Infosys CEO Exit Leaves Important Questions

Vishal Sikka, CEO of Infosys, resigned on August 18. Although he will stay on as executive vice chairman, I believe his departure as CEO calls the current Infosys strategy into question.

Formerly an SAP executive, Sikka was brought on board as CEO in 2014 – the first outsider to head Infosys. He was tasked with transforming Infosys to a global technology brand focused on innovation. This happened as Indian service providers faced a maturing outsourcing market in the labor arbitrage model and businesses began shifting into digital models. I believe Sikka’s departure leaves important looming questions for the company’s clients, employees, and competitors.

What Does Sikka’s Departure Mean for the Infosys Business Model?

As I blogged earlier this year, Infosys, like other Indian service providers, needed to decide whether it would adopt an arbitrage-first model or a digital-first model as the go-forward vision for the company. It was clear after only a few months as CEO that Sikka was reshaping the company’s strategy to optimize existing services. His leadership enabled Infosys to successfully grow again at industry rates. By 2015, he had laid out a clear path to getting to a digital model and began shifting the company away from slow-growth labor-arbitrage business.

It wasn’t that Sikka was unable to gain traction in this digital-first strategy for the future. But as every company leader knows, there is always resistance to deep change. And the rotation into digital requires a new business model – a huge breadth and depth of change as well as risks. With that strategy, achieving necessary growth rates within investors’ time frames is a challenge; and as I mentioned in my earlier blog, it was questionable whether they would have the patience for the difficult, long-term digital journey.

Infosys’ founder and former chairman N.R. Narayana Murthy returned in June, 2013. As I blogged then, he preferred that Infosys focus on its great strength in the traditional labor arbitrage talent space, where Infosys has been a giant.

It’s clear that Sikka performed well, but he faced a huge hurdle in the company’s culture. It appears that he lost the confidence of some board members and its founders; so, he decided to move on. Sikka’s vision of a digital future has defined Infosys for several years.

This situation will not help Infosys as it seeks to reposition itself in the US, EU, and other export markets, where senior executives are looking for digital leadership to help transform their own companies.

What About Sikka’s Replacement?

Pravin Rao, a 30-year Infosys veteran, has been appointed interim CEO and managing director while the company searches for Sikka’s replacement. It remains to be seen whether the board will promote from within.

Those who disagreed with Sikka’s go-forward vision for Infosys may take some pleasure in his resignation. However, it will be difficult to replace him, and the abrupt departure and public knowledge of a divided board will make it even more difficult. Few strong or promising executives will want to take on the troubles that Sikka faced.

One thing is clear: The next CEO must make peace with the founders and the company culture. If Infosys appoints a strong CEO who can capture and maintain the confidence of the board, employees, founders, and clients, then Sikka’s resignation may prove to have worked in Infosys’ favor since he struggled to maintain the combined confidence these stakeholders. However, finding such a leader is far from certain. And the company must move quickly to avoid lasting damage.

What Does Sikka’s Departure Mean for Infosys Current and Potential Clients?

Will existing clients flee Infosys for their arbitrage-based work? I don’t think so. But at least for the short term, it will cause them to rethink Infosys for vital digital work. It’s no secret that client relationships and delivery execution means everything in a services business. So vision and morale matter. Unfortunately, this change in leadership is happening at a time of dramatic change in the services industry, and a slip in execution could prove disastrous.

The CEO loss will likely create headwinds and internal disruption, making digital-based growth at Infosys even harder It certainly will negatively impact its stock price and short-term growth prospects.

Bottom Line

Infosys needs a strong, steady hand in its new CEO. That individual will need to make bold, decisive moves to position the company for the future.

Infosys is still a great firm, but it needs a strong leader and soon. At the same time, Infosys must keep rotating to a digital model, which will mean diverting investment to digital (including acquiring digital companies) and away from other areas. Without the backing of the employees and approval of the founders and board, this is going to be a hard road.