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Management turmoil at Infosys is particularly ill-timed

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THE quickest way to start a Mexican wave in India is to head to the campus of Infosys, an IT outsourcing firm based in Bangalore, and ask all those who think they should be in charge to raise their hands. On August 18th the company’s chief executive, Vishal Sikka (pictured), resigned unexpectedly. But he still serves as executive vice-chairman. Now a chairman, a co-chairman, the interim chief executive who succeeded Mr Sikka, the board of directors and a retired founder all seem to think they should be running the show. The stalemate risks leaving the firm without a leader just as it had started the urgent work of overhauling its business.

The company’s management crisis is surprising. As one of only a few Indian IT firms that multinational companies trust to build and maintain their computer systems, Infosys has long sought to exude an aura of professionalism bordering on the dull. But clashing egos at the top now make it seem anything but. In 2014 Mr Sikka became the first person outside a cluster of co-founders to become chief executive. This month he quit after months of incessant heckling from the firm’s principal founder, Narayana Murthy. Shares promptly tanked, dropping by 15%.

Mr Murthy has not received much in the way of gratitude for driving out Mr Sikka. Corporate-governance experts decried his method—notably a whispering campaign that suggested, but fell well short of proving, that Mr Sikka had profited from an acquisition Infosys made under his watch. Mr Murthy’s right to complain is also shaky. Though he is admired as a godfather of the tech scene, having pioneered the outsourcing model that has since become a major industry in India, he is a tiny shareholder in Infosys, owning just 0.38% of the company (his relatives own another 3% or so).

The board of directors has made it clear that it sides with Mr Sikka. Soon after his resignation, it denounced Mr Murthy’s “misguided campaign” and pointed to independent audits that found no wrongdoing by the outgoing boss. An enraged Mr Murthy is now said to be seeking support among shareholders—mainly foreign and domestic institutional investors—to evict directors who oppose him.

Mr Murthy’s defenders paint him as a catalyst for change in the mould of activist investors. His critics denounce him as a bully who cannot accept that Infosys is no longer his to run (he returned to the helm once before, in 2013). Either way, his campaign is ill-timed. Whatever Mr Sikka’s flaws—a propensity for grandiose “thought leadership”, a penchant for private jets—he communicated a clear vision of how Infosys must transform its business model. 

On this he convinced nearly everyone: there is an obvious need for Infosys to change. The trick Mr Murthy and his co-founders perfected, of persuading Western firms to replace their expensive local IT staff with Indian engineers earning $5,000 a year, has largely played out.

Shipping Indian engineers to work at customers’ premises in America, the company’s biggest market, may become harder under the presidency of Donald Trump. Even without any new restrictions on immigration into America, growth at India’s outsourcing firms has slowed markedly. More corporate IT spending is going into mobile apps, analytics and other snazzy offerings, a far cry from the routine codedebugging that made Indian firms rich (remember Y2K?).

Much of the drudge work Infosys staff do can increasingly be carried out by machines; Mr Sikka said as much in a recent letter to staff, warning them of a looming “tidal wave of automation” that threatens to engulf the industry. Margins have been dropping in recent quarters. So Mr Sikka had planned to invest in order to develop more innovative services for clients and to use automation to become more productive, offering workers training in machine learning.

Few expect Infosys to reverse efforts to rejig its business. Rivals such as Tata Consultancy Services and Wipro are doing much the same. But if the company’s clients fret about instability among management, Infosys will struggle to retain the legacy mainframe-maintenance contracts it still depends on for most profits. Staff can also jump ship. The sooner all sides agree on who is running Infosys, the better.

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Julio Marchi ©

Publisher / Editor at BS News & Media Services
A free thinker, not labelled as anything, not associated with any party, not part of any group or engaged with any religion... A simple guy tired of the nowadays bullshit who decided to promote more serious debates about what is really happening hoping to bring back intelligence to the superficial and shallow news & headlines that unfortunately took over the existing media scene.
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