The management squabbling, blaming and furor that played out publicly in the news for months before and since last week’s resignation of Infosys CEO Vishal Sikka is enough to cripple any business. It seemed the firm faced a daunting uphill battle to move beyond the instability and uncertainties the infighting caused and to identify a new CEO strong enough to make decisive moves to position the company for the future. Bringing the disagreeing stakeholders (management, founders, investors, board members, employees and clients) back together is another hurdle on that uphill battle. But anyone who’s questioning “the way things are done around here” just got the answer by the way Infosys addressed this crisis today. Former co-founder and ex-CEO, Nandan Nilekani, is now on board as non-executive Chairman of the Board.
In one fell swoop with his return to the firm, and with the accompanying requested resignation of several board members, Infosys took big steps toward stability. Nilekani is one of the reasons Infosys was so successful in its early years and grew to be the second-largest service provider in India, and major investors asked him to return. He is well respected, knows Infosys’ strengths and culture and understands the mindsets of the various stakeholders. Nilekani also is uniquely suited to manage the issues Infosys faces in gaining digital prowess and aiming for leadership in the digital era. He served as an advisor to the government and rolled out the country’s biggest digital project, the Unique Identification Authority of India.
That’s All Good, But There’s Still a Problem
Nilekani’s return to lead Infosys, and the resignation of board members, does not of itself resolve the underlying issues that caused the split. The problem is the strategic dilemma around how Infosys should move forward. The services market is shifting from the labor-arbitrage model to digital models. But the arbitrage work (75 percent of the services market) is still more profitable than the emerging digital work (25 percent of the market).
Clients are seeking two kinds of services partners:
- Excellence in arbitrage-based services but with a lower price
- Providers that offer digital models and technology and can partner with clients who are starting their digital transformation
Co-founder Murthy and stakeholders that rally around him believe over time the digital market will revert to an arbitrage model. They believe Infosys can continue to be an industry leader just by executing better in the old arbitrage model.
Opposing that view, a substantial number of the board members (who resigned today) and Sikka believe it was imperative for Infosys to change its culture, adopt digital models and accelerate as much of its existing business as possible into the digital models.
The Remaining Strategic Dilemma
Although Nilekani’s returning today as vice chairman will bring much-needed stability after the crisis of the last few weeks, it does not resolve this strategic dilemma of whether Infosys will rotate into digital or stand firm as an arbitrage leader. Nilekani’s returning doesn’t worsen this strategic dilemma either. In fact, in this dilemma, his return is a nonevent.
Yes, he will ease tensions, but the way forward for Infosys’ future still remains a big question. Nilekani’s return to Infosys signals a commitment from the board to try to heal the divide between stakeholders. Clearly, Infosys needs to bring them together and present a united front to the industry, shareholders and clients. But it’s too early to know whether Nilekani will also drive a major change in the firm’s direction. It will depend on who replaces the board members that stepped down and who the next CEO is.