India’s key software services provider appears in crisis

Recent events indicate that a major crisis is under way at Infosys Ltd, an Indian multinational corporation that provides information-technology services on a large scale. After beginning as a modest middle-class enterprise, the company now has 200,000 staff members, comparable in size only to the giant Tata Consultancy Services Ltd (TCS). But as it attempts to adapt to emerging global trends in the IT sector, Infosys’ growth process appears to be threatened by some decisive challenges.
Over the past few decades, Infosys has topped polls in best practices on corporate governance. It has been ranked the best on “parameters of disclosure and transparency, responsibilities of the management and the board of directors and shareholder rights and equitable treatment”, Sandeep Khanna wrote in Mint on August 23.
Multiple Indian companies have indeed carved out a space for themselves in the IT services and IT-enabled services segments in recent times. They may, however, be seen to have missed the bus in incorporating emerging trends of innovation such as artificial intelligence (AI), the cloud, digital, an software as a service (SaaS), which are the new drivers in the services space. The Indian IT services model was founded on labor arbitrage. Engineers with reasonable English-speaking skills worked for far lower compensation than equally qualified First World personnel.
AI takes away many jobs, especially low-level call-center jobs. The cloud and SaaS have also taken over much of the outsourced services space. Even writing code has changed in that it is now more about cutting and pasting of chunks of relevant code. Having come late to the evolving process, Indian IT services firms have seen margins thinning and have struggled to register growth in revenues. There have been many layoffs. In this situation, Infosys in June 2014 recruited Vishal Sikka, a highly trained American-Indian professional with a PhD from Stanford University, to the position of chief executive officer and managing director based in Palo Alto, California. Apparently, Sikka was expected to push the company into the world of new trends in the IT sector. After completing three years in the company, Sikka abruptly resigned on August 18, complaining about what he said were “continuous drumbeats of distractions” and “baseless, malicious and personal attacks” by Narayana Murthy, 71, the iconic founder of Infosys.
Generational conflict?
The trouble that erupted at Infosys may have been partly the result of its attempts to catch up with new trends. Presumably, Sikka was hired to push Infosys into the AI and digital era. The dissatisfaction over Sikka’s leadership grew perhaps because old-timers who were used to double-digit growth rates and, as labor arbitrageurs, were not fully in tune with what he was hired to do. The board of directors were perhaps guilty of not providing proper leadership to Sikka. In February 2015, a controversy arose over the acquisition of Panaya, an Israeli automation-technology company, which led to rumors of impropriety. A whistleblower asserted that the deal was overvalued. In October that year, Rajiv Bansal, chief financial officer of Infosys, exited and later demanded that he be given full severance pay, adding fuel to the fire.
Murthy said the severance deal with Bansal (offered US$1.1o5 billion as severance pay at first, but after arbitration he received $625 million) appeared to be “hush money”. Bansal also made public a series of questions in a letter on the Panaya valuation and possible improprieties.
Sikka resigned on August 18. The board of directors exchanged back-and-forth accusations with founder-shareholder Narayana Murthy. Some US lawyers talked of class-action suits.

Kadayam Subramanian is former director of the Research and Policy Division of the Indian Home Ministry and former director general of police in northeastern India.

Source : Asia Times