Five things Vishal Sikka must not lose sight of at Infosys

His top priority will be to stem the high attrition in the company across all levels

Commenting on Vishal Sikka’s appointment as the new CEO of Infosys, K V Kamath, lead independent director, said a transformative leader is needed for the company. In addition to being the first non-founder CEO, Sikka will also be the first CEO to be based out of California. Though he did not say much in the press conference about how he is going to bring about a transformation in the company, Sikka got his priorities right when he said that restoring sense of confidence in the staff will be on top of his agenda.

Analysts point to other areas that would need immediate attention from the new chief.  

1.       The top priority for the new CEO will be to reduce the high attrition in the company across all levels. The company has been witnessing record level of attrition, with a new high of 18.7 per cent being touched in the March 2014 quarter. Though the company has been denying any impact of these attritions on its performance, broking firms Ambit and UBS  have cited attrition as one of the main reason for the company’s poor performance.

2.       Sikka will have to get the business mix right. Infosys’ business mix has been a cause of concern for analysts for sometimes now. Frequent change of guard has resulted in the company missing out on opportunities. Infosys in various analyst meets and conferences has highlighted that it has trouble jump-starting growth in its base segment. Diviya Nagarajan of UBS says that the next wave of growth for large Indian IT vendors will be led by infrastructure service and business process outsourcing. Infosys has less that 15 per cent of its revenue coming from these segments, as against 25-35 per cent for TCS and HCL Tech. UBS believes that the slow growing application business of Infosys which contributes 85 per cent of the revenue will be a drag. Sikka’s international exposure will come in handy in picking the right mix for the company.

3.       Falling operating margins will need a course correction under Sikka. Infosys and other software companies have been saying that there is no pricing pressure. However, operating margins of the company has been steadily declining. Infosys’ operating margin has fallen by 450 basis points over a period of 13 quarters.

4.       Sikka will need to stabilise, increase and reduce volatility in its topline. Broking firm Jefferies in its report on Infosys has pointed out that the company is at a stage where most of its financial matrix are at their worst. Sikka will have to increase Infosys’ growth rate at least above Nasscom’s average growth as the first step and then climb the rung to meet growth rates of TCS.

5.       The new CEO has his job cut out to restore investor confidence. Weaker financials, lack of clarity in terms of vision and direction and most importantly their own staff leaving the company has impacted investor confidence in the company. Analysts have been loyal to the company on hopes of a recovery, especially when Narayana Murthy took the reins. Only three out of 63 analysts have a sell rating on the company. Sikka will have bolster and build upon this strong backing from the investor community.