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Culture eats strategy for breakfast everyday – decoding Murthy-Sikka battle

If you were operating at or connected to the senior levels in the technology industry, the news of Sikka’s exit from Infosys would neither be shocking nor unexpected. It was a question of when – not whether – Sikka would be out of Infosys. So what went wrong ?

The History

When Sikka took charge, Infosys was in doldrums. Once an industry bellwether, Infosys stood still as industry peers like HCL and TCS grew quicker and delivered better returns. Its efforts at moving up the value chain through Infosys 3.0 came a cropper. Murthy’s second stint as CEO under those tumultuous conditions was a largely forgettable one The only positive event were Murthy’s efforts to bring in a new CEO.

The CEO search

The Infosys board envisaged what it needed in a new CEO: a successful technology executive with a global perspective and proven track record. Sikka’s academic success and credentials at SAP looked impressive: additionally, he seemed to have the depth of strategic skills and the right vision for an organization Infosys’ size. He took charge as the first non-founder CEO in 2014. All good? Not quite. Two areas simmered in the background right from beginning:

1. The very first clue comes from Infosys’s tagline: “Powered by Intellect, Driven by Values”. While Sikka’s Stanford PhD and SAP HANA success ensured his intellect stood out, his values’ fitment is unlikely to have ticked all boxes. Sikka was a global executive schooled in liberal values – diametrically opposite to te values of a traditional Infosys. Sikka’s masterful strategic skills and intelligence were an unlikely replacement for his mismatch of cultural values, especially for the top job at an organization that prided itself precisely on these very values,.

2. Sikka’s due diligence about the role of Infosys’ powerful and domineering founders presented an important potential fault line. There is a likelihood that Sikka mistook his experience in the West – where executive freedom is nearly guaranteed – as a benchmark for what to expect at Infosys. Little did he understand the true meaning of Murthy’s line “Infosys is my middle child”: Sikka, like others, might have laughed it off as parting words from a genius – not as literal words from a very possessive strong personality.

In the battle of nature vs nurture, Infosys founders expected Sikka to get nurtured by existing values whereas Sikka expected his nature to turn Infosys around. That dichotomy – as time would tell – made all the difference.

However, difference in such subtle yet vital areas rarely manifest themselves overnight: they build up overtime and blow over soon.

Enter Sikka

Sikka scored some early successes:

1. Sikka loosened the office dress code, promoted 500 employees, gave away iphones, strengthened grassroot communication and did everything to engage employees.

2. Sikka next wooed the investor fraternity and the stock markets by presenting a grand and aggressive vision of a $20 billion organization by 2020. For an organization known to under-promise and over-deliver, this was a cultural shock. The tall talk raised expectations drastically and while that enthused the stock markets in the short run, the expectations – as we now know – made it difficult for Sikka to live upto them.

3. Last, for a conservative organization known to harp on its brand but never known to pay top-of-the-line salaries, Sikka raised the salaries of his top reports to unheard-of levels.

Seen from the perspective of Infosys’ founders, these initial “successes” were not success at all: they were cultural failures, disturbing enough to lead to uneasy relationship with Sikka, but yet not alarming enough to cause a blast.

Meanwhile, Sikka brought an army of top people from SAP to change the culture and help him transition Infosys from a lumbering elephant to nimble cheetah. Unfortunately, Sikka misjudged what it would take to bring about a cultural change: if a culture of a 30 year old, hundred-thousand employee traditional organization could be changed with a handful of imported top-managers, Drucker’s powerful line “Culture eats strategy for breakfast everyday” would not have stood the test of line.

The challenges

All of the above would still have sustained but for a few areas where Sikka and the board crossed Murthy’s red line.

1. Awarding CFO Ravi Bansal a huge severance pay package raised question marks on corporate governance. Infosys prided itself on its disclosure standards. The board’s decision of not disclosing the contents of reports from an external law firm – especially when all was deemed “fine” – gave an already disenchanted founders’ team a stick to beat Sikka and the board with.

2. Within months of the Bansal episode, the board raised Sikka’s already high salary by 55%. The stick in the disturbed founders’ hands now got a poison tipping and became a lot more potent with Murthy incessantly and publicly lynching the board.

