

Venkatesan also said that the company is looking for a new person who is more sensitive towards the culture of the company and understands it better. While he made it clear that Infosys is looking for somebody who is transformational, he added that the company is not going for resetting its strategy. “The new leader has to be like Vishal. We will look for a strong leader internally and externally. It will take time. Hopefully the founder-related issues are put to rest. So the next leader has a calmer time,” Venkatesan said.

Another challenge before Infosys is how convincingly it will face its clients. “Concern for Infosys is the view clients will take on the whole situation, especially where bread-n-butter contracts are up for renewal. We expect the big guns like Accenture, TCS and Cognizant to make that extra push to lure them away from incumbent Infosys. Clients’ existing experience and relationship with these vendors, and lowering switching costs, don’t help Infosys’ case,” Motilal Oswal added.

The corporate history of the country is replete with instances of boardroom maneuvering of family-run and newly-made unicorn companies. Infosys, now under the leadership of interim CEO U B Pravin Rao, will have to find a quality substitute for Sikka whose exit was made murkier from promoter shareholders’ allegation of governance lapses.