Infy stares at turbulence

Experts see departure of key executives, client ch urn; competitors smell gains

Infosys might have to prepare itself to lose clients and key executives who supported the software-plus-services model that former chief executive Vishal Sikka had pioneered, as they become easy targets for rivals to poach in an uncertain business environment, company insiders and experts said.

The biggest challenge would be for Infosys to represent its digital technology strengths, which Sikka personally drove for pure digital projects in the US, its main market. Over the last few months, Infosys has lost several senior people in the US, who were driving client relationships, including its America's head Sandeep Dadlani. This had pushed Sikka to engage with clients and now his exit would open a front for competitors to exploit the situation.

“Clients want stability. The situation in Infosys, despite the public posturing by the management, is one of loss of confidence. You will see lots of poaching (of both people and clients) happening from Infosys,” said a senior executive of a rival IT firm.

Analysts say that Sikka’s exit has tarnished Infosys’ image as an innovator, and this could cost it people as well as clients.

“Infosys has been in leadership limbo for many months, ever since the first public board spats, so Sikka leaving will have a stabilising impact in the short term with clients. However, the firm’s image as an innovator is damaged, as this is what Sikka had brought to the table,” said Phil Fersht, chief executive officer, HfS Research.

“I do see Accenture and IBM potentially gaining some advantage in deals where digital, automation and artificial intelligence are significant, as Sikka was the pioneer in driving these for the firm.”

WE’RE GOING TO SEE THIS THROUGH AND THE CLIENTS WILL NOT SEE A DISRUPTION. THE MANAGEMENT WILL GO ABOUT THIS IN A VERY SYSTEMATIC WAY AND A VERY SMOOTH WAY VISHAL SIKKA Executive vice-chairman, Infosys INFOSYS HAS BEEN IN LEADERSHIP LIMBO FOR MANY MONTHS... SO SIKKA LEAVING WILL HAVE A STABILISING IMPACT IN THE SHORT TERM WITH CLIENTS. HOWEVER, THE FIRM’S IMAGE AS AN INNOVATOR IS DAMAGED PHIL FERSHT Chief executive officer, HfS Research

A recent study by IT sector researcher ISG said Indian IT players such as Infosys, Tata Consultancy Services, Wipro, HCL Technologies and others had 16 important renewal deals, worth up to $14 billion, from customers including Scandinavian Airlines, Ford, and Toyota Motors Europe by mid-2018. There are many other small and digital technology-focused contracts that companies such as Infosys are vying for.

Fersht says Infosys needs to act fast and “reinforce its go-forward strategy, both in terms of execution and innovation”, if it has to “remain viable as one of the leading players” in the global IT services market and revive client relationships.

Sikka, in his three-year stint at Infosys, pushed the company to embrace newer business models that used automation and artificial intelligence. He also built a platform-focused approach that increasingly focused on moving away from a peopledependent to a softwareplus-services model, which helped in winning digital deals from customers such as jeans maker Levis Strauss & Co and DBS Bank.

The investments over the three years were bearing fruit when Sikka resigned last week over “baseless/malicious and increasingly personal attacks” against him.

The crux of the matter has been the issues raised by NR Narayana Murthy, Infosys founder, against the company and its board over “falling corporate governance norms in the company”.

Ever since Murthy first raised the red flag over falling disclosure norms in Infosys last year — over the severance package to former chief financial officer Rajiv Bansal and the acquisition of Panaya, an Israeli tech firm — the company has tried to mollify him.

It brought in changes in disclosure norms, got DN Prahlad, a former Infosys employee whom Murthy recommended on the company board, and elevated board member Ravi Venkatesan as co-chairman. Yet, there was no let-up in the public spat.

As a result, Sikka had to see nearly a dozen executives leaving. They included Dadlani; Ritika Suri, who played a role in the acquisition of Panaya; and Yusuf Bashir, who headed the $500million Innovation Fund, which looked at startup investments.

This is also compounded by the fact that IT companies are witnessing their worst period in close to a decade, with the prospect of growing in single digits, as technology shifts are upending the traditional outsourcing model.

It also means deal sizes becoming smaller and increased emphasis on digital and cloud technologies.

“Ten-fifteen per cent of the current projects are likely to get impacted immediately at different levels,” said an Infosys source.

As of June 30, 2017, Infosys reported 1,164 active clients and 190 of them were of $10 million and more.

The “Sikka” brand was the key to Infosys’ digital deal wins, said Peter Bendor Samuel, chief executive officer, Everest Group.