IT WAS the inevitable waiting to happen at a company which had finally run out of co-founders to rotate through its top office. But nobody foretold the rapidity with which the episode unfolded last week in Bangalore. On June 12 morning, the countrys once-incandescent IT services company, Infosys, announced that it had designated an outside professional as its CEO, though its current CEO was scheduled to retire only in 2015. Infosys also disclosed that two other founders would quit their executive positions before the week ended its Executive Chairman N R Narayana Murthy, an icon hailed for putting Indias technology services industry on the world map, and its Vice-Chairman Kris Gopalakrishnan.
Television channels broadcasting the press conference panned on the faces of those present at the media conference, including Murthy himself and board members K V Kamath of ICICI Bank and Kiran Mazumdar-Shaw of Biocon. A full 33 years after it was launched in 1981 and grew to be one of Indias best-regarded companies, the founder-driven, $8.24 billion-in-revenues Infosys would have a rank industry outsider in the hot seat. Also, for the first time in its history, none of the co-founders would hold any executive positions. It was a clean, gutsy severing from its past that got even its rivals all emotional. The founders decision to step down marks the end of an era, said T K Kurien, CEO of industry rival Wipro.
It was epoch-ending indeed. With just Rs 10,000 as capital and with sheer doggedness, the diminutive Murthy and his geeky fellow founders had created a company that, for three decades, represented every middle-class job aspirants dream employer and many a wannabe entrepreneurs vision of success. Infosys not only changed the way Indian companies were governed but its founders transformed the way other rich fellow-entrepreneurs would engage with the world around them (see sidebar). It demonstrated that Indian companies could become global, respectable brands too. Nobody can hope to create another Infosys any time soon, said V Balakrishnan (Bala), its former CFO, who quit in December 2013 after 22 years at the software firm.
Driving a new chapter at Infosys will be CEO-designate Vishal Sikka. India-born American, the 47-year-old recently quit German software giant SAP AG as chief technology officer. In his Twitter profile, the Palo Alto-based Ph.D in computer science from Stanford University describes himself as Husband, dad, son, brother, friend, student, visitor, thinker, innovator. Occasional surfer on lifes waves.
On many counts, the thinker-innovator outsider seems an ideal choice to shake up the moribund company. Sikka had demonstrated his foresight in the ultra-competitive technology products industry by building a next-generation, cloud-based database management system called HANA for SAP and created a record for grossing $1 billion in revenues in the shortest span in the companys history. Sikka seems to have the right blend of the East and West, a global business acumen and Indian sensibilities. He is known as one of the foremost minds in the technology landscape and his entry will boost industry profile, said Kurien of Wipro.
At the same time, Sikkas hiring would bring to a close the leadership saga at Infosys that turned into a niggling distraction that overshadowed everything else the company said or did. Panic had been building up amongst investors and employees, with the company enforcing its own variant of dynastic rule by rotating the top job of CEO through the ranks of its co-founders down to the youngest, the current incumbent S D Shibulal.
Meanwhile, professional-led peers like TCS and HCL Technologies gained ground. The business context changed but Infosys did not, noted Balakrishnan. Revenues floundered and employees fled. In the quarter ending March 2014, the company that every fresh engineering grad once fantasised about had recorded an attrition rate of 18.7 per cent, the highest among the top-tier IT firms. Almost a fifth of its employees left that year.
When Murthy, the first among equals in the line-up of Infosys co-founders, dramatically decided to end his retirement and return to an executive position as chairman last June with his Harvard-educated son Rohan Murty, then 30, as his executive assistant, many expected to see the mans earlier magic. In a tough intervention crafted by Murthy himself, Infosys all but junked its high-value consultancy model and set about trimming costs. However, quarters passed and none of this showed any marked improvement in the companys revenues. A series of high-level departures became media fodder.
Given all that, as the IT industry gears up to transform from plain vanilla to platform and IP-based services, Sikka could be the best thing to happen to Infosys. Even Nandan Nilekani, a co-founder and former CEO of Infosys, acknowledged as much when he roused himself from a longish post-election tweet-pause to say on Twitter, I am confident that @Infosys will scale even greater heights under @vsikkas able stewardship. Wish him the very best!
For Infosys, picking Sikka was brave and unconventional in other ways. So far, Infosyss CEOs (and those of its India-based peers) have been based at its headquarters and have travelled out to meet customers. Sikka will continue to be based in Palo Alto. The arrangement represents a thinking leap for a company that has always bristled at the Indian company reference and has termed itself global.
Sikkas strong pedigree and proven background are likely to win him immediate respect, while his technology innovation skills could come in very handy in creating ground-breaking disruptions. Infosys has been developing its strategy to productise its platforms for non-linear revenues and a product professional like Sikka would be instrumental in driving this important endeavour, said Frances Karamouzis, a US-based vice-president and distinguished analyst at research consultancy Gartner.
Many industry peers too agreed that Infosys sorely needs the vision of somebody like Sikka who was described by his previous boss, the SAP CEO Bill McDermott, as the innovator of our generation.
Fortuitously for Sikka, the other news from Infosys this week indicated that Murthy and his co-founders are finally relinquishing their iron grip on Infosys. The new CEO can operate with freedom and, with all the recent top-level departures, can rebuild his own team, said a senior executive from a rival IT firm.
Before Sikka takes over on August 1, Shibulal too would have exited. Murthys own chairmans office has been disbanded and son Rohan too left Infosys on Saturday. In an email, Murthy told The Sunday Express, I have stopped speaking about Infosys.
As wrenching as it must be for Murthy, a clean break from the co-founders is a chance that Infosys and Sikka deserve. In fact, it may be the only chance that Infosys and Sikka may have. He will be able to drive a new level of engagement with the capital markets. He will also likely be able to attract new management talent, said Jaideep Mehta, vice-president of research firm IDC South Asia.
The CEO-designate has his job cut out for him, of course. He must move swiftly to establish credibility, alleviate concerns and put forth a strong and viable direction to customers, shareholders and employees. Infosys cannot afford to have any more leadership or employee departures. And they absolutely cannot afford client departures or a slowdown in contract signings, said Karamouzis of Gartner.
Cynics also note that IT services companies like Infosys have a completely different rhythm from product companies like SAP, and Sikka has no prior background in the services industry. At services firms, it takes several quarters before you know something has gone wrong, said a senior manager from a rival firm.
If Sikka, who says the lines between service companies and product companies are blurring, embarks on a business model transformation and takes Infosys down the product-based path (Infosys currently gets less than 6 per cent of its revenues from products), he may be gambling hard. Should that strategy fail, his detractors are ready to roll out the khota sikka (fake coin) puns on Twitter.
At Infosyss headquarters in Bangalore, oldtimers are mourning the passing of the founder-driven era. The companys first telephone line came after a nine-month wait. The import of its first computer was mired in years of bureaucracy. When its founders wanted to travel overseas in the 1980s to solicit new customers, getting foreign exchange for the travel was a gruelling exercise. Every building in this 42-acre campus and each one of the 1,60,000 employees have been shaped by the creators culture, said a project manager and old Infosys employee.
The founders final departure is certainly a seismic shift for Indias second-largest IT services company. But as Bala, the former CFO, put it, To create a new future, Infosys had to necessarily break away from its past.