Murthy ends second innings with a masterstroke

His detractors now say they're believers again, after Murthy stepped down to allow Sikka to chart his own course

At a time when most observers of Infosys were beginning to lose faith in the ability of N R Narayana Murthy to recreate his magic, the iconic co-founder of the information technology (IT) services company seems to have delivered a masterstroke. Murthy not only brought in a widely-favoured chief executive officer (CEO) for the company, but also stepped down to let the new leader chart his course.

Early on Thursday, Infosys announced the appointment of Vishal Sikka (former SAP board member) as its CEO, effective August 1. It added Murthy, who had returned to Infosys as executive chairman in June 2013, would step down.

Investors, who had turned detractors of Murthy, now say they’re believers again. Reflecting the sentiment, the Infosys stock, which had risen about five per cent on Wednesday, saw additional gains of four per cent on Thursday. It, however, closed with a loss of 0.4 per cent on BSE, owing to profit booking.

Boots hung again
Murthy believes he has done the job he was entrusted with. “When I was required to come back, I was given two mandates—to find an able successor for CEO S D Shibulal and create a strong foundation for the company. I believe, by and large, I have fulfilled both the obligations…I have the satisfaction that I have done my duties.”

However, a look at the firm’s fortunes in the past year tells a different story—while the Infosys stock rose 29 per cent in the past year, shares of TCS and Wipro gained 44 per cent and 55 per cent, respectively. The 11.5 per cent growth in the firm’s revenue for FY14 lagged those of its peers. Between June 2013 and March 2014, Infosys’s revenue growth averaged 4.8 per cent, against TCS’ 6.5 per cent, Wipro’s 6.4 per cent and Cognizant’s 6.3 per cent. The firm has estimated seven-nine per cent revenue growth for FY15, against Nasscom’s estimate of 13-15 per cent for the Indian IT services sector and rival Cognizant’s forecast of 16.5 per cent.

In his second innings, Murthy initiated a three-pronged strategy, which included a focus on cost rationalisation, sales effectiveness and delivery effectiveness. He also brought back focus on the revenue-accretive traditional business, IT. However, other than cost-rationalisation efforts, all other initiatives are yet to show results.

“You have to take into account the time when Murthy was at the helm of the firm. When he was CEO, the market was just evolving and the only thing you needed to do was improving delivery,” Sudin Apte, CEO and research director of Offshore Insights had said in an earlier interview. “It was during the time of Nandan Nilekani (co-founder of Infosys) that the company actually grew at a faster pace and the sector was evolving.”

Many believe perhaps Murthy had underestimated the magnitude of the problems Infosys was faced with. In the months following his return, Infosys saw the exits of some of its top sales and delivery staff. It saw the resignations of board members Ashok Vemuri, V Balakrishnan and B G Srinivas, all seen as contenders for the CEO’s post. These exits, analysts believe, impacted Infosys’s business adversely. Its attrition rate rose to an all-time high of 18.1 per cent in the quarter ended March this year.

By getting Sikka on board, Murthy, it now appears, has done what he had advised Infosys employees in a letter earlier this month “Think big and act bolder”.

(With inputs from Shivani Shinde Nadhe)