Nilekani: A Complex Leadership Transition is in the Cards

Q. When did you start thinking about growing the next generation leaders?
A. Let me just give you my point of view — what is the challenge that we have. Infosys has been growing rapidly. [In the] last one year and this year it has slowed down but there has been huge fundamental growth. It’s gone up from $500 million in 2001 to $5 billion. So clearly, just to manage that scale, complexity and sophistication, you need leaders. The second thing is that an entrepreneur-led firm has to very carefully evolve as the role of the entrepreneur recedes and a new generation comes up. Often entrepreneur-led firms don’t get it right. Because the entrepreneurs have been there for a long time and they have been very hands-on. Then something happens and there is no leadership. We are very conscious that we want to build a company for [the] long term.

The idea is not to build a company for ourselves but to build a company for a long term. It must have multi-generational longevity and therefore, having a deep bench of leaders and preparing this company for the eventual day when all of us [the founders] will not be here is a very important step for the company. The other challenge is that we have to do [that] while we are still here. So we have to add value and at the same time we have to give space for them [the next generation of leaders] to develop. If we are adding value we have to do it in a way that they are also able to grow. So it is a very tricky thing to do.

Part of it is happening by natural retirement. [N.S.] Raghavan retired and now [chairman of the board, chief mentor, Infosys, N.R. Narayana] Murthy will also retire. Even I am not involved in day-to-day operations, Kris [S. Gopalakrishnan, CEO and MD] is running it but I am involved with customers, strategy, brand building and so on. Increasingly, the number of founders itself is coming down and secondly, we are saying that we need to start empowering the next stage of leaders. Which is why we have created the EC [Executive Council] — they are more and more taking on the responsibility of the company. So we are slowly transitioning and building them up. That’s a very important part.

Our retirement age is 60. Murthy will be 63 this year. [The] rest of us are in our mid-50s. I will be 54 in June. So over the [next] six-seven years all of [us] will have to retire. We are very clear with that rule and we want to make sure that people don’t mess with that. We are going to enforce that very strictly. Or if they become CEO they can continue for a few more years. So in the next decade there will be a complete transition of leadership in this company.

Also what happens when you have a founding team which is as active as we have been? A lot of it has to do with the bonding of the founding team [as] we have been through thick and thin. [Over] years of struggle, they have learnt to accommodate, they have learnt to make sacrifices, learnt to adjust, learnt to put the company before self. So we have it in our gene pool. But as you move forward you will have people who are not part of the founding team so we have to make sure that the culture that we create of putting the company before ourselves, of having team spirit and adjusting, should continue. Otherwise things would not be the same.

It’s a very complex leadership transition that we are going to face over the next decade.

Q. Where are you with respect with this transition?
A. The process of the founders going through this process of transition is happening. Murthy stepped out and I came in as CEO, now Murthy is retiring so that is very much happening. It’s happening with the next generation — with the forming of the EC. They are taking on more and more important roles. They are taking on corporate roles instead of taking divisional roles. They have been given a companywide view instead of getting a division view, so that builds team spirit. Then the overall leadership development that is going on through ILI [Infosys Leadership Institute] and the mentoring process, it’s all related to this. How do we create a deep bench of leaders and how do we transition the founders out over the next decade? How do we make sure that we retain the culture and DNA of this corporation?

Q. What was the trigger for this? Somewhere around 2007 this process started gathering steam.
A. In fact, the ILI was set up in 2001. The leadership change with Kris coming in was one trigger. Second, as we looked down the next 10 years, we started projecting these issues. Then the scale of the company became larger so we needed more leaders. And we realised that more empowerment and more decentralisation was critical to long-term growth. All these decisions played a role.

Q. So now there are five next-generation leaders that you have identified. The CFO plus the four Independent Business Unit (IBU) heads on the EC. Will there be more people?
A. Oh, absolutely. There are certain criteria for being on the EC, so as the company grows, more people will qualify for that.

Q. Do you have a number in mind?
A. It shouldn’t be unwieldy…

Q. So will it be 10?
A. I don’t want to comment, whatever Kris has said, is the number.

Q. What happened to the management council (MC) which existed prior to 2007?
A. The management council devolved down to the IBUs but the corporate body is the EC. The MC was much bigger. The EC is smaller because we wanted to have a smaller set of leaders who we could genuinely empower. Who we could start delegating, genuinely empower, give them a corporate view and give them exposure to different parts of the business.

Q. But why do you need a decade to achieve all this?
A. They need to get experience; they need to take on different functions.

Q. You were all inexperienced when you started doing some of these roles…
A. Do you think there should be less time for them? I am retiring in six years; it is not that long-term.

