Will the power of two fuel revival for Infosys?

It has brought back the old structure of shared responsibility between the CEO and the COO. Is it a recipe for disaster or a model that will spur growth?

Call it a wise move or a calculated gamble, but Bangalore-based information technology major Infosys is set on a new chapter in its history with the adoption of a model that supports two power centres under the chief executive officer (CEO) and the chief operating officer (COO). The CEO-COO model is certainly not new to Infosys - such a structure was in place till two years ago. However, this will be the first time that both officials are going to be men who did not play a role in the company's founding. Additionally, while the CEO is a complete outsider, the COO is a 28-year veteran of Infosys.

Looking at the credentials and expertise of Vishal Sikka, incoming CEO of the company, and UB Pravin Rao, COO, experts and industry leaders believe that this could prove a "deadly combination", provided the two get along.

Kavil Ramachandran, professor of family business and wealth management at the Indian School of Business, compares the CEO-COO model to a doubles game in tennis. "I think by opting for this model, the Infosys committee is making sure it is not taking any undue risk. It is ensuring that there is one person who is aware of the business background to run the day-to-day operations, while the other gets acquainted with the company's value and culture," he says. "However, this is like a doubles game where the understanding between these two players has to be perfect and bereft of ego clashes."

Everyone is looking at how well the two men relate to each other as the new leaders of Infosys. "I think the model that the company has chosen is good. It is the implementation that we are worried about," says Sudin Apte, CEO and research director, Offshore Insights. "Sikka seems a CEO for the long term, someone who is not yet ready to take on the responsibility of day-to-day operations. Hence, a strong COO will be running the show. My concern is that those who formulated the model are all leaving. This is a high-stake model."

Though the CEO-COO model has delivered for Infosys in the past, the company is currently faced with some peculiar issues, such as shrinking market share and declining profitability. For the two top executives, the task, therefore, is going to be a balancing act between transforming Infosys from an IT services company into a strategy-led technology player and focusing on delivering quarter-on-quarter results. Even as Sikka, who will formally take over from incumbent CEO S D Shibulal on August 1, is widely accepted as an ace technocrat, several observers have concerns about the lack of exposure he has in IT services.

This is what is creating apprehension in the minds of investors and client. "Sikka is a good choice considering IT services are increasingly becoming software-driven or have software-like characteristics in the digital or SMAC (social, mobile, analytics, cloud) age. Having been the chief technology officer at an innovative software firm, Sikka can probably appreciate the changing technology paradigm and articulate business models therein, which is a positive," says Viju George in a J P Morgan report. "However, our concern is that Sikka has been focused more on the research & development or product development and has presumably not handled large profit and loss (accounts) or operations. Products, platforms and solutions accounts for less than 6 per cent of Infosys's revenues, while 94 per cent is traditional IT services."

While some observers feel that Sikka's appointment will not hamper Infosys' recovery, there are others who demur. Ramachandran belongs to the former category. He says, "I think the fact that Sikka has been given enough legroom to operate means he is clearly focused on strategy. He may go in for inorganic growth considering the company has enough cash on its books. These may be small in size but something which may become new businesses for Infosys in the future."

However, George writes: "Infosys's recovery might get delayed as Sikka will take some time to understand Infosys. Being an outsider, he would likely take time to figure out Infosys's issues, its culture, ways of working, politics, competitive landscape, the onerous task of rebuilding a team - all of which will take time to show results (given Infosys's size). We believe Infosys's expected recovery to industry-level revenue growth by FY16E will likely get pushed out further (maybe to FY17E or even beyond). All in all, we believe the company will take a longer-than-earlier expected time to get back to respectable growth trajectory."

SIKKA'S MEN

 

UB Pravin Rao
Chief operating officer

12 EXECUTIVE VICE-PRESIDENTS RAJIV BANSAL
Chief financial officer
RANGANATH MAVINAKERE
Head of CEO’s office
SANDEEP DADLANI
Head of Americas
RAJESH KRISHNAMURTHY
Head of Europe
MOHIT JOSHI
Head of financial services, Brazil and Mexico
SANJAY JALONA
Head of manufacturing & engineering services MANISH TANDON
Head of life sciences and services, North America
RAVI KUMAR S
Head of insurance, cards and payments
GAUTAM THAKKAR
Chief executive officer, Infosys BPO
SRIKANTAN MOORTHY
Head of human resources & Infosys Leadership Institute
BINOD HAMPAPUR RANGADORE
Head of talent fulfilment function
RAMADAS KAMATH U
Head of facilities, administration, security and sustainability
The past as the future
Some experts feel that with Sikka as CEO and Rao as COO, Infosys might once again harken to the days when Nandan Nilekani and S Gopalakrishnan formed a similar team. The optimism stems from the two new executives having been given mandates that align with their strengths. "Sikka will be the client-facing person, with the responsibility to make Infosys visible at various venues and platforms, and to create an image of 'thought leader'. And Rao will run global delivery and oversee most of the support functions. I think Rao's role and influence in the days to come are underestimated by most observers and also being understated by Infosys itself," says Apte.

"The structure that Infosys has put in place brings a clarity that was missing earlier," says Guruprasad C K, principal, global technology & services, Heidrick & Struggles. "While the dual CEO system has worked for some companies, it is also important for a company to have one clear leader. A CEO-COO structure is much better than a dual-CEO one."

Even as Rao will be the more hands-on operations person, Sikka will be seen as the man to bring back the focus on Infosys 3.0 (focus on product platforms and solutions), which has been put on the back burner for the past year but is widely seen as the way forward for IT service companies. He will have to also oversee a major team building exercise across the company. The recent top level exits have not done much good for Infosys, the repercussion of which can be seen in the overall attrition rates that have been rising. Sikka's priorities: reduce attrition from a high of 18 per cent, extend sales and marketing efforts, improve responsiveness to clients, open the doors of the boardrooms to new client relationships and strike a balance between traditional and emerging service lines.

Infosys has now elevated 12 of its top leaders as "executive vice-presidents". Most of them were earlier heads of business units and now hold additional charge at the company. Having given the 12 additional duties, the vacancies in the top slot due to the slew of exits over the last one year have also been filled.