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Business News/ Companies / News/  Vishal Sikka named Infosys CEO as era of founders ends
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Vishal Sikka named Infosys CEO as era of founders ends

Former SAP executive firm's first non-founder chief; Murthy to be chairman emeritus effective 11 October

Vishal Sikka is the son of an Indian Railways officer and is now a resident of California. Photo: Aniruddha Chowdhury/MintPremium
Vishal Sikka is the son of an Indian Railways officer and is now a resident of California. Photo: Aniruddha Chowdhury/Mint

Bangalore: Infosys Ltd named Vishal Sikka chief executive officer (CEO) on Thursday, making him the first outsider to head the company, and announced the exit of executive chairman N.R. Narayana Murthy in the biggest management transition in the firm’s 33-year history.

Sikka, 47, a former head of products at SAP AG, will take over on 1 August, a day after the retirement of S.D. Shibulal, the last of the Infosys founders to preside over India’s second largest software services company.

Murthy, who returned from retirement in June last year to steer the foundering company through what turned out to be a period of tumult, will step down as executive chairman on Saturday.

Murthy will once again be designated as​ chairman emeritus effective 11 October 2014.

His son and executive assistant Rohan Murty, whose appointment was co-terminus with the executive chairman’s, will also leave Infosys on Saturday. The executive chairman’s office will be dissolved, and its remaining members will move to other positions in Infosys.

Along with Murthy, vice-chairman and co-founder S. Gopalakrishnan will also step down from his role on Saturday, the day the company hosts its closely watched annual shareholders meeting. Infosys also elevated 12 executives to the role of executive vice-president, a move that experts said was undertaken to stem a steady exodus of top-level leaders.

The appointment of Sikka marks the start of a new era at Infosys, which since its inception in 1981 hasn’t looked beyond its founders for a CEO.

Murthy, Nandan Nilekani, Gopalakrishnan and Shibulal have headed the company, which has posted four years of narrowing profit margins, underperformed peers and lost its status as the software industry bellewether. Since Murthy’s return, the company has seen an exodus of top-level executives, including potential CEOs.

“At this point, we need transformation. We basically had a bias for a transformational leader," said K.V. Kamath, lead independent director at Infosys, who will once again take over as non-executive chairman after Murthy steps down.

He described Sikka as a “very a strong thinker", who has been chief technology officer at a large company and a strong developer of products.

By choosing Sikka, who comes with deep contacts in technology hub Silicon Valley and a reputation of being a world-class software innovation expert, Infosys has sent out a strong message that it is ready to attempt a truly strategic shift, something that it failed to achieve under its past two CEOs.

“Dr Sikka is a brave, unconventional choice, but his handling of a services business needs watching," analysts Viju George and Amit Sharma of JP Morgan India wrote in a research note to clients. “We believe Dr Sikka is a good choice from the perspective that IT (information technology) services is increasingly being software driven or having software-like characteristics in the digital or SMAC (social, mobile, analytics, cloud) age."

Former Infosys executives and experts welcomed Sikka’s appointment and said a shift in the company’s future strategy was necessary, but cautioned that the rebuilding process and a potential turnaround in the fortunes of the company would possibly take a while, given Sikka’s lack of experience in the business of IT services.

“I laud the bravery and boldness of this appointment, but there are many questions that Vishal will need to answer in the coming weeks and months," said Phil Fersht, chief executive and founder of outsourcing advisory firm HfS Research. “I fear his lack of services leadership could be an impediment."

“He comes from a products background and not from services, which is totally different," said V. Balakrishnan, a former board member at Infosys who left the company last December after a two-decade stint. “But I think the future of services business is related more to products and innovations, and that is where he can play a larger role."

End of the Murthy era

As Murthy prepares to step aside from a company that he often refers to as his middle child, it is difficult for insiders and experts tracking the company to imagine that he will completely step aside from a company that he founded, led and closely watched even after he first stepped down from all executive roles in 2006.

Company executives and people aware of Murthy’s thinking said, on condition of anonymity, that it was hard to imagine Murthy leaving his office at the red-brick heritage building in Infosys and letting go of the running of the company.

“You can take Murthy out of Infosys, but not Infosys out of Murthy," is what one of the co-founders of the company had said when he had first stepped down.

Murthy, for his part, dressed casually in a white T-shirt and trousers, looked relaxed and fielded questions from the media with his usual equanimity.

When asked about whether he had fulfilled the objective he set out to accomplish in his second innings, Murthy said he was satisfied with what he had undertaken.

“When the board requested me to come back last year, they gave me two mandates. One, to assist in finding an excellent successor to Shibulal. The second mandate they gave me was to create a strong foundation of future growth in the company. I believe by and large I have fulfilled both these obligation," the 67-year-old said.