3. After some initial success, Sikka’s turnaround strategy missed its target by an embarrassing $5 billion: finally in June 2017, the board scrapped the $20 billion target.

For an organization that consistently beat investor expectations for years, this was a strategic Freudian slip and the Infosys stock – and Sikka – lost support of some of the vital institutional investors.

And for Sikka – long dismissed as a cultural misfit – who had strategic results as the last armory in his toolkit, a slipup in strategy, positioned his rhetoric as “all bark, no bite”. This was the last straw on the camel’s back.

The Exit

With a frustrated founding team led by combative Murthy, allegations of corporate governance, a failed turnaround strategy questioning the very competence of Sikka and missing investor support, Sikka had nothing to fall back on and nothing to look forward to – except a good nights sleep and the much needed peace of mind. Exiting Infosys provided him precisely those benefits – and Sikka cut his losses.

There are some really valuable lessons:

1. With the infamous Tata episode still fresh in memory, Indian founders and family business heads would do well to rethink if they really want to let go in the true sense when they hang up their boots. If all they want is to remote-control a strategically minded executive – who is tasked with the responsibilities of a CEO without the requisite authority, they should stop searching the market and instead stick to the comforts of loyal insider.

You can have loyalty or results – rarely both.

2. For prospective CEO choosing a top job at any organization – specially with powerful founders or families, it is well worth developing a thorough understanding of the cultural factors and sensitivities involved. Raw Intelligence is a necessary but not a sufficient condition to succeed – emotional intelligence provides the much-needed sufficiency. And that involves recognizing stakeholders interest before picking up the top job.

There is no point in diving in deep oceans and complaining about sharks.

The forces of nature are so strong that in the battle of nature vs nurture, nature often wins hands down. As Sikka learns that lesson and walks into the sunset, he would do well to recall Peter Drucker’s golden lines that Cyrus Mistry at TATA group learnt equally painfully:

“Culture eats strategy for breakfast everyday”.

Source: WhatsApp Forwards and long-time Infoscions

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Prof. Aswath Damodaran on “The Value of Stories in Business”

Excellent talk by Prof. Aswath Damodaran on “The Value of Stories in Business” – Talks at Google

Aswath Damodaran: “The Value of Stories in Business” | Talks at Google

 

Interesting forwards on Valuation

I received a series of interesting forwards on Valuation of companies. It shows how markets reward future growth over the steady and stagnant growth.

Valuation, Jan 2017:

  • Snapchat: $25 billion
  • Viacom: $17 billion

Valuation, Jan 2014:

  • Viacom: $37 billion
  • Snapchat: $3 billion

Facebook valuation in 2007:

  • $15 billion (after Microsoft investment)

Facebook’s valuation in 2017:

  • $377 billion

Valuation – February 2017:

  • Ford: $49 billion
  • Tesla: $44 billion

Valuation – February 2012:

  • Ford: $49 billion
  • Tesla: $4 billion

2016 Revenue:

  • Google: $90 billion
  • Time Warner: $29 billion

2010 Revenue:

  • Google: $29 billion
  • Time Warner: $27 billion

Apple’s valuation in 2017:

  • $700 billion

Apple’s valuation when iPhone was unveiled in 2007:

  • $75 billion

Valuation, February 2017:

  • Amazon: $400 billion
  • Walmart: $210 billion

Valuation, February 2012:

  • Walmart: $202 billion
  • Amazon: $82 billion

Number of Google Employees: (Global Workforce*)

  • 2017: 72,053
  • 2011: 32,467
  • 2007: 16,805
  • 2005: 3,021
  • 1999: 8

*start of each year

 

 

A sarcastic take on eCommerce start-ups

I received the following sarcastic write-up on WhatsApp about the eCommerce start-ups that are burning VC money. Thought of sharing. It summarizes the problem precisely!


I’ve got a BIG eCommerce idea that will dwarf Flipkart and Amazon together. I’m going to sell CASH. At a discount of 15%.

Consumers can buy cash at a discount of 15%. Send me Rs.850 and I’ll send back Rs.1000.

The mind boggles at how much cash I could sell. I’ll have no dissatisfied customers. No complaints on social media.

NO DELIVERY OR OTHER LOGISTICS problems. No packaging. No ST, CST, excise, octroi.

No production problems.

No warehousing issues.

