The Twitterverse and media are abuzz with news of Mr. NR Narayana Murthy's return to Infosys.
A lot of commentators are also incensed by the fact that he's bringing his son with him as his Executive Assistant. Frankly, I think that's a non-story - his son coming in to such an unimportant position doesn't mean a thing - certainly not that dynastic rule has come to Infosys.
I set off a bit of a storm with my tweet to Sucheta Dalal, in which I said "the beginning of the end of another icon? I was his EA in 98. I seriously doubt he knows what to do to fix it. Bring fresh blood!"
First things first - someone wrote that "Really sad to see an ex EA @prganapathy critise NRN on social media." My response was heartfelt - "Time we had an honest discussion about our icons' strengths and weaknesses instead of reflexively worshiping everything they do." I really believe that this is a problem with us in India. Anyone who achieves even the slightest success - Chetan Bhagat, Sania Mirza - is instantly put on a pedestal and can then do no wrong. The media adulate the star, feed their narcissism and before you know it, instead of pursuing further successes in their chosen field, they're starring in ads, inaugurating saree stores, and resting on their rather modest achievements. We need to take an honest view of our "stars" - point out their faults and praise their achievements - without losing our sense of balance. That will help us, and the stars themselves.
But I digress. The main reason for this post is to defend my view that Mr. NR Narayana Murthy, for all iconic status he may have achieved, has some serious challenges in taking Infosys to the next level and to compete against companies like IBM or Accenture, or even TCS and Cognizant.
By way of background, I joined Infosys in 1998 as Mr. Murthy's Executive Assistant and Head of Corporate Planning. I worked closely with him in preparation for our listing on NASDAQ in 1999, and was one of the three Infosys employees on the roadshow for that "IPO" (Mr. Murthy and CFO Mohandas Pai were the other two). I ran the Investor Relations function for four years, closely interacting with Mr. Murthy and the other founders, finally leaving Infosys in 2005. My views are based on what I saw in those seven years of spectacular growth, where the company went from $68 Million in Revenue to $1 Billion.
By 2002-03, Infosys was doing well, with revenue growing strongly and healthy margins. But the mainstay of the company's revenue was services like Application Development and Maintenance, bread-and-butter services for all Indian IT services companies. Infosys claimed that it did these services with better quality and predictability than any other Indian company, and clients generally agreed. Fortune 500 companies were beginning to make "offshoring" a central part of their IT execution model, and risk-averse CIOs took no chances and gave Infosys the business at the prices the company demanded. To paraphrase the IBM adage: "you didn't get fired for hiring Infosys."
For software development projects, Infosys was increasingly beginning to compete with the global majors, IBM, Accenture and the like, who responded to Infosys' low-cost "Global Delivery Model" with India-based delivery centers of their own. These companies announced big plans to grow their Indian operations, but Infosys remained confident that these Multi-nationals would not be able to make the global delivery model work.
By 2004-05, Clients were beginning to demand that if Infosys wanted to maintain its premium pricing vis-a-vis its competitors, it needed to do more than just build applications; it needed to take complete ownership for delivering the business benefits from deploying technology. This meant hiring consultants who could help a client understand the potential for technology; consultants who could engage with their boards, shape their thinking and therefore "sole-source" large IT development projects - that is, projects that Infosys could win without the price-war that accompanied a traditional competitive Request For Proposal (RFP) process. Even in a competitive RFP process, if your consultants had shaped the clients' thinking, you improved your chances of winning deals, even at premium pricing.
Infosys tried to do this when it launched Infosys Consulting in 2004. A set of five stars from the business consulting world - Steve Pratt, Raj Joshi, Ming Tsai, Romil Bahl and Paul Cole - were recruited to create a world-class consulting practice. These men were veterans of companies such as Deloitte, Booz Allen, IBM and Ernst & Young. They had run substantial businesses at these majors, where they had done what Infosys needed to do - built boardroom relationships with the Fortune 500, and delivered significant business value through technology-led transformation.
