As Sikka completes 3 yrs at Infosys, more time needed to execute his vision

Sikka had set a goal of more than doubling Infosys' revenues to $20 billion

Come August, Vishal Sikka is set to complete three years as the CEO of Infosys.

When he took over at the helm of India’s second-largest information technology (IT) services firm, Sikka was prescient in forecasting that automation would take away jobs and clients would shift their investment dollars to newer digital technologies.

The shift, in fact, has been faster and there is pressure on clients spending on traditional services, which Infosys and its peers such as TCS and Wipro earn four-fifths of their dollar revenue from. To address this, Sikka visualised a software plus services model — using platforms to deliver services to bring in more efficiency and reduce dependency on people.

He had 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, over deliver – set by Infosys and its founding team led by N R Narayana Murthy over the past three decades.

In turn, this brought about a clash of culture that has dominated the conversation around 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, making them more realistic. Infosys expects single-digit growth this year.

"He (Sikka) tried to focus on the fast growing digital market, however, this strategy has been less successful with competitors such as Accenture and Cognizant being more successful in digital business. The final strategy Sikka has attempted to deploy is to join Accenture in acquiring companies in the fast growing digital market. However, he has been somewhat constrained by his board led by the Infosys founders in executing this strategy aggressively," says Peter Bendor-Samuel, the chief executive of global IT research firm Everest Group. 

"The result is that Infosys is now growing at the same rate as TCS on a constant currency organic growth rate, which is better than his (Sikka) predecessor but still well short of market hopes and expectations," Bendor-Samuel said.

The first non-founder chief executive of Infosys has dealt with multiple challenges, both on the business and cultural fronts, given the changing focus of global clients towards digital technology. In his own words, he has tried to bring in a culture of grassroots innovation and embrace software across the organisation.

"If you look back in time when I started, our growth rate has been significantly lower than our peers in the industry, sometimes even one-third of the growth of others, the attrition number was quite high. So, on the basic business performance, there has been a significant improvement, we have performed consistently well among the leading companies... But more than that, what I feel really good about is the transformation in the mindset of the employees, creating a culture of grassroots innovation, embrace software in much wider scale," said Sikka last week.

Sikka needs time

Analysts say that Sikka still needs time to deliver his full potential.

The transformation Sikka is attempting to execute at Infosys is similar to what Ginni Rometty is doing at IBM, says Sanchit Vir Gogia, chief executive of Greyhound Research. "IBM has been losing money for the last 16-17 quarters, but the board has stuck in and supported Ginni. It is a very similar transformation and all kudos to Vishal. There is no easy way of doing it or right way of doing it, he is doing a fantastic job. A few things he has tried have not worked. But, he is trying to stay with the company towards a healthier path," Gogia explains.

Ever since Sikka joined Infosys, the company’s net profit grew roughly by Rs 2,000 crore (Rs 14,353 crore as on March 31, 2017) and he has maintained the company’s operating margin at 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 the IT major's market capital has only eroded. Muted returns, some analysts point out, have been a trend for almost all Indian and some global IT services stocks given the economic slowdown in key markets in the US and Europe.

Back in 2014, Murthy bestowed Sikka, a Stanford University alumnus, with the responsibility to transform Infosys into a company that offers technology services with a software layer, instead of being only people dependent. "That was, I think, for the first time that an Indian company of this order had gone out and had done something like this. He (Sikka) stumbled upon a brilliant opportunity but also with little bit challenges," said Gogia.

The former SAP board member has brought in multiple changes in the $10.2-billion IT major, to transform it into a winner in the escalating battle of digital and pay-as-you-use contracts from businesses in the US and Europe.

His Zero Distance drive, a programme that involves employees in innovation on all projects, received a thumbs-up from all analysts.

Sikka could foresee the faster transformation in clients' businesses. In an interview with Knowledge@Wharton this year, Sikka said technology has seen "severe" changes ever since he joined. "The advance of automation and digitisation across the world have become more severe, more intense... The most striking examples of the power of automation, that literally in 48 hours, with the work of one of our engineers, we were able to essentially eliminate the work that was being done by 1,000 people," Sikka told Knowledge@Wharton.

He, however, is responsible for transformations beyond business. "The shift was not just from the changing market for IT services business and customer expectations, he was given an equally bigger task of proving himself before the co-founders," said an analyst requesting anonymity.

At the end of March 31, 2017, two years and five months into Sikka’s leadership, at 24.7 per cent, Infosys' operating margin was 100 basis points lower than that of TCS.

While Sikka was transforming the Bengaluru-headquartered software services major, the IT services industry across the globe saw a paradigm shift. All of this occurred as "technology has become a revenue enabler instead of just a cost".

"On the infrastructure front, organisations have got accustomed to a 'pay-as-you-go' or 'as-a-service' model. Furthermore, larger deals, like $200 million implementations, are no longer there," said a former Infosys veteran. 

Head winds

Sikka has seen head winds, said two analysts who requested anonymity, in the $117-billion Indian IT services export market. He has also faced allegations of governance lapses and wrongdoing in acquisitions.

"Sikka has successfully maintained the confidence of the investor community and his board supports him despite a sustained campaign from several Infosys founders. The founders' unhappiness has provided a fertile ground for disgruntled employees to air their grievances and a ready conduit for the Indian press. However, despite these substantial obstacles, he retains the support of the investor community and has maintained control of the board," pointed out Bendor-Samuel. 

Murthy has spoken against the Infosys board and Sikka, saying that the company was seeing its governance norms fail, especially over the issue of the severance pay given to former chief financial officer Rajiv Bansal. Murthy's public statements affected the Infosys brand, both among its employees and clients. The other issues raised included wrongdoing in the acquisition of Panaya, which Infosys commissioned a forensic team to investigate into. 

         After Sikka joined

• Saw 10 key executives leave, most were brought in from SAP    
• Set $20-bn revenue target by 2020, revised citing uncertainties 
• Segregated sales teams into 15 dedicated units 
• Of total revenue of $10.2 bn, nearly $1 bn came from digital platforms 
• Began declaring segregated revenue from digital tech business
• Faced shareholders', 
• co-founders' wrath over alleged governance lapses
• Received whistle-blower letter claiming wrongdoing in Israeli firm buy

Murthy also successfully pushed for D N Prahlad's admission to the Infosys board and to get Ravi Venkatesan appointed as its co-chairman. However, he still has regrets.

"Well, you know a lot of my founder colleagues told me not to leave Infosys in 2014 and to stay a few years. Generally, I find that I am a very emotional person, a lot of my decisions are based on idealism... All of that... And probably I should have listened to them," Murthy told CNBC TV18 news channel in an interview last week.

For Sikka, the show has to go on. While it may take more time to achieve the $20-billion target, Sikka, being the first ideator of Design Thinking at Infosys, has arguably seen success in digital transformation. 

However, he still has challenges ahead. "Across this dimension, performance falls short of the rhetoric and public statements. In one sense, he has been playing with a hand tied behind his back as he has been constrained by his board in adopting the kind of aggressive acquisition required to take a market leading position," says Bendor-Samuel. Citing an example of one such constraint, he says, "The recent announcement that Infosys will be returning cash back to shareholders through increased dividends and share repurchase will divert cash away from digital investments and acquisitions."