Vishal Sikka quits as Infosys CEO: Hits and misses of his 3-year journey

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

Vishal Sikka on Friday resigned as the chief executive (CEO) and managing director (MD) of Infosys Technologies, India’s second-largest software services company. While the board of Infosys accepted the resignation of Sikka with immediate effect and appointed U B Pravin Rao as the interim CEO & MD, Sikka has been appointed the executive vice-chairman of the company.

In a BSE filing, Infosys said Sikka reiterated his belief in the great potential of Infosys, but cited among his reasons to leave a continuous stream of "distractions and disruptions over the recent months and quarters, increasingly personal and negative as of late, as preventing management's ability to accelerate the Company's transformation”. 

When Sikka had taken over as the CEO & MD of Infosys three years ago, 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 had admitted that the $20-billion revenue target was impossible to achieve and 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," Peter Bendor-Samuel, chief executive of global IT research firm Everest Group, had told Business Standard earlier. 

"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 had said.

The first non-founder chief executive of Infosys 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 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," Sikka had said last month.

Time constraint?

The transformation Sikka was attempting to execute at Infosys was similar to what Ginni Rometty was doing at IBM, according to 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 had told Business Standard earlier.

Under Sikka, Infosys' net profit grew by roughly Rs 2,000 crore (Rs 14,353 crore as on March 31, 2017) and he 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, did not result in better returns for shareholders and the IT major's market capital eroded. Muted returns, some analysts pointed out, had 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 had 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 brought in multiple changes at 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 involving 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 had said technology had 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, was 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," an analyst had said 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 saw head winds, according to two analysts who did not wish to be named, in the $117-billion Indian IT services export market. He also faced allegations of governance lapses and wrongdoing in acquisitions.

"Sikka successfully maintained the confidence of the investor community and his board supported him despite a sustained campaign from several Infosys founders. The founders' unhappiness 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 retained the support of the investor community and maintained control of the board," Bendor-Samuel had said in July. 

         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

A different version of this report first appeared on Business Standard on July 22, 2017