Under Murthy, Infosys built swank American-style campuses to woo Fortune 500 clients, put in place an employee stock options programme that turned many employees into millionaires, and was the first Indian technology company to list on the Nasdaq.

The success of Infosys laid the foundations for India’s IT industry, which other rivals such as Tata Consultancy Services Ltd and US-based Cognizant Technology Solutions Corp. learnt from and replicated.

Murthy’s second innings was, however, marked by more than a dozen top-level exits, with many of the leaders being those that he had himself hand-picked as the next generation of Infosys.

The exits raised several concerns over whether his return to the company had caused more harm than good and whether it would blot his legacy.

In the past 12 months, Murthy started cutting costs, improving the strength of its sales teams and took steps to protect the company’s top 50 customer accounts. Murthy’s organizational overhaul led to smaller sales teams and increased automation in several commoditized services.

Experts welcomed Murthy’s decision to step aside, as the new chief executive would have a freer hand in running the company, without the interference of an active chairman.

“Mr Murthy’s stepping down should provide significant freedom to Dr Sikka to rebuild the organization as per his vision, a positive in our view," wrote George and Sharma of JP Morgan.

What’s ahead for Infosys

On Thursday, at a hurriedly organized press conference in the campus of Infosys, Sikka, dressed in black, briskly walked into an auditorium buzzing with reporters and television crew.

“I have to learn about the company now and about every aspect of the business," said Sikka, who is the son of an Indian Railways officer and now a resident of California. “In the past, we’ve seen many Indian IT companies becoming burdened by their past and their legacy. I, on the other hand, feel that we at Infosys have an opportunity of delivering value in a very unencumbered manner."

“Of course, we have to improve things that we do and there are ongoing things that need to be optimized, but that long runway ahead of us gives me confidence," he added.

For now, investors may be willing to give Sikka a long runway, at least for the next two years, something that even Murthy acknowledged on Thursday.

But Sikka will also inherit an Infosys that has seen a complete erosion of its top management leadership over the past 12 months, with company veterans such as Ashok Vemuri, Balakrishnan and B.G. Srinivas leaving within the space of a few months.

To be sure, the executive exodus also means that Sikka would have a free hand to build his own leadership team.

Sikka will also be arguably the most scrutinized CEO in the Indian IT industry as he takes up an assignment where he has the challenge of not only building a new core management team from scratch, but also defining a future vision for the company.

“The core team is very important and that is missing from Infosys right now. He now has the task of rebuilding the core team and that will take some time and will be challenging," said Balakrishnan.

Sikka’s appointment may trigger more exits, experts said.

“Infosys had been evaluating internal candidates for the CEO position as well. We believe Dr Sikka’s appointment might drive another wave of resignation from the internal CEO hopefuls. However, the organization will likely stabilize after that. Also, we believe Mr Murthy’s stepping down should provide significant freedom to Dr Sikka to rebuild the organization as per his vision, a positive in our view," said Partha Iyengar, research head at Gartner India.

“(Sikka) will have to move very quickly to first calm the three key stakeholders, employees, customers and the investors, in that order. Infosys cannot afford any more resource departures especially at senior levels," Iyengar added.

Evolving client needs

Over the years, India’s top software firms relied on the so-called pyramid model—where addition of hundreds of engineers brings down the cost of software development—to grow bigger with each passing year, as big-ticket Fortune 500 companies outsourced all non-core back-office software projects to India.

But now, India’s outsourcing industry finds itself at a crossroads where traditional IT services such as application development and maintenance have become commoditized and the advent of automation threatens to disrupt the traditional pyramid model.

Large clients such as Bank of America and Johnson and Johnson are therefore asking companies such as Infosys to do more with less.

More importantly, customer needs have evolved and large clients are asking for newer technology offerings that can solve complex business problems. Some clients such as General Electric Co. are even developing their own software solutions and fusing technology into their industrial products.

Sikka, on his part, seems aware of the need of the hour.

“The world around is becoming…completely transformed by software, by digital technology, by computing," Sikka said. “I see a tremendous opportunity of an unencumbered past to help shape and accelerate the transformation of the world around us. Every industry, every company across the world, every walk of life is undergoing this transformation."

When Murthy introduced Sikka on stage on Thursday, he joked about the software veteran’s name and how, when translated into Hindi, meant lots of money. (Sikka in Hindi means coin, Vishal means a lot).

A lot of money and customer dollars is literally riding on Sikka.

In early trading on Thursday, Infosys investors added hundreds of crore of rupees to the market cap of Infosys after news of Sikka’s appointment broke. Shares of the company eventually pared early gains and closed down marginally by 0.38% to 3,166.60 on a day the BSE’s benchmark Sensex gained 0.4% to 25,576.21 points.

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Published: 12 Jun 2014, 05:34 PM IST
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