Infosys Ltd. appointed the fi rst outsider to head the company a few weeks ago, in the hope that the new bloodline would infuse fresh life at bolstering its struggle to keep relavent and grow in today’s competitive climes, even as India’s second largest IT icon attempts to devolve and evolve from its origins as a low-cost process outsourcing company into a global technology brand. Infosys, India’s second-largest soft ware exporter today, said Vishal Sikka, a member of the top echelon of German soft ware giant SAP AG, will take over soon as the company’s Managing Director and CEO.
While India and US listed Infosys led the Indian outsourcing revolution for some decades now, it has of late failed to readjust to the radical changes in the Information Technology Services industry, according to experts and analysts. Rising wages of programmers in India, stiff er competition and slowing demand has cut into India’s low-cost advantage, forcing Infosys to attempt the transition from laborintensive outsourcing work to value-added IT services. Th e company harbours the hope that Stanford-educated Vishal Sikka, known and acknowledged for accelerating the launch of sophisticated soft ware platforms at SAP, can take Infosys on the path of once again being an industry trendsetter. “Th is is a rare opportunity to take an iconic company that shaped the industry in India, and help shape the industry one more time,” said Sikka during a press conference in India’s technology hub of Bangalore.
Infosys has been straddling the dual roles of being both a low-cost outsourcing company and a high-end consultant for the past few years, even as it lost basic back-offi ce contract work to lower-price competitors such as Tata Consultancy Services Ltd., and Cognizant Technology Solutions Corp., as its attempt to enter the high-margin consulting business failed to take off . Started in the 1980s, Infosys, like many of India’s early IT services companies, helped test and demonstrate the value of the outsourcing business model during the response to the so-called Y2K bug. Th ousands of India’s inexpensive, though highly expert computer programmers spread out world-wide in a global attempt to squash out the dreaded Y2K bug.
Th e rapid ascent of Infosys into a billiondollar enterprise with one of India’s fi rst listings in the US, became a symbol of India’s untapped potential, showcasing how Indians could compete internationally in a bleeding edge hi-tech fi eld. Th e rise of Infosys also stands scrutiny as a new kind of Indian success story: a professionally run startup in an Indian economy long dominated by state-run and family-run enterprises. Infosys was one of the fi rst companies to bring in a bit of the Silicon Valley into India. Its bangalore campus sprawls across 80 plus acres, and stands out architecturally, with nearly 50 buildings, including transit accomodation, swimming pool and basketball court. Employees use bicycles and buggies to move around, and its american-college-campus look-and-feel went on to become the de facto standard for the industry.
Lat year in June, it was evident that something was very amiss when the Board brought back founder N R Narayana Murthy back from retirement, to set the company back on the rails. Narayana Murthy, viewed as one of the doyens of outsourcing, slashed costs by reducing the number of salespeople and programmers stationed abroad, and sought to control wages to boost margins. Profi t improved, but at a price. About one in every fi ve employees left the company looking for more lucrative pastures, even as Infosys cut back on salaries and restricted promotion opportunities. About a baker’s dozen of senior Infosys executives also quit, under Narayana Murthy’s stewardship, as he bit the bullet and shook up the company’s management structure, saying right then that he will seek to fi nd a CEO from outside.
With declining sales failing to rise in step with wider margins, analysts in the industry were of the view that Infosys’s strategy under Murthy might not be sustainable, with Infosys itself expecting to underperform competitors again this year. Th e company doesn’t publish earnings forecasts. But in the fi rst nine months he was in charge, Murthy did manage to cut operating expenses by more than 15%, and widened Infosys’s operating margins by approximately 3 plus percentage points to asbout 25.5%. Meanwhile, current intelligence in the market suggest a forecast of 7% – 9% growth in dollar terms, an indicator of real growth in business, for the fi nancial year that began on April 1 2014. Th e industry average apropos is about 15%. Narayana Murthy now steps down as the Executive Chairman, while Chief Executive SD Shibulal — also an Infosys founder — intends to step down by the end of July, when he will hand over the baton to Sikka. Th e biggest problem for Infosys and other outsourcing companies is that their core business model is increasingly getting outdated.