Q. Will we see one of them in the CEO/COO role by then?
A. I don’t want to over-speculate on this. All I’m saying is that over the next decade the number of founders in the management team will thin down quite a bit. Therefore, we have to have a smooth transition to the next generation of leaders. We are preparing them for the future.

Q. Will you bring in outsiders into the senior leadership roles?
A. Yes, if we do an acquisition we may get a senior leader from that. Our subsidiaries have senior leaders who are locals.

Q. You were talking about camaraderie and that the founding teams had a certain chemistry. You can’t manufacture that, but how do you create that as mentors?
A. We have shown that by leadership transition. If the company required us to go live abroad for a few years we have done that. If it meant coming back to India we have done that.

Q. What is the mentoring that you do?
A. I have eight formal mentees who are drawn from the tier 1 leaders. I meet them at least once a quarter. For each one of them I have developed a development plan, what are their strengths and weaknesses and where they want to go in life. What are their gaps and what they need to address. Along with ILI we have identified the areas on which they need to work.

For example, one of my mentees is running a line of business and he is very domain knowledge intensive so he had to know selling to senior executives of the client — not to the IT guy, but to the business guy. When the business guy met him, he expected our guy to be an expert in his industry, which was a challenge because there were so many different industries that he was servicing. I told him how I keep on top of so many things, what I read, what kind of mental models I have. I gave him a plan on how he should meet customers, how he should structure conversations, what he should read.

The idea is that our external board must also become familiar with our next-level leadership team. So they make presentations to the board and also have one-on-ones when offsite meetings happen with the team. Both get the comfort and bring out the issues. These meetings are usually with the top 20 Tier – 1 leaders.

Q. Do you join the EC meetings/call?
A. No, I don’t join the fortnightly calls. It is Kris’s baby. I only take part in the strategic meetings and when the EC meets face-to-face on campus.

Q. When you were the CEO what was your style of operating?
A. Well, definitely there is a lot more of formalisation. We were much smaller at that time. We didn’t have some of these structures, like the EC. Relative to what we are doing today, the involvement of the senior leadership wasn’t as high as it is today. It was being run mostly by the internal board which was the most active leadership group. The big difference today is that the internal board is looking at more strategic governance issues and the running of the company has devolved to the EC and the members, which is a very significant change.

Q. In what sense?
A. They are deciding what to do, how to do it. They take decisions on investment plans, which new countries to go to, which new countries to launch.

Q. The founders have an emotional connect to the company which no one else can have in some sense. That affects the running of the company. How do you make sure that these younger leaders retain that?
A. There is no automatic formula. You have to create a culture where everyone appreciates the value of that. You commend them when they do something right, you criticize when they do something wrong. You mentor them.

If I am in London, B.G. [Srinivas, Senior VP – Manufacturing] and I will visit clients together, we have lunch or dinner. That acts as a huge osmosis of how I think. Last time I went to New Jersey, I went to Ashok’s [Vemuri, Senior VP – Banking and Capital Markets and Strategic Global Sourcing] house and met his wife and kids. All that is part of passing on what we believe in.

Q. In your opinion, which are some of the good companies that have been able to transition to the next level of leaders well?
A. I think Microsoft is a good example, where Bill [Gates] handed over the mantle to Steve Ballmer and publicly said that he wanted to spend more time with the [The Bill & Melinda Gates] Foundation. Bill Gates is a great example. Cisco is another good example where the founders are not really involved — it is run by Mr. [John T.] Chambers and others. These are difficult things, often many companies have stumbled in this process. You have to be very careful with this.

Q. When will the board start looking at these leaders actively as the next successors? Right now it is more internal?
A. It is not that something has to happen tomorrow. The board is fully exposed to the next level of leaders. They are dealing with them; they are doing assignments with them. They see them at close quarters. About 20 of them. It is important to convey that there is a depth of management, it is not only one or two people. The company has the leadership bench to carry out in any eventuality.

Q. In some sense that was the biggest strength as well as the weakness of the company. That all we saw were the founders in running the company?
A. That argument has become muffled now [with] the formation of the EC and they are seeing the new leaders. Today Ashok Vemuri is very visible in the US, he is the face of Infosys in the US, or Subhash [Dhar, Senior VP – Communications Media and Entertainment, Head – Sales and Marketing] is the sales head and he is meeting a lot of customers. I don’t appear on TV during quarterly results, it is these leaders.

Q. What will be the challenges when these leaders take over?
A. It is very, very difficult to predict what will happen. Who could have predicted that this global economic crisis is going to happen? I think the challenge is that you want to deeply embed the DNA of the company in the successive leaders. At the same time, if you put in too many checks and balances to incorporate [the] DNA, you will end up with a huge bureaucracy. It’s a very tricky issue — the balance between preserving the DNA and culture and being sufficiently entrepreneurial and responsive. That’s where it is.

