In 3 years, Sikka helps buoy Infosys profit
When Vishal Sikka took over at Infosys he was prescient about automation taking away jobs and clients shifting investment dollars into newer digital technologies. The first non-founder chief executive has dealt with challenges both on the business and cultural fronts. “What I feel really good about is the transformation in the mindset of the employees, creating a culture of grassroots innovation and embracing software on a much wider scale,” he said. AYAN PRAMANIK writes
When Vishal Sikka took over at the helm of India’s second largest IT services firm, he was prescient about automation taking away jobs and clients shifting investment dollars into newer digital technologies. This shift has been faster than expected and there is pressure on clients spending on traditional services, from which Infosys and its rivals such as TCS and Wipro earn four out of every five dollars. Sikka visualised a software-plus services model and set a goal of more than doubling Infosys’ revenues to $20 billion, with margins of 30 per cent and employee productivity of $80,000.
This lofty goal broke a cardinal rule — under-promise and over-deliver — set by Infosys and its founding team led by N R Narayana Murthy over the past three decades. And it led to a clash of cultures that has dominated the narrative of Sikka’s tenure over the past three years. Sikka and the Infosys board have admitted that the $20-billion revenue target is impossible to achieve and have reset their goals to more realistic levels. Infosys expects single-digit growth this year.
“Competitors such as Accenture and Cognizant have been more successful in the digital business. The final strategy Sikka has attempted is to join Accenture in acquiring companies in the digital market. However, he has been constrained by his board in executing this strategy,” says Peter Bendor-Samuel, chief executive, Everest Group, a research firm. “The result is that Infosys is now growing at the same rate as TCS in constant currency, which is better than his predecessor but still well short of market expectations,” he adds.
The first non-founder CEO of Infosys has dealt with challenges both on the business and cultural fronts. “What I feel really good about is the transformation in the mindset of the employees, creating a culture of grassroots innovation and embracing software on a much wider scale,” Sikka said last week.
Sikka is doing to Infosys what Ginni Rometty is doing to IBM, says Sanchit Vir Gogia, CEO of Greyhound Research. “IBM has been losing money for the last 16-17 quarters, but the board has supported Rometty. It is a similar at Infosys. There is no easy way of doing it,” he adds.
Since Sikka joined Infosys, the company’s net profit has roughly grown by ~2,000 crore and he has maintained the operating margin on a par with major Indian IT firms despite a turbulent business environment. Infosys’ business numbers under Sikka’s leadership, however, have not resulted in better returns for its shareholders and market capital has eroded. Muted returns, some analysts point out, have been the trend for almost all Indian and some global IT services companies with an economic slowdown in the US and Europe.
In 2014, Narayana Murthy bestowed the Stanford University alumnus with the responsibility of transforming Infosys into a company that offers technology services with a software layer. “That was the first time an Indian company of this order had done something like this. Sikka stumbled upon a brilliant opportunity, but it came with challenges,” says Gogia.
The former SAP board member has brought in many changes at Infosys. The Zero Distance drive, a programme to involve employees in innovation on all projects, received approval from all analysts. In an interview with Knowledge@Wharton early this year, Sikka said technology had seen “severe” changes ever since he joined Infosys.
“The most striking example of the power of automation is that in 48 hours, with the work of one of our engineers, we were able to eliminate the work done by 1,000 people.”
“The shift was not just from the changing market for IT services and customer expectations, Sikka was given an equally bigger task of proving himself before the co-founders,” says an analyst requesting anonymity. At the end of March, two years and five months into Sikka’s leadership, Infosys at 24.7 per cent operating margin was 100 basis points behind TCS.
Interestingly, the IT services industry was undergoing a paradigm shift as Sikka was transforming the Bengaluru-headquartered software services major. Technology has now become a revenue enabler instead of just a cost. “On the infrastructure front, organisations have become accustomed to a ‘pay-as-you-go’ or ‘as-aservice’ model. The $200-million implementations are no longer there,” says a former Infosys employee.
“Sikka has successfully maintained the confidence of the investor community and his board despite a sustained campaign from several of Infosys’ founders. The founders’ unhappiness has provided fertile ground for disgruntled employees to air grievances,” says Bendor-Samuel.
He is alluding to Murthy’s outrage against the Infosys board and Sikka over the issue of severance pay to former chief financial officer Rajiv Bansal. The other issues raised were about alleged wrongdoing in the acquisition of Panaya, for which Infosys commissioned a forensic team to investigate. “Many of my founder colleagues had told me not to leave Infosys in 2014. Generally, I find that I am a very emotional person, many of my decisions are based on idealism and probably I should have listened to them,” Murthy told CNBC TV18 last week.