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Jun 19, 2017 09:57 AM IST | Source: Moneycontrol.com

The bogey of exits haunts Infosys but has Sikka's currency devalued?

Old promoters of the company are at loggerheads with the management on the issue of compensation, among other things. Though the attrition in the lower and middle level software engineers has, to a large extent, been managed, senior management continues to leave the company.

 
 
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There seems to be no end to the troubles in Infosys. As though the tough external environment was not enough the company’s management under Vishal Sikka has to fight battles at various fronts.

Old promoters of the company are at loggerheads with the management on the issue of compensation, among other things. Though the attrition in the lower and middle level software engineers has, to a large extent, been managed, senior management continues to leave the company.

The latest big name to leave the company is Americas Head and Global Head of Manufacturing and Retail unit, Sandeep Dadlani. This exit is seen as impacting the company’s performance as Dadlani was one of the four presidents and was responsible for 34 percent of Infosys’ revenue.

According to a report, out of the 12 executive Vice Presidents who were elevated to the post when Sikka took over, nine have left the company.

Sikka’s management skills are being questioned in some circles. However, these exits also signal the change taking place in the company where the old guards are not in synch with Sikka’s management style.

Though there has been a high number of exits at the senior level, Infosys seems to have managed to hold on to the clients. Credit for which has to be given to Infosys’ image in the market and Sikka and the senior team’s ability to retain the clients.

Sikka has worked towards changing the focus of the company. By monitoring just one matrix of revenue per employee, the focus of the company is being shifted from one doing generic body-shopping work to higher end stuff.

In an interview Co-chairman Ravi Venkatesan pointed out that now 35 percent of the employees are working on services that contribute 45 percent of revenue and these service offerings are growing at high double-digit growth rate with a very high margin.

Revenue per employee in some of these services is USD 70,000 as compared to an average of USD 51,363 for the company. Sikka has set himself a target of USD 80,000 for revenue per employee. Incidentally, Infosys presently has the highest revenue per employee when compared to TCS and Wipro but is nearly 10 percent lower than Cognizant which focuses more on consulting and technology business.

This shift in the quality of work is perhaps the root cause of the problem. Promoters of the company and old guards have been used to the traditional work culture and compensation.

Prabal Basu Roy, Fund Manager and a Sloan Fellow from London Business School in an article points out that apart from Sikka the entire leadership of all the top Indian IT services companies is devoid of necessary skill-sets needed to meet the difficult challenges facing the industry. ‘Erstwhile chief financial officers, accountants and operational managers cannot be expected to have the combination of core technological perspective and strategic capabilities necessary to face the current onslaught…’ he writes.

The friction caused by hiring new highly paid employees to meet the current challenge with the older lot who are doing traditional work is what is causing the smoke screen to grow bigger, both for the senior employees and the promoters.

Infosys has to hire employees for new technologies from niche companies or from companies that are bigger than it. Such employees naturally come at a higher cost causing not only wage disparity related friction. Ventakesan in the interview said that the management underestimated the cultural challenges of transforming itself.

What seems to hurt the management more is questions are being raised on every major decision of theirs by the founders. Interference by the ‘activist shareholders’ (read promoters) has led to Infosys management highlighting it as a risk factor for their management.

Senior employees quitting a big organisation like Infosys with 200,000 employee has a momentary impact, but taking the freedom away from the management and questioning their every decision can have a far-reaching impact. At a time when the management needs the support of its employees and founders, Sikka and his team are wasting their time to calm down bruised egos.

Infosys was always looked up by the IT sector as a role model. Roy correctly points out in the article that failure of Infosys will not portend well for the Indian IT industry in general as there will be no model to copy if Infosys does not succeed.
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