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What Does its Selection of CEO Indicate for Infosys?

Yesterday, Infosys ended a period of speculation and announced it had appointed its next CEO and MD, Dr. Vishal Sikka, who had resigned early last month from SAP, where he was a former board member.  Dr. Sikka’s selection as Infosys' next CEO had been touted by the Indian press soon after the news of the resignation of BG Srinivas, who many had felt had been one of the two top internal candidates for the role, but the Indian press can sometimes pick up rumors that turn out to be inaccurate (on May 31, Infosys issued a press statement denying that a decision had been made, refuting any reports as speculation).

The selection of Dr. Sikka as its new CEO clearly marks a sea change for Infosys; he:

  • Is the first of the non-founders of the company to take up the role - and also the first external appointment
  • Is in his forties (47), making him a decade or so younger than many of Infosys’ recent senior execs
  • Comes from a background in enterprise software and technology, rather than IT services.

Infosys has done well in completing its recruitment of a new CEO, probably the most demanding recruitment a company can make, in just eight weeks - especially given that this was the first time Infosys has looked outside its founders. And the fact that current CEO SD Shibulal and Chairman Mr. N. Murthy are both choosing to step down so soon is a strong vote of confidence in their selection.

So what does Dr. Sikka bring to Infosys, and what are his strategic priorities likely to be once he takes over on June 14?

Attributes and Experience

Among the attributes that may have helped in his selection above other very experienced and qualified candidates, a few obvious ones are:

  • A track record in introducing innovation. As CTO at SAP with responsibility for products and innovation, he had overseen the introduction of SAP HANA, which had been the first product to reach $1bn in revenue in the company’s history. In his prepared remarks, he highlighted that he will oversee the introduction of bringing “new kinds of innovation ... to our clients”. He claims that the distinction between products and services is “rapidly blurring”
  • Experience of interacting with large enterprises. Dr. Sikkal also brings in from SAP relationships with many companies in the Fortune 1,000, relationships that may on occasions help Infosys in future big deal pursuits, particularly in Europe (though he is based in California - and will now be spending a lot of his time in planes!).
  • His relative youth. Infosys also announced the appointment yesterday of UB Pravin Rao (45) as COO. This will bring in a period of relative youth at the top 
  • The fact that as an outsider, he brings a fresh pair of eyes to any internal issues at the company…one of these is that it has been struggling with increasing attrition, in spite of having reintroduced salary hikes last year (TTM attrition at end March 2014 was 18.7%, the highest it has been for years). Having been based in California (and working for a European headquartered company) he should not carry with him traditional Indian attitudes about women in the workplace, or about hierarchies
  • He may also be a little less risk-averse when it comes to M&A activity. Infosys has been sitting on a mountain of cash for years, but has made just one significant acquisition (Lodestone Consulting) in pursuit of its ambitious ‘Infosys 3.0’ strategy which requires a transformation, rather than an evolution, of the company.

What are his immediate strategic priorities likely to be?

Infosys has been contending with some company-specific issues for a few years,  but arguably the reasons can be traced back for much longer. 

  • Although revenue growth doubed last fiscal year (to 11.5%), it has continued to trail TCS and Cognizant. Topline growth has dippeed back in the last two quarters (to 7.9% in Q4 FY 2014; in comparison TCS achieved15.3%) – if we look to this fiscal year, Infosys guidance is for topline growth of between 7% and 9%. TCS does not provide guidance, but in Q4 FY14, management talked about a healthy pipeline and expressed confidence that it can achieve even stronger topline growth than the 15.3% delivered in the quarter. (See more at:
  • Infosys is also trailing in its margins. The company has been slashing its marketing budget and focusing in many areas of its business in reducing the cost to serve (in particular its BITS service lines, which it has referred to as “traditional IT services” focused on helping clients take out costs, not always the most marketing). One of his comments in an analyst call yesterday (about reuse of kinetic energy in the automotive sector) would suggest that may see some innovative thinking about optimizing the use of resources. We should certainly expect see an intensifying of the current early work in areas such as automation in software development and the application of robotic process automation in BPO
  • The departure of twelve senior execs since the return of Narayatha Murthy as Chairman. Yesterday he was at pains to point out these departures have not been detrimental to the company. He highlighted that just three of the departed execs had client-facing roles, that many of the depatures were related to under-performance, that a small number had gone for a promotion (presumably BG Srinivas, the new Group MD at PCCW and Ashok Vemuri, now CEO at IGATE), and finally that revenue growth has improved despite the departures. Nevertheless, so many departures must have been unsettling for the company (and may have been a factor in the increasing attrition). There are some senior management gaps to be filled. Does the arrival of Dr Sikka indicate that we may see further external recruiting - or is there a belief that there is enough experience and capability from inside the company to promote internally?
  • Driving the ‘Infosys 3.0’ agenda. If we go back several years, the Infosys 3.0 vision had Products Platforms and Solutions (PPS) contributing around a third of company revenues, roughly equivalent to Consulting and Packaged Implementation (C&PI) and Business IT Services (BITS). The messaging since then has consistently been about the importance of PPS to the future of Infosys, though the business was, outside Finacle, at incubation stage. This led me to expect some inorganic growth (just as the Lodestone acquisition has boosted C& PI). But over two years on, PPS is nowhere near being a revenue engine, or making any impact on margins. Last quarter it contributed just 5.1% of the company’s overall revenue (~$107m) - and this includes the well-established Finacle software unit: the other strands in PPS contribute under 2% of global revenue. Back in FY 2012, PPS contributed 7.1% of company revenues.
    • In his prepared speech yesterday, Dr. Sikka referred several times to Infosys and to software in the same breath (“e.g. “where Infosys – and the world of software – is heading”), and it would be easy to assume that the drive will be to make Infosys more of a software company
    • Yet Mr. Murthy commented yesterday that if PPS accounts for 10% of total company revenues within five years, management would be “more than happy.” This suggests that the current thinking is of organic growth for PPS. Though, of course, Mr. Murthy is stepping down, and Dr. Sikka may have different ideas..

The appointment of someone with a heritage in software and technology to lead a company that generates 95% of its revenue from different types of IT services is a bold decision. The only other example that immediately comes to mind is Thierry Breton at Atos, though even here his pedigree was at companies where services was key. Dr. Sikka joins a company that has a tremendous reputation, and at an exciting time in its history. But we maintain a position that software and services companies are different, in their business models, in their client relationships, in their operating levers and key metrics, in their key success factors, in their employee base, and so on. We look forward to seeing him share his vision - and hope to see more of an emphasis on how software can be used to develop a services business, not on the blurring between software and services.

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