“Th e services world is in a state of turmoil because Indian industry is pricing itself out of the market,” says Dennis Howlett, a soft ware consultant based out of San Francisco. “Th ere’s a constant revolving door for engineers with a constant price infl ation. It’s unsustainable.” Global consulting and soft ware companies such as IBM (International Business Machines Corp.) and Accenture PLC are falling back on their strengths of proprietary soft ware and innovations that reduce the amount of manpower needed to service contracts. “Soft ware automation is doing the work that people used to do; low-end jobs will be displaced and higher-end workers as well,” said Ravi Venkatesan, an Infosys board member and former Microsoft Corp. executive. “Th e labour arbitrage era is clearly drawing to an end.” Ergo, there aren’t many other options left for Infosys but to try and get into the development of enterprise soft ware products, that can help it stand out in an increasingly competitive industry. But peeping into the past, it is also true that Infosys has struggled to develop products that its customers would want to buy off the shelf. Sikka’s entry into Infosys is based upon the hope that Sikka, who made a name for hi9mself as a soft ware innovator at SAP, will jump-start the process at Infosys, and make the company an industry leader once again, according to Ravi Venkatesan. Vishal Sikka was better than most at getting new products to the market, says one of his former SAP colleagues. “Vishal moved SAP from a years-long product-development cycle to a weeks-long cycle,” says Vijay Vijayasankar, of MongoDB Inc., who used to work under Sikka. Th e main challenge for Sikka will be the resuscitation of the Infosys brand with employees, customers and investors, many of whom feel that the company has lost it’s MoJo. So much for the background, lets now take a peek at Sikka the person … Vishal Sikka impressed NR Narayana Murthy during their very fi rst meeting.
Murthy had asked Sikka to solve a complex mathematical puzzle, something he hadasked numerous others to do as well in the past. Th e former SAP AG board member gave Murthy a solution in minutes, leaving NRN dumbfounded. “I must admit that I had an unfair advantage over all the others as I have built an in-memory database. Mr Murthy recalled asking the same question to generations of Infoscions before me and he also remembered the amount of time it used to take them to answer it,” recalled Sikka when he addressed the press conference called to announce his appointment as the new Infosys CEO. Sikka, who was until May 4 one of the members of the SAP Executive Board and its CTO leading all SAP products and innovations globally, was shortlisted for the Infy CEO position along with three others and was fi nally the one selected. He will continue to be based in California with his family in his new role, and shuttle between Bangalore and California. Born in Madhya Pradesh to Punjabi parents, Sikka, whose mother was a teacher and father a railway engineer, was raised in Vadodara, Gujarat. He was the natural choice for the top post in Infosys not just because of the Board’s bias for a transformational leader, but also for his impeccable academic qualifi cations — a PhD in Computer Science from Stanford University. Aft er passing out of Rosary High School, Sikka studied computer engineering at Maharaja Sayajirao University of Baroda, and completed his MS in Computer Science at Syracuse University. Armed with a PhD in Computer Science from Stanford University, he did a brief stint with Xerox’s research labs. Sikka also founded iBrain, which was later acquired. His second start-up, Bodha.com, was acquired by Peregrine Systems, where he served as VP for Platform Technologies. Sikka joined SAP in 2002, heading their advanced technology group. He was later promoted to Chief Soft ware Architect. In 2007, he was named SAP’s Chief Technology Offi cer. Aft er Leo Apotheker’s resignation from the executive Board in 2010, Sikka was named to a newly reconstituted Board along with co-CEOs Bill McDermott and Jim Hagemann Snabe. He created HANA, the German company’s fl agship data analytics product, which was very well received by customers and is raking in huge revenues for the company. However, his being an American citizen went against him in his climb to the top position at SAP AG. Th e culture of learning at Infosys is one of the reasons, Sikka said, that made him accept the off er to don the mantle of CEO & MD of the company, calling it a once in a lifetime job. Th e other reason, he said, was the once-in-a-lifetime chance of leading an iconic company created by pioneers who provide unique soft ware services and solutions to the world’s best companies. “My No. 1 priority as CEO of Infosys is to learn — learn about our company, every aspect of the business; and to work with fellow Infoscions and clients. I also intend to take some classes at the Infosys University in Mysore,” said Sikka.
In a lighter vein, alluding to his name, Murthy said: “I asked Vishal what Sikka means and he said it means money. Vishal Sikka means big money and I think we need that in Infosys now.”
Th e rapid ascent of Infosys into a billiondollar enterprise with one of India’s fi rst listings in the US, became a symbol of India’s untapped potential, showcasing how Indians could compete internationally in a bleeding edge hi-tech fi eld.