There are suddenly many questions about Infosys – the company that seemed to have all the answers not very long ago. The questions pertain to the direction it is taking, and what the new founder-backed chairman will do.
One of the most sought-after tech employers in the country, it has witnessed an exodus of top management. Not long ago the bellwether of technology scrips, its share price hit a low point some weeks ago and continues to flounder. The obvious reasons are not far to find.
Leadership choice
According to industry sources, the company’s recent troubles over its accounting practices, corporate governance, financial transparency and the $200 million acquisition of Panaya could have had to do with leadership choice – bringing Vishal Sikka, a product man to lead a services company.
“Vishal Sikka is a pure product guy and he had no idea about services. Fundamentally, it was a wrong decision to hire him as CEO of a large services company. You can’t transform a services company into a product company overnight. He has never been a client-facing guy. He did not understand the culture and dynamics (politics) of Indian IT firms. All top Indian tech firms are heavily promoter-led ventures,’’ said a source familiar with developments at Infosys.
Dr. Tom Reuner, senior vice president at Seattle-based HfS Research said, “After a tumultuous time with modest financial results and constant interference from the foundering generation, Infosys urgently needs a period of stability not only to bring its own house in order but to face the disruptive secular shift toward digitisation and automation.”
Given this history it won’t be easy to attract top talent as the next CEO. If Infosys wants to return to its erstwhile glory, it needs to learn the lessons, back the next CEO and give him the freedom to implement his strategy.
Digital transformation has been a challenging task for tech firms globally except for few traditional consulting and client facing players like Accenture, Deloitte and McKinsey. If Infosys wants to increase its focus on digital space, it requires a CEO who understands the space of digital transformation who also comes with extensive experience in services industry.
According to Avinash Vashistha, former chairman and managing director Accenture India, Nandan Nilekani is the only choice for Infosys leadership at this juncture of instability and transition. He needs to work out a strategy to move forward in this challenging world of digital transformation of industries across verticals. He needs to get the right CEO who has significant experience with global IT services space, experience in digital transformation, also very deep understanding of the culture of promoter-led Indian tech firms. Nandan has to quickly finalise the strategy with the new CEO and put the company back on the rails, said Vashistha, who currently runs the San Francisco-based offshoring advisory firm Tholons Inc.
“Despite the turmoil, Infosys did not suffer any major client loss. Also, markets still believe that there will be a recovery once a new CEO is in place, though currently undervalued. Nandan opting for a more visible and executive role could have given a sudden boost to the company’s fallen crest and investor confidence. It is a challenge for Nandan to align the right CEO with the right strategy,” said Vashistha.
However, Siddharth Pai technology consultatant who personally handled in-sourcing transactions worth over $20 billion said, “By Infosys’s own admission, the recent events will not be without impact. In my experience, competition strikes hard when a company is going through internal turmoil, using the internal turmoil as a fulcrum to pull away customers that are on the cusp of making decisions. This happened with CSC, HP, and EDS, and there is no reason why Infosys will be insulated from such market activity.”
Employee sentiment
Things are not so hunky dory in terms of employee sentiment too at Infosys. Hundreds of mid and senior level CVs of Infosys employees are currently floating in the market, though the job market is almost stagnant, said a leading tech head hunter in Bangalore.
“There is so much confusion around the company’s direction. Along with respite, the re-entry of Nandan has also brought in a lot of fear among mid to senior execs. The company’s brand image has taken a huge beating in the last few months. Some are even making fun of Infosys. At the same time there is no scope for going anywhere else as hiring has almost come to a standstill,” said a senior executive at Infosys who didn’t want to be named.
Infosys, like its peers, will continue to post slower growth rate and there will be huge margin pressures. Newer big ticket contracts will also slow down for the company, until the leadership issue is put to rest, said industry watchers.
On the stocks front, Infosys has announced buyback at Rs 1,150 per share but shares are traded in Rs 900 range now. This is because of multiple reasons. Firstly, Nilekani has to appoint a new CEO in time and also needs to put a stopper to further leakage in clients and talent relationship. Secondly, finding a new CEO will not be a cakewalk for Infosys. Thirdly, clear charting of strategic path for Infosys and whether steps taken by Sikka will be rolled back are important signals. Fourthly, stability of business/board has now become a worry. Thankfully, the proposed buyback will lend downside support to the stock, said a Mumbai-based market analyst.