Q. What about being able to fill in the shoes of the iconic founders? There will be comparisons…
A. We will have to deal with that, you are right there is a challenge; Jeff Immelt [General Electric CEO] had that challenge when Jack Welch retired. The times are more difficult and complex. All we can do is keep on grooming leaders for that eventuality.

Q. What is Mohandas Pai’s role in all this?
A. You can think of Mohandas Pai [Director and Head – HR] and Srinath Batni [Director and Head – Delivery Excellence] as the first generation of leaders who went past the founders. They are like founders, there is no difference with them, they work together with us and sit on the board alongside [us]. The second generation of leaders is the EC beyond the founders.

Q. The funnel will get narrower. In some sense this is a race between the next leaders. It isn’t like the founders who will stay on even if they are not made CEOs?
A. That’s part of our culture of accommodation, we hope it will continue but we can’t guarantee it.

Q. When the next non-founder CEO/COO takes over will be the real test of the process?
A. Yes…

Q. How will the business fundamentals change?
A. One thing I’ve learnt is that no one knows. Anyone who claims that he knows this, is talking through his hat. If you had asked me three-four years ago when we were growing at 30-40 percent that we would grow at 11 percent and that the next year we will de-grow, I’d [have] said, ‘what are you talking about?’

We can only talk about broad trends. There are some huge structural changes taking place in the company. There are some episodic changes happening because of the global crisis. There are structural changes linked [to] and underlying this. For example, HP buying EDS or Oracle buys Sun, which changes the industry fundamentally. Then there is the whole arrival of cloud computing where you can get software as a service on the Net you don’t have to invest in hardware. There is a consulting model which we do, there is the product model which Oracle does, there is a utility computing model which Google is doing, and there is the outsourcing model which IBM does. There are different models. The question is, will all these models exist in the future or will some models become obsolete? For example, if outsourcing becomes [the] dominant approach then every company will outsource and then there is no role for a consulting company. The trick is to understand how these models are expanding or shrinking your space for your business.

Q. Where will you transition to?
A. We are clearly in the consulting space, which is independent business transformation for enterprise. The question we ask ourselves is that if the space is going to get squeezed in the future.

Q. What is the indication?
A. It is not yet clear… we have discussions on that in the company next month; we have to see whether we need to get into the other spaces. Which is another reason why we are looking at new business models like non-linear pricing, software as a service — [it] is all to essentially come up with models that are taking us to the future.

Q. Do you think that pace is going to accelerate?
A. It should and that is clearly the stated direction.

Q. So you will have to step out of the comfort zone?
A. We have always done that. We have invested in consulting and have hundreds of consultants. This transition from $500 million in 2002 to $5 billion in 2009 didn’t happen by accident, it happened because we made those transitions.

Q. You are said to be closest to Accenture in terms of who you want to be. We heard that they gave opened a low-cost business unit in Bangalore. Is that a threat?
A. We have been saying for years that the ultimate business model is [one] which combines the global business transformation with the ultimate low-cost global delivery model. Everybody is going towards that goal through different starting points. We are making investments in front end and they are growing the back end. We have always made the point that our business model is stronger because there is only business organisation. We keep getting more and more share of business by taking away share from the global players.

Q. Then why don’t you acquire that capability like IBM did with PwC?
A. In services it is not that simple. Most service acquisitions have not been too good. It may be solved with small acquisitions.

Q. The founding team is very conservative with cash?
A. It looks like a great philosophy today…

Q. But the coming team will want to change that?
A. But all the models and systems that we created — how much cash to give as dividend, how much cash we need on the Balance Sheet — all those models will be there. The external board will be there, there will be enough checks and balances. That is the challenge. You need these checks and balances but not make it very constrictive that people cannot function.

“The idea is not to build a company for ourselves but to build a company for a long term. It must have multi-generational longevity and therefore, having a deep bench of leaders and preparing this company for the eventual day when all of us [the founders] will not be here is a very important step for the company. The other challenge is that we have to do [that] while we are still here.”

“Our retirement age is 60. Murthy will be 63 this year. [The] rest of us are in our mid-50s. I will be 54 in June. So over the [next] six-seven years all of [us] will have to retire. We are very clear with that rule and we want to make sure that people don’t mess with that.”

“If I am in London, B.G. [Srinivas, Senior VP – Manufacturing] and I will visit clients together, we have lunch or dinner. That acts as a huge osmosis of how I think. Last time I went to New Jersey, I went to Ashok’s [Vemuri, Senior VP – Banking and Capital Markets and Strategic Global Sourcing] house and met his wife and kids. All that is part of passing on what we believe in.”

“It’s a very tricky issue — the balance between preserving the DNA and culture and being sufficiently entrepreneurial and responsive. That’s where it is.