The mood at the Infosys annual general meeting on June 15, 2013, was jubilatory. Long-time shareholders were celebrating what was being hailed as the ‘second coming’: The information technology (IT) giant’s co-founder NR Narayana Murthy, after having relinquished executive duties for nearly a decade, was returning as executive chairman. But amid the praise and adulation, one shareholder stood out from the crowd. In a room packed with Murthy’s supporters, software engineer and former Infosys employee Neel (he did not want to disclose his second name) raised concerns about the company’s stodgy human resource management policies. He used a necktie to get his point across: “It is a very outdated concept and your employees hate it to the core. Poor employees, when they come to work, have to fight with the security people if they are not seen wearing one. I believe that your employees are getting charged Rs 200 [as a fine for not wearing a necktie]?”
There was a time when the Bengaluru company, with its efficient outsourcing model, seemed unbeatable. Its annual revenues ballooned from $1 billion in 2004 to $5 billion in just six years. But after outperforming the IT industry growth rate for many years, it tripped. Today, market leader Tata Consultancy Services (TCS) leads the Indian IT pack: For FY15, it posted a net profit of Rs 21,696 crore compared to Rs 12,329 crore reported by Infosys.
To regain its past glory, Infosys has to innovate and evolve as a technology services provider that can meet the needs of a growing army of companies which is shifting operations to the cloud. In cloud computing, services like servers, storage and applications are delivered to a company through the internet. But the Indian IT industry, of which 70 percent constitutes software exports, is centred on businesses such as application development and maintenance, verification of software, business process outsourcing (BPO) and infrastructure management. The rise of cloud computing will upend this traditional structure, and top-tier IT firms such as TCS, Wipro, HCL Technologies and Infosys have already started offering cloud computing services.
When change comes, Infosys will have to be ready, and that is where Sikka’s vision comes into play.
Thinking big, thinking new
The CEO is relying on a two-pronged path of innovation and acquisitions. Although 90 percent of the IT company’s existing services still follows the traditional model, a 2015 UBS Securities Asia report notes that Sikka calls its ‘yesterday’s business model’. Not everyone is cheering him on. Former Infosys chief financial officer and board member V Balakrishnan is critical of Sikka’s plan. “When he came in, he only spoke about products, new technology and artificial intelligence. That’s his comfort zone and hence he’s not being able to connect with the legacy people at Infosys who understand the traditional businesses,” says Balakrishnan, whose career at Infosys spanned over two decades.
Criticism from the old guard can be expected. Sid Pai, a Bengaluru-based analyst in the IT-BPO space, says: “It is extremely difficult for any firm to jettison its cash cows and to train its focus on making technology bets instead. In essence, Infosys will have to become a venture capitalist of sorts—and this is far from its current core competence.” But he’s quick to add, “That’s not to say it can’t be done, just that the going will be very tough.”
Sikka has already started putting his plan into action. Infosys has made two acquisitions totalling $320 million: In February this year, it acquired Israel-based software vendor Panaya for $200 million, and two months later it bought San Francisco-headquartered Skava for $120 million. While Panaya is a provider of cloud-based services for major global players such as Apple, Johnson & Johnson, Coca-Cola and General Electric, Skava is a digital commerce platform company that develops and hosts mobile websites and apps. With the acquisition of Panaya, Infosys has a ready clientele of some of the top-performing companies in the world.
At the start of the year, Sikka increased the capital of the company’s Innovation Fund to $500 million from $100 million. The fund will invest in startups in the fields of automation, machine learning, big data, and artificial intelligence. In April 2015, it invested $2 million in Airviz, a US-based clean-air technology company. This investment in a startup is yet another first for Infosys under Sikka. Of the $500 million Innovation Fund, it has set aside $250 million for an ‘Innovate in India Fund’ that will be dedicated to investments in Indian startups.
Sikka is infusing the rank and file with the rather radical idea that a traditional IT company can be a leader in innovation. His past lends weight to his vision. He has a reputation of being an innovator in the global IT industry given his strong background in the software products space. He has a PhD in computer science from Stanford University in California, and was one of the key people to have developed Hana, SAP’s flagship product, which helps companies analyse large volumes of data in real time.
Sikka is in damage control mode, and is looking to build stronger ties between the company and its over-1.76-lakh workforce. On January 9, 2015, in a quarterly earnings call with analysts, Sikka said, “We have taken several steps to increase engagement with our employees in our mission to make Infosys a great place to work. We have set up dedicated teams that are working on and have already implemented several changes to simplify policies while stressing accountability and values.”
Some of the changes that he spoke of included allowing employees to bring their own devices such as laptops and tablets to office, flexible work-from-home structures, increased team engagement budgets and easier transfer policies across development centres.
Sikka told analysts that in the July to September quarter last fiscal, Infosys gave a hundred percent bonus payout and a special holiday bonus to high-performing employees. In January this year, 3,000 top performing employees were given an iPhone 6 (its launch price was over Rs 52,000), a grand gesture, the kind the company is not known to have made in the past.
A recent report by UBS notes that these initiatives have had a “noticeable positive impact on employee morale, as indicated by the drop in attrition for the company”. The report goes on to note that, “In addition to changing the behaviour and mindset of over 170,000 employees, the company also faces the task of motivating those working for ‘yesterday’s business’. We see significant effort being devoted to addressing this issue if the company wants to sustain the positive momentum in employee attrition and morale.”
Neel believes that Infosys under Sikka is communicating better with its employees, but, “when I speak to my current friends at Infosys, they say it is mostly the low hanging fruits and superficial changes such as dress code policy”.
The company’s salary hikes have been on the lower side. This year, Infosys gave its employees in India an average hike of 6.5 percent, while top performers got an increment of 9 percent. For its workforce abroad (onsite), the salary increase was 2 percent. This is lower than that of its competitors. Wipro gave a salary increase of 7 percent to its employees in India and 2 percent in overseas markets. TCS’s average was 8 percent in India and 2-4 percent abroad.
At the same time, recruitment firms say Infosys’s drive to revamp its HR policy seems to be one of the reasons why the company reported a healthy 51.47 percent jump in job applications under Sikka for the year ending March 31, 2015, when compared to the previous year. Infosys received 13.8 lakh job applications in FY15.
In May last year, Subramanian of InGovern had to deal with multiple institutional investor concerns (both foreign and domestic investors) over the issue of who would head the company. By then many Infosys veterans who were tipped to become the first non-co-founder CEO and MD, had left the IT firm. This had made investors all the more anxious.
One year on and Subramanian says, “Sikka has definitely stabilised the ship [Infosys] that was caught in a storm and buffeted on multiple fronts. He [Sikka] took charge and has delivered up to the diverse expectations. He has also won the confidence of stakeholders like customers, investors and employees.”
The company’s future will depend on whether Sikka can deliver on the promises he’s made. But whatever the outcome, his reign will be more than a just footnote in Infosys’s history.
(This story appears in the 07 August, 2015 issue of Forbes India. To visit our Archives, click here.)