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BW Businessworld

The Infosys Leadership Crisis

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 Shortly after Mr N R Narayana Murthy came back as executive chairman of Infosys last year,  I had written a column pointing out that while it was easy to understand his motivations for coming back, it was less easy to understand why the board did not look hard enough for a new leader, either internal or external, if they were unhappy with Mr S D Shibulal’s performance as CEO. I had also pointed out that while I expected the Infosys performance to improve in the short run because of Mr Narayana Murthy’s return, I was not sure about whether he could fix the long term problems. This was what I had written then:
“In the short run, I would expect that Infosys’ fortunes to improve because of Mr Murthy’s return. For one, nobody can dispute that he will provide better leadership than either Mr Kris Gopalakrishnan or Mr S.D. Shibulal. For another, as the man who set the foundations of the old Infosys, he is best placed to also dismantle the old strategic and operational model and bring in a new one. If Mr Murthy throws his weight behind a new path for Infosys, few will question his right to do so. The handicap that both Mr Shibulal and Mr Gopalakrishnan faced was that they could not tamper too much with Mr Murthy’s legacy.
 
The problem is that it will take some time to figure out whether Mr Murthy can effectively handle the new marketplace realities as well he did when he was originally in the saddle. The conditions under which Infosys is operating today are very different from the era in which Mr Murthy built up the company. He may be equally successful this time around — or he may not. If he is not, Infosys will have lost quite a bit of ground and time by the time he retires again. Mr Murthy also needs to understand that while Infosys is his middle child, it is an adult and fast approaching middle age. As the parent, he needs to let the child make its own mistakes and live its own life.”
 
As I had anticipated, one year into his return, the Infosys results have improved marginally – but its long term prospects remain cloudy. And while Mr Murthy has been able to get some short-term gains (though Infosys still lags behind peers in revenue growth despite his efforts), it has come at a heavy cost. There has been an exodus in the senior ranks – 10 at last count, with at least two being executives who were supposed to be in the shortlist for replacing Mr Shibulal as CEO. (Ashok Vemuri earlier, and now B G Srinivas). Many of these people who have left are Infosys lifers who have spent a decade or more working for the company. Those exits, in turn, would have seriously affected the morale of the rank and file – especially those who reported to the leaders who have left.  It has also been suggested that both Mr Vemuri and Mr Srinivas left because while they were considered frontrunners to succeed Mr Shibulal, there was too much uncertainty in the company on the CEO succession plan.
 
Reports suggest that the Infosys board and Mr Murthy have hired an executive search firm and created a committee to find a CEO who will take over when Mr Shibulal retires. The candidates being considered include both internal as well as external candidates. As I had written in my previous column, this was what should have happened last year – instead of bringing Mr Murthy back.
 

The big problem I see with the current Infosys search is that there is no indication as yet as to whether Mr Murthy and the rest of the board are looking for a CEO who will script a new strategy, completely different from the one that Infosys follows currently – or whether they are just looking at someone who will execute superbly the strategy that Mr Murthy lays down. I suspect it is the latter, because Mr Murthy will remain executive chairman and firmly on the saddle for a few more years – and the CEO will report to him.
 
And that is the nub of the problem. As far as I can figure out, Mr Murthy is still trying to make Infosys follow the strategy it followed in his first stint – only with a different organisational structure. But the world has changed and what Infosys needs is completely fresh thinking.
 
The problem with the succession plan that Mr Murthy had worked out when he first retired was that it envisaged a largely stable business environment that required people who were excellent at execution. That was why Mr Kris Gopalakrishnan and Mr Shibulal were considered natural successors (apart from being co-founders). The issue was that post the global financial crisis that started in 2008, the business environment has changed completely. Changes in technology have also played a big role in disrupting the business models of the IT services companies. It was something that all the big Indian IT companies had to grapple with. TCS, Cognizant and HCL Tech probably understood this quicker than Infosys.
 
Given the advent of the cloud, the exponential rise of big data and big data analytics and other such trends, what Infosys needs is a bold new strategy that plans builds on the new opportunities and the big markets of the future – and not on legacy businesses, which are the current cash cows.
 
That is why what Infosys probably needs now is someone at the executive chairman level who can bring in fresh thinking – instead of a CEO who will merely execute Mr Murthy’s vision. It would be a risky strategy – but if the board and the search firm found someone good, it would probably help rescue Infosys from losing further ground.
 
 
Prosenjit Datta is the Editor of Businessworld