Endless scalability.

You want me to increase the turnover to Rs. 1000 CR? Done. Rs. 10000 CR? Done. You want me to go international? Done, I’ll sell dollars, yen, euros, all at the same discount. As much as you want.

With a GUARANTEED cap on losses at about 16% (15% discount + bank charges).

Bigger, safer and better than any existing eCommerce business.

Any VCs around?

On Vijay Shekhar Sharma, Founder of Paytm

Not sure if you follow Vijay Shekhar Sharma, the founder of Paytm. He is a very interesting and inspiring person and he is just 37

Sharing few interesting links.

Vijay Shekhar Sharma, founder of Paytm sold 40% of company for 8 Lakh when he was in crisis, coz he had borrowed money at 24% per year interest. And he recently sold 1% of parent company for Rs 300-400 Cr.

 

I liked when he quoted D.L. Moody who said: “Character is what you are in the dark.”

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This was published in Jan 2016, long before #demonetisation was announced.

Swag of Paytm CEO | Vijay Shekhar Sharma | Startupreneur Series

 

Vijay explains Paytm business model

 

 

D8: Steve Jobs Onstage: Full-length Video

Steve Jobs interview at D8 – All Things Digital conference…he mentioned about iPhone 4G leak and within a few days, i.e. Yesterday Apple announced iPhone 4G!!! Look forward to watching Steve Jobs product launch presentation soon…

http://s.wsj.net/media/swf/main.swf

~ Kaustubh

The New Buffettology: Book Review: Part 1


I recently read this book – ‘The New Buffettology’ by Mary Buffet (who was Warren’s daughter-in-law for 12 years before she divorced her husband and Warren’s son, Peter) and David Clark.


I immensely enjoyed reading this book; though not a fool-proof, it has some very interesting snippets and anecdote’s about Warren Buffet’s investment strategies and business acumen. It gives you some insight into how Warren thinks and makes his investment decisions.


The books is filled with small write-ups/ tid-bits used to explain some basic concepts/ Warren’s investment philosophies. Here is one excerpt on the shortsightedness of Mutual Fund and how investing in Mutual Funds with long-term perspective is not a good idea (to which I fully agree. I had similar thoughts but was not able to put it in such precise words as te following write-up has done!)

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THE SHORTSIGHTEDNESS OF THE MUTUAL FUND BEAST


A number of years ago the authors were having dinner with a middle-aged mutual fund manager who oversaw tens of billions of dollars for the money management division of a large West Coast Bank. He brought along an enormous book that contained a brief analysis over two thousand different companies that he and his fellow analysts followed. They called it their “investment universe”. At his invitation we thumbed through the book and found a company that we knew Warren had been buying, Capital Cities Communications. Capital Cities was a television and radio broadcasting company run by Tom Murphy, a management genius with a keen eye for the bottom line. Warren loved this company and once said that if he were stranded in a deserted island for ten years and had to put all his money into just one investment, it would be Capital Cities. Definitely a strong vote of confidence.

Our friend also had a list of the stocks his fund had purchased. As we read through the list, we noticed that he didn’t own any Capital Cities. We quickly pointed this out and told him that Warren had recently been buying it. He said that he knew it was a great company but he didn’t own it because he didn’t think the stock price would do much over the next six months. We told him that was insane. That it was a fantastic long-term investment selling at a great price. He told us that he was under great pressure to produce the highest quarterly results possible. If he couldn’t beat his competitor’s returns quarterly, his clients would take their money elsewhere, which meant that he would lose his job, his Porche, and the income to send his son to Harvard. (Sounds grim, doesn’t it?)

Our mutual fund manager felt he couldn’t buy a single share of Capital Cities for his fund, even though he knew it was a great investment, because he wasn’t sure that it was going to go up in price over the next six months. This is the nature of mutual beast; it caters to the short-term oriented mutual-fund-buying public. If it doesn’t, money flows out the door and down the street to the fund that produces better short-term results.

(in case you are wondering, Capital Cities eventually merged with the ABC television network, which eventually merged with entertainment giant Disney, making Warren billions in the process. Good things do come to those who have patience and foresight.)


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I am now fully convinced that investing in Mutual Fund with a long-term perspective is a bad idea…and have vowed never to invest in it 🙂


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