Thursday, July 03, 2014

Vishal Sikka's Appointment as Infosys CEO

My article in the DNA on Vishal Sikka's appointment as CEO of Infosys was published on June 25, 2014.

This is the full text of the article:

Vishal Sikka's appointment as CEO of Infosys was by far the biggest news event for the Indian technology sector in some time. Sikka was most recently the Chief Technology Officer at the German software giant SAP, where he led the development of HANA - an in-memory analytics appliance that has proven, since its launch in 2010, to be the biggest challenger to Oracle's venerable flagship product, the Oracle Database. With the launch of Oracle Exalytics in 2012 and Oracle Database In-Memory this month, the final chapter and word on that battle between SAP and Oracle remains to be written. Vishal will watch that battle from the sidelines.

By all accounts, Vishal Sikka is an extraordinary person, and Infosys has made what could well be the turning point for the iconic Indian software services company. If well executed, five years from now people will refer to this event as the one that catapulted Infosys into a different league altogether. However, there are several open questions, challenges, as well as opportunities that confront Infosys the company, Infoscians and shareholders, that Sikka will need to resolve.

First off, is Sikka a "trophy CEO?" There will be more than one voice heard whispering that Sikka's appointment is more of a publicity gimmick meant to save face for its iconic co-founder, Narayan Murthy, who has been unable to right the floundering ship of the software services giant. Infosys has seen a steady stream of top-level attrition for some time, which had only accelerated after Murthy's return. The presence of his son Rohan Murthy was seen to grate on several senior executives, and also did not go down too well with corporate governance experts. Infosys had also lagged behind its peers in earnings growth. The hiring of a high-profile executive like Sikka has certainly restored much of the lost sheen for Infosys. To sustain that lustre, however, he will need to get some quick wins under his belt.

The single biggest question on most people's minds is how well will the new CEO adapt to the challenge of running a services organisation. This is assuming that he sees Infosys' long term future in this area of services. Other key issues include reconciling the "people versus products" dilemma. Infosys lives and grows on the back of its ability to hire more people, place them on billable projects that are offshored, and then to keep its salary expenses low - i.e. a volume business with wafer thin margins that are constantly under pressure. This is different from the hiring philosophy adopted by leading software companies and startups around the world - which is to hire the best, from the best colleges, and provide them with a challenging and yet flexible work environment. It should be clear that a single company cannot have two diametrically opposite work cultures for any extended length of time. This, of course assumes, that Sikka sees a future in Infosys beyond labor cost-arbitraged services. Infosys' CEO, in an interview to the New York Times in 2005, had stated that he did not see the company as aspiring beyond that narrow focus. Whether Sikka subscribes to that view or not is a different question.

In diversifying, it can be argued that IBM could serve as a model. It has developed excellence in the three areas of hardware, software, and services. But Infosys has neither a presence in hardware - and it is hard to imagine it getting into the hardware business for several reasons - nor does it have a particularly strong software products line of business. There is Finacle, but that too has not been performing too well. Sikka may see himself as the ideal person to incubate several successful products within Infosys. But there are several challenges here.

Firstly, there is no company, with the arguable exception of IBM, that has achieved excellence in both services and products. Not Microsoft, not Oracle, not SAP. Sikka will have to decide where he needs to focus on. Stabilize the services business and develop niche but world-class products that are augmented by services, or build a small but strong products portfolio as a separate business that is hived off from the parent company - de-facto if not in reality. One cannot hunt with the hound and run with the hare. If he decides to focus on nurturing a products line of business, he leaves the company vulnerable to cut-throat competition on one hand and the exit of talented people looking for greener pastures on the other hand.

Secondly, if Infosys under Sikka does get into products, then it will need to decide what products it builds. He cannot expect to build yet another database, or yet another operating system, or even yet another enterprise application and hope for stellar results. To use a much-used phrase, he will need to creatively disrupt the market. Here again, Sikka's pedigree points to one area - information and analytics. This is a hot area of innovation which finds itself at the intersection of multiple technology trends - cloud, in-memory computing, predictive analytics and data mining, unstructured data, social media, data visualizations, spatial analytics and location intelligence, and of course, the mother of all buzzwords - big data. A huge opportunity awaits at the intersection of analytics, the cloud, and specialized solutions. Should Infosys choose to walk down this path, the probability of success is more than fair given Sikka's background. His name will alone attract the best of talent from across the technology world. Also remember, the adoption of technology in India, despite its close to one billion mobile subscriber base, is still abysmally low. There is a crying need for innovative technology solutions that can be adopted widely and replicated across the country. The several new cities planned by the government itself presents Sikka and Infosys, and of course many other companies, with a staggering opportunity.

Thirdly, the new CEO will have the benefit of an indulgent investor community, but not for long. Given the high hopes that everyone has from him, Sikka's honeymoon period with Dalal Street may last a couple of quarters, or perhaps even a year, but not much more. The clock is ticking. The world of technology, the world over, is waiting and watching.

(The opinions expressed in this article are the author's own, and do not necessarily reflect the views of dna)