After being led by cofounders for three decades since its inception, India's second-largest IT services firm, Infosys, has hired an outsider CEO. Vishal Sikka, until recently the chief technology officer at SAP AG, will take over on August 1, 2014, replacing cofounder S.D. Shibulal. Infosys executive chairman Narayana Murthy is also leaving the company.
The $8.25 billion-in-revenues Infosys is a key player in the global IT services outsourcing industry with nearly 900 customers in 30 countries. However, the market-leading firm has been floundering in recent years. Even as the founder-driven firm prepared for a leadership change, a series of top-level executive departures and high attrition levels of 18% have compounded the crisis. Its market share has fallen, and the firm has had four consecutive years of shrinking profit margins.
Sikka, 47, needs to give Infosys a much-needed leadership overhaul and get it back on track as the smoothly-running services engine once favoured by customers. The firm counts Nike, Levi's, Kimberly-Clark, and Toyota among its customers.
Regaining the old momentum will be the new CEO's primary challenge and a tricky one. The industry is shifting around Sikka even as he attempts to get the company on a solid footing, said Partha Iyengar, country manager for research at Gartner India. "Infosys needs to create some organizational agility, which can only come through a very effective and decentralized sales engine," said Iyengar. Regional leaders will have to be given the latitude to make quick decisions by themselves.
Customers are waiting to see how the situation evolves. Key markers like attrition level, senior level executive exits, and client growth numbers will provide its clients with good insight into whether the leadership change game plan is working.
"Explore extending work with the firm only after the situation settles, and you know the gamble is working (four to six months), they are in a delicate situation today," said Sudin Apte, research director and CEO of Offshore Insights, a Pune-based IT consultancy, in an advisory to customers.
The leadership succession was originally scheduled for 2015 when the current CEO Shibulal was to retire, and the sudden changeover could surprise some clients. "However, there is no need for a Plan B to replace Infosys just yet," said Apte. In the coming months, customers could continue evaluating the services of the company.
CEO-designate Sikka, who was instrumental in building SAP's groundbreaking cloud-based database management system called HANA, is likely to focus on pitching innovative solutions to customers, which could stabilize revenues in the besieged company.
Having a technology professional as its CEO might help Infosys refashion its strategy. From the market standpoint, Sikka's credibility as a technology visionary will win him trust from customers, said Karthik Ananth, director at consultancy firm, Zinnov Management Consulting. "For the last four years, Infosys has been talking about innovation, products, and platforms — now the market will take them seriously." Customers would be more willing to discuss complex business challenges with the firm if Sikka consolidates with a new team that has technology depth, said Ananth.
Products currently accounting for a miniscule 6% of the firm's revenues could get more focus. Until now the company earned most of its $8 billion revenues by developing solutions around product software for its customers. Sikka has been quoted as saying that the line between software products and software services are rapidly blurring.
For Infosys, the changeover will be a transformation. For the first time its cofounders will all have exited executive positions in the Bangalore-headquartered company. That includes its primary founder Narayana Murthy, who hauled himself out of retirement last year to take charge of the firm. Sikka will be able to make a fresh start. His base in the Silicon Valley, close to the technology ecosystem as well as Infosys' main customer base (the US), may give him an advantage as he navigates the 160,000-employee company out of a morass.
Saritha Rai is an India-based journalist and commentator who covers technology, business and society from her ringside seat in Bangalore.