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Infosys, Sikka Part Ways

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Based on the flurry of emails and phone calls starting early this morning in the U.S., it was clear there was big news afoot. And this certainly counts as big news. Infosys CEO Vishal Sikka resigned today, three years after taking over the helm at one of India’s largest IT services companies. COO Pravin Rao will take over as interim CEO, and Sikka will remain on as executive vice chairman until a new CEO is appointed.

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In Sikka’s farewell email to employees, his reasoning was blunt and to the point: “… despite our successes over the last three years, and the powerful seeds of innovation that we have sown, I cannot carry out my job as CEO and continue to create value, while also constantly defending against unrelenting, baseless/malicious and increasingly personal attacks”. Ouch.

It’s no secret Infosys founders were unhappy with Sikka and the board. Founder and former chairman Narayana Murthy, who left the board in 2014, cited a deteriorating standard of corporate governance as his reason for taking the rift public. But it was clear early on the cultural differences between Infosys’ conservative founders and Sikka’s more flamboyant Silicon Valley style were going to be in conflict.

Culture eats strategy

Sikka, the former CTO at SAP, brought a new kind of thinking to Infosys, one based on the importance of software, analytics, design thinking and the future promise of artificial intelligence. And unlike many of his CEO colleagues, Sikka spent most of his time in the U.S. building relationships with key clients. This strategy was beginning to pay off, as Infosys was engaged in some CXO-level conversations based on Sikka’s vision, a rarity for Infosys (or for any Indian Heritage firm, for that matter).

Further, Sikka was popular with his employees, who appeared to be buying into his vision of the future. A quick analysis shows Sikka has an 87% approval rating on Glassdoor. This is only topped by TCS CEO Natarajan Chandrasekaran. All others in this cohort are lower – some much lower.

And Sikka did manage to turn around flagging growth during his three-year tenure, and in some cases stopped the bleeding in attrition, but that’s not good enough in the hyper-competitive IT services market, especially when one of your key competitors (see TCS) is growing faster.

So why did Sikka leave? Based on internal and client discussions we have been having on his resignation today, the general consensus is that Sikka had the right vision for Infosys. The challenge was in the execution. To pull this off, Sikka needed to transform the company from a people-oriented business to a software-oriented business – no easy task for a company with 200,000 employees, and a very conservative set of founders who still own more than 12 percent of the company.  

Nearly every company is undergoing this kind of transformation today, given the disruption from the digitization of everything. But for Sikka, the challenge was even harder because of the cultural differences between him and the founders, and that only part of the organization was truly on board with his strategy. Adding fuel to the fire: a spate of key leaders exiting the firm over the past couple of years (a very rare occurrence at leading Indian Heritage firms), which hobbled his ability pull the rest of the organization along.

One could argue Infosys is on the bleeding edge of digital transformation, and is making the changes needed to adjust to a new world order for service providers – a  new order where incumbents are losing all of their scope in one out of every two competitive negotiations, where As-a-Service is almost at parity with traditional sourcing, where executive action looms for the H-1B Visa, and where intelligent automation is going to reduce the need for offshore labor. Everyone knows the challenges. The question is, what to do about it.

Stabilize, then reinforce the vision

We’ve been fielding calls today from concerned current (and potential) clients. Today’s news will certainly slow down decision-making for prospects that have shortlisted Infosys.

Existing clients will no doubt have concerns about the governance issues Murthy has raised. With industry chatter at a high pitch, Infosys will, first and foremost, need to get all hands on board to reassure clients and prospects that things will continue forward, even without Sikka. It’s also important for clients to not overreact in these situations, as Sikka’s departure will have much more of an impact on future direction than on day-to-day delivery. Infosys has built a strong brand, and strong brands tend to outlast the people that lead them.

That said, finding a replacement for Sikka will be a challenge. The founders still wield considerable influence, and we’re not yet sure what role they will play, if any, in finding his successor. This may scare off more innovative and disruptive leaders, which would be a mistake, in our view. The good news is that the new CEO has a maturing set of software assets to work with. Nia (formerly Mana), SKAVA, and EdgeVerve are all important IP assets for Infosys, and can serve as the foundation to continue to build out a software-led strategy.

The path Sikka put forward was on was not only the right one, but the only one for Infosys, and for nearly every firm that has traditionally grown revenue by adding more people. A transformation from a people-led strategy to a software-led strategy will be painful, and will take time, but we think those that stay the course will be in the best position to help their clients succeed. 

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