A loss for SAP, a gain for Infosys?

• In an unexpected move, SAP veteran Vishal Sikka leaves for Infosys
• Analysts say challenges ahead but none better to take company forward

ANALYSIS IN early May, Dr Vishal Sikka, a member of SAP’s executive and global managing board and former chief technical officer of the company, announced that he was leaving the German enterprise software maker for "personal reasons" with immediate effect.
 
To add to the surprise, Vishal was appointed the chief executive officer (CEO) and managing director of beleaguered Indian software player Infosys Ltd just about a month later on June 14. He will officially take over from current CEO S.D. Shibulal on Aug 1.
 
There had been a lot of speculation as to why Vishal left SAP so suddenly. It didn’t help that the press release announcing his departure had that dubious public relations line saying he had left for "personal reasons," which so often means an executive is leaving under a cloud.

It is no surprise then that media outlets have been speculating on the actual reasons for his departure. Some have implied that he left after being passed over for a promotion to a co-CEO role, or that it was the result of internal bickering within the corridors of power in SAP’s Waldorf campus.
 
A particular Business Insider article even made bold claims and suggested that Vishal (pic), who was very ‘Americanised’ in his culture and thinking, had clashed with the traditionalist European management camp within SAP.

Whatever the reasons, I believe there are enough partial facts to go around and the truth is somewhere in between. What’s clear is that the move happened very suddenly and was not a planned transition envisioned by SAP’s senior leadership.
 
“This situation was totally unexpected. It happened very, very quickly. Basically, the announcement came that ‘Vishal's no longer working here,’ IT portal TechTarget quoted Forrester Research analyst Paul Hamerman as saying.
 
“It may be part of some kind of internal power struggle, or it could be something to do with the products, although I don't see any evidence of issues with the products that would precipitate this kind of change,” Hamerman said.
 
SAP elevated Bernd Leukert to replace Vishal at the supervisory board. Leukert, a seasoned executive with an extensive apps background, is expected to spearhead the company’s move to make cloud apps the centrepiece of its HANA (High-performance Analytics Appliance) platform.
 
Infosys’ decline
 
Infosys was one of the biggest and brightest IT stars to come out of India, having been formed in 1981 by a group of Indian IT executives, notably N.R Narayana Murthy (pic), its current executive chairman and former CEO.
 
It was the perfect illustration of how far an Indian company could exploit the IT software consultancy and business process outsourcing (BPO) boom from the 1990s to the early 2000s, However, Infosys has over the years slipped behind its competitors, notably Tata Consultancy Services and Wipro Technologies.
 
According to the Wall Street Journal, Infosys has on the one hand struggled to gain a foothold in high-margin consultancy services aimed at boosting its revenue, while losing market share to lower-cost players – Tata and another rising competitor, Cognizant Technology Solutions – in low-end back-office contract work.
 
In its bid to reverse its fortune, the company’s board recalled Narayana, dubbed the father of Indian outsourcing, out of retirement in June last year to take over the CEO reins. The 67-year-old cofounder immediately slashed costs by reducing its sales force and programmers based abroad, and sought to control wages to boost margins, noted The Journal.
 
But the move proved costly as Infosys quickly experienced an exodus of top executives, with up to 11 leaving, noted a Reuters report.
 
The news agency pointed out that the annualised rate of attrition at Infosys – the number of staff leaving or retiring – stood at a record 18.7% at end-March, 2.4 percentage points higher than a year earlier, which it said was close to a fifth of its workforce of more than 160,000.
 
The article further suggested that Narayana's strategies were clumsily executed and marred by restructuring that triggered uncertainty, all of which dented Infosys’ market share and dimmed its status as the employer of choice for young IT workers. This intensified investor pressure for a change of guard.
 
The Journal added: “With sales failing to rise in step with wider margins, some analysts warned that Infosys' strategy under [Narayana] Murthy might not be sustainable [and] Infosys itself expects to underperform competitors again this year.”
 
Tough road ahead
 
Industry pundits and analysts mostly agree that Vishal's selection as the next Infosys chief is a good move but pointed out that the challenges awaiting him at the Bangalore-based company will be significant.

A computer scientist by training and a Stanford University PhD alumnus, Vishal is highly respected in Sillicon Valley and is seen as an affable personality in the tech world.  
 
But an article by Indian-based business portal FirstBiz quoted Sudin Apte, research director of Offshore Insights, as saying that while the 47-year-old Indian-born engineer is a well-respected executive and the first CEO that is not a cofounder of Infosys, he lacks the necessary experience to run the company.
 
“[Vishal] Sikka does not have first-hand experience managing a company of the magnitude of Infosys. [The fact is] that rarely do US$8 billion companies appoint CEOs who have no CEO experience whatsoever, except perhaps with startups,” the article noted.
 
Sudin noted that while Vishal had excellent connections with leading global companies thanks to his SAP experience, he may not have first-hand experience managing half of the work that constitutes Infosys' business – mundane IT services, which are still bread and butter for the Bangalore-based company.”
 
The report also quoted Gartner’s country manager Partha Iyengar as saying that Vishal will have to move very quickly to first calm the three key stakeholders: Employees, customers and investors, in that order, and that he can’t afford any more resource departures at senior levels.
 
"The medium-term strategy will have to be fairly close to the knitting of the IT services industry,” Partha argued. "Anything else would create a level of confusion and uncertainty again.”
 
Having spent some time earlier this year with top SAP executives at the launch of its Global Innovation Centre in Potsdam, and in a subsequent trip to its Waldorf headquarters speaking to some other executives, I generally agree with what these analysts have said.
 
Notwithstanding this mountain to climb, Vishal's appointment must be viewed as a long-term strategy rather than a short-term one, I believe.
 
He could be the best man to lead Infosys out of its doldrums because of four qualities that work in his favour: His innovation-mindedness, experience in bringing real technological breakthroughs at SAP, a global outlook and experience in IT – all of which bolstered by his technical chops and vision.
 
Infosys is at an inflection point and needs a person like Vishal to make bold changes to its direction, and to move away from low-end BPO and outsourcing to high-value, intellectual property-driven software creations powered by cloud computing and big data analytics.
 
However to do so effectively, he would need to keep his best resources and quickly stabilise the ship by sorting out human resource challenges, including low morale and pay parity with competing companies.
 
He would need to firmly articulate a clear vision for the company, including a proper strategic technology and product roadmap for Infosys going forward, and to inspire the remaining Infosys workers that change will come quickly. He then needs to use this vision to attract new talent to come his way.
 
To aid him in achieving this, he would need then to get the best out of his lieutenants, and will thus need to build a great leadership team around him. His experience at SAP will stand him in good stead here.
 
Lastly, he will also need to work alongside Narayana, who will step down as executive chairman and be elevated to chairman emeritus role. Vishal will need to exert his influence to bring his vision to fruition, while Narayana would need to let Vishal run his company as he sees fit.
 
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