Expert views: Bala's exit part of Infosys strategy to reshuffle top deck

By moneycontrol.com

On Friday evening, V Balakrishnan, a former CFO with Infosys and a member of its board, announced he was resigning from the firm. This was the eighth - and the senior-most - in a string of top-level resignations that have rattled Infosys since the founder of India’s once-largest technology firm, NR Narayana Murthy, returned six months ago to again take charge.

Murthy’s return was prompted by years of dismal sales and as rival TCS raced ahead to occupy the numero-uno spot in the pecking order of Indian technology companies.

But while it remains to be seen if the poster boy of India’s IT boom and one of its best-known corporate leaders will be able to turn around Infosys’ fortunes, the exit of so many senior executives has left analysts wondering about its impact on the firm.

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Spate of exits

Since July, global sales head Basab Pradhan, global manufacturing head Ashok Vemuri, consulting business co-founder Stephen Pratt, BPO sales head in Australia Kartik Jayaraman, Latin American BPO head Humberto Andrade, VP - financial services of Americas Sudhir Chaturvedi have quit. And in a span of 24 hours till Friday, a 25-year veteran Subrahmanyam Goparaju and then Balakrishnan followed. This is when the questions began.

“The magnitude of the exits could create a leadership vacuum,” a report by brokerage firm Kotak said. “We are disappointed by the inability of the organization to retain core team members. We believe that the impact of exits could be felt in the medium term.”

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Anil Singhvi, Chairman, Ican Investment Advisors, was more outspoken and said Murthy’s return had rattled a lot of people in the company. “His comeback may have been seen favourably by shareholders but I don’t think it was taken favourably within the company.”

Mohandas Pai, a former Infosys veteran himself, who called Balakrisnan “one of the best CFOs India has produced” and termed his exit as a “huge loss” for Infosys. Pai, along with former Wipro executive Girish Paranjape, is the one with whom Balakrishnan has said he was setting up a PE fund. The top management conundrum has not been new to Infosys. Even as Infosys’s hyper-growth story played out over the course of three decades, powered by not just its seven cofounders but also several talented employees that came on later on, the rumour-mill churned out that the growth ambitions of key employees often got inhibited not just because there were only so many top management positions to fill but also because of an unwritten code of conduct that only one of the co-founders could get the CEO’s chair.

The Murthy connection

While the exits are seen by many as Murthy’s failure in holding on to top talent, another – positive – way to look at it could be that the company chairman is himself organizing a large reorganization. “I think Bala’s exit is a part of an ongoing strategy to reshuffle the top management at Infosys,” said Nilesh Shah, MD and CEO, Envision Capital.

Some analysts also believe that the exits are a positive for the firm. “There were too many first-among-equals at Infosys, too many CEO aspirants. It was only creating a bottleneck for Infosys over execution issues,” Sundararaman Viswanathan, Engagement Manager - Zinnov, said.

“Right since Ashok Vemuri left, they got to know very clearly when Murthy came back that all the pent-up aspiration willburst. He would have given a clear message on how he is going to go about the whole restructuring and [maybe] that is what is causing these exits.”

The view on Infosys

Regardless of the reasons behind the executives’ exits, a lot of analysts are now more confident about Infosys and the direction its business has taken since Murthy’s return. The company has undertaken a clear shift in direction where it has been focusing on higher-margin businesses, a strategy that rival TCS that has successfully implemented.

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An improvement in developed economies, where most clients of Indian IT companies are based is also a positive. “There has been a strong pickup in IT spending [in these markets],” said Shah. “Infosys has also tweaked its strategy a bit over the last few quarters. That will be the key driver for earnings.” Shah was also of the view that Infosys may have prepared a succession plan that would name a CEO replacement either from within or outside. “There have been reports that Murthy might step aside in three years instead of five years as was the original plan. That is a strong indication that there is a succession plan in place.”

“There could be a minor correction in Infosys stock, thanks to Bala’s exit and as the December quarter is generally expected to be a bit tepid for the technology sector, Shah said. “But one good quarter or a strong commentary on the business outlook, I think that should take care of any potential downsides on the stock.”