Key issues Sikka will have to tackle at Infosys

By appointing Vishal Sikka as Infosys’ chief executive officer and managing director, co-founder N R Narayana Murthy has not only put to rest all the uncertainty surrounding the information technology services company but has also given a hint of where it may be heading.

Appointing Sikka, however, is just half the battle won, many say.

The 47-year-old technocrat is considered to be an innovator and visionary in the technology arena after having worked with SAP for 22 years and being a core member in developing the HANA product, which is now an over $1-billion business for the Germany-based enterprise solutions provider. 

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Sudin Apte, research director & CEO, Offshore Insights remarked, “Sikka will be running against time. By appointing him, Infosys has taken a gamble. He certainly is someone who will make Infosys’ future ready."

Apte further said," Sikka understands technology and how it is impacting businesses. But I have reservations. This is the first time, perhaps, that a multi-billion dollar firm has appointed as CEO a person who has never managed P&L or has any experience in managing lakhs of employees.” 

Apte feels though Sikka will help Infosys transform into a new player, he will need to focus on the next quarter’s results. “I am ready to give him three to six months. I don’t think he has six months to a year to learn and then deliver,” he added.

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The immediate task for Sikka will be team building. The recent top-level exits have not done the company much good.

Priority list

•Bring stability: Work towards bringing down attrition

•Extend sales and marketing teams

•Retain client confidentiality

•Build pipeline of deals

•Improve organisation’s response time

The repercussions can be seen in Infosys’ overall attrition rates that are just going up. 

“The new CEO will have to move very quickly to first calm employees, customers and investors, in that order. Infosys cannot afford any more resource departures, especially at senior levels. He will next have to establish credibility with stakeholders, again, in a fairly short-period and then energise them in the medium to long term.

The medium-term strategy will have to be fairly close to the knitting of the infotech services industry — anything else will create a level of confusion and uncertainty again,” said Partha Iyengar, country manager — research, Gartner India.

Other than the 11 senior executives who left the company,

Infosys has also suffered in terms of growth and falling margins. It has lagged peers Tata Consultancy Services, Cognizant and even HCL Technologies in revenue growth.

The company’s operating margins have come down from 30 per cent in the March quarter of 2010 to 25.5 per cent in the March quarter of 2014.

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Sikka’s appointment is crucial not only because he is the first non-founder at the helm of Infosys, which means he is capable of new and fresh thinking, but he is more of a technocrat involved in research and development.

“In order to be successful, we believe Vishal will have to run two sets of priorities in parallel."

One, continue to focus on traditional infotech services deals to meet market and shareholders’ expectations. And two, develop new capabilities for Infosys to win in the digital world,” said Manish Bahl, vice-president and country manager, Forrester Research.

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One thing that goes in Sikka’s favour is that he is well known in the US, which means he can open doors for Infosys.

“The positive thing about the new structure is that both the roles are strong and are independent. Pravin Rao’s role has been made very strong. It will be important to see if Sikka can bring growth back,” added Apte.

But many are wondering if Sikka, who has so far been a technocrat, can manage sales and understand the services industry

. “The downer for me is that he’s been focused more on the R&D/product development side and has presumably not handled large P&Ls/operations."

"Infosys needs more than an excellent technocrat as a CEO; it needs a CEO who with the help of a visionary technocrat can figure out credible ways for Infosys to compete in the ever-evolving tech world,” said Viju George of JPMorgan in an earlier note.

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Moreover, he is a complete outsider who needs to understand the Infosys culture and then add his own element to it.

“It is good that Murthy and others are giving him a free hand. But it is also surprising that no one is around and it has happened on an immediate basis,” said a senior analyst on condition of anonymity.  

Murthy and Kris Gopalakrshnan will step down from their existing role from June 14, though continue on board till October 14 as the Non-executive Chairman and Non-executive Vice Chairman, respectively.  

S. D. Shibulal will step down as CEO & MD and from the Board on July 31, 2014. Srinath Batni, whole-time Director of the company, will step down from the Board on July 31, 2014 

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Sikka's appointment is a boost for the company's Infosys 3.0 strategy. But many also feel that the product, platform and services play is a long-term bet.

At present, it is just about six per cent of the revenue. Sikka may be able to hasten the process but cannot reverse the revenue mix from services to products in the short-run, say analysts.

“Infosys’ focus on ‘product, platform, and solution’ and consulting has failed to yield results due to a bad business cycle. The company has renewed its focus on business infotech,” said Shashi Bhusan of Prabhudas Liladher.

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Jaideep Mehta, VP and General Manager, IDC South Asia said, "The IT Services industry is going through a transformation from plain vanilla to platform and IP based services.

With his extensive experience in SAP, and specially the success he had in recent years with HANA, Dr. Sikka already has a deep understanding of where Infosys needs to go, and what it needs to do to get there."

Sikka who was one of the main contributors for the development and marketing of HANA, the flagship product from SAP, it certainly does not look like a cake walk.