Why small IT firms are poaching top talent from larger rivals

Founded in December 1990, Birlasoft is 32, almost middle-aged and relatively small. Smaller IT firms compete in the competitive space of managing technology infrastructure for Fortune 1000 clients. Work can get monotonous, and many grumble. Few have a swashbuckling chief executive. Consequently, they rarely make the news even though they are profitable and have no or tiny debt.

It could be possibly because of these reasons, one could argue, that boffins at large companies rarely used to look at smaller IT firms as a second career stint. Up until the middle of the last decade, every once in three or four years, an executive from a large IT firm like Infosys Ltd or Wipro Ltd used to join a smaller IT company.

But this has changed in recent years, and the 42nd edition of this newsletter analyses this trend and what this holds for the sector.

The appointment of Guha is striking for two reasons.

Firstly, Guha is joining a much smaller company: At Wipro, he oversaw about $3.4 billion in business. Birlasoft ended with $555.2 million in revenue last year.

Guha’s appointment is the fourth such example of an executive from a large IT company taking over as the boss of a smaller firm, the highest in a year in the last two decades.

Secondly, smaller companies poaching executives from large IT firms signal the desire of the board of many of these smaller companies to get big.

This brings us to the obvious question: Why are more executives from the big boys' club looking to join smaller companies?

Many of the leaders may attribute it to taking up a new challenge. A few, such as the former Infosys executive Sanjay Jalona, who joined Larsen & Toubro Infotech (LTI) in 2015, may argue it is the joy of taking a company public.

Beyond all these points, your writer believes the underlying reason for this trend is the very change sweeping at the large companies.

Both Cognizant Technology Solutions Corp. and Wipro Ltd got external CEOs (Brian Humphries joined Cognizant from Vodafone, while Wipro got former Capgemini executive Thierry Delaporte).

Like most external CEOs, both Humphries and Delaporte got their own people to execute their strategy, forcing many old-timers in both companies to move out.

Eight of the 13 bosses at smaller companies in the last four years were from either Cognizant or Wipro.

To be sure, since Humphries took over as CEO in February 2019, at least half a dozen senior leaders have found the corner office at smaller companies, and more than a dozen others have joined a private equity firm or taken senior leadership roles at other companies.

“I’m actually grateful to Brian because for the brief time I worked with him, I realized if he can do this (run a company), so can I," a former Cognizant executive who now heads a small IT firm told your writer recently.

The pandemic proved to be the gilded age for the bosses of IT services firms. Bosses at the country’s 10 largest IT services firms hold huge sway, commandeering a staff of 1.74 million. Pay for most bosses doubled in the last two years because of good performance.

But now, the industry faces the looming fears of a recession. This will test the resolve of all the leaders.

How do executives from large companies fare when they take up CEO roles at small IT firms? Jalona managed to increase LTI’s revenue three-fold in his nearly-year stint with the company: From $208.5 million in revenue in the April-June quarter of 2015 to $601 million during the July-September period of 2022.

But someone like Manish Tandon, another former Infosys executive who joined CSS Corp. in 2016, couldn’t repeat the same magic at the privately held firm in his five-year stint.

We’ll have to wait to see how the new crop of leaders performs at these smaller companies. For this reason, it is a bit early to conclude if Cognizant and Wipro’s loss in seeing some of the leaders move out has been a gain for the smaller companies.

Finally, it takes more than just the CEO to reinvigorate a company. External CEOs stand to do better if they have the unequivocally backing of a board comprised of a diverse group of thought leaders.

“No institution can possibly survive if it needs geniuses or supermen to manage it," management guru Peter Drucker wrote in his book, The Effective Executive. “It must be organized in such a way as to be able to get along under a leadership composed of average human beings."

It is time the owners of these smaller IT firms realize that most CEOs are not like Steve Jobs and are rather average leaders. Bringing an external boss is the beginning - not the destination - for any successful transformation.