However, instead of welcoming these men into the senior echelons of Infosys management and asking them to help take Infosys to the next level, the new Consulting group was kept at arms' length. Some years later, it had failed to make the impact that was expected from it, and several of its founders left in frustration.
Some other measures were implemented in other areas. A famous global consulting firm (that shall remain unnamed) was engaged to conduct weekend training sessions to convert 1000 Infosys client-facing staff (IT project managers and salespeople) into "boardroom consultants". Most of these client facing managers were of Indian origin, and a lot of them had risen through the ranks writing code and managing IT projects. They were among India’s best and brightest, educated at its IITs and IIMs. However, the idea that providing them some training could convert them into boardroom consultants that could advise a Fortune 500 board on how to use IT to transform their businesses was a stretch. Predictably, it failed to deliver results.
A group was formed to "pursue" global RFPs. Infosys reasoned that all the company needed was a group of experts to pursue these deals, not realizing that if you're hearing of something by the time it gets to a competitive RFP stage, you've missed the boat. This group also failed to generate the results that were expected of it, and was dissolved many years later.
A few tactical acquisitions were made, but none of them were big enough or strategic enough to transform the core of the company, change its trajectory, and take it into the next orbit.
The sheer momentum of Infosys' business carried it through the last years of the last decade, but the writing on the wall was obvious to more sophisticated observers. India-based competitors became better at delivering projects, and clients began to become more sophisticated about outsourcing to India. The premium pricing that Infosys was used to demanding began to shrink. Growth rates began to slow.
Why did this happen? I believe that the first reason is management. The Founders of Infosys started the company in 1981. Managers from outside the founding team, some of whom were promoted to senior positions and inducted into the board, were people who had joined in the company in the mid-90s, and had therefore never really worked for, or run, a major strategic IT consulting firm of the sort that clients were demanding that Infosys become. In my opinion, this lack of fresh blood and thinking was one source of the problem.
The second issue was fear of antagonizing investors. Infosys was obsessed with protecting its net income margins. The sorts of changes the company needed necessitated hiring expensive senior talent “onsite” – i.e., in the US and Europe, and investing in building industry solutions ahead of demand. All of this could have hurt the company’s margins. However, as someone who represented the company to Wall Street for many years, I think the company could have conveyed this to investors and received their support, as it went about retooling its business and readying itself for the next level.
Will Mr. Murthy's returning to the helm do anything to correct it? From his public pronouncements, it appears that he believes there is little that is fundamentally wrong with the company. I therefore wonder whether he will use his tenure to launch an aggressive search for fresh outside blood to come in and transform the company.
Even if he does, will the next line of management allow him to make the changes needed? Will they welcome outsiders at senior levels if he brings them in? I seriously doubt that too. Large companies are by their very nature political, and the people at the top are always adept at playing that game. I believe that the efforts of any newcomer will be stymied by the professional managers who have risen to the second tier, and are anxiously waiting for their shot at the top.
Some employees and investors are very excited that the icon is returning to an executive position at Infosys. I wish him luck, because I would hate for a great company like Infosys to fail to realize its full potential.
6/3/2013 02:23:19 am
Interesting Point of View but likely the right things to question.
6/3/2013 02:41:41 am
A case of desperate times, desperate measures?
6/3/2013 02:50:04 am
The article provides a reasoned perspective The key issue in my mind for a long time has been not only outside talent never risen to the top ONLY founders have been deemed fit to run the company. Such in grown thinking impacts the DNA and culture surely and certainly as witnessed in many family businesses where the scion is deemed capable because of inheritance. Usually such family businesses will either stagnate or hire a series of consultants, sequentially in search of the holy grail that FITS the thinking rather than one that helps creative chaos.
6/3/2013 04:27:24 am
Bring fresh blood...i believe that will be part of his strategy. One can clearly see this with his trying to involve catamaran group in his team.
6/3/2013 06:00:16 am
I heard NRN saying yesterday that " In a commoditized market, Prices are defined by the market (competition) and costs are defined by the company". A statement that is true to an extent when one is willing change.
6/3/2013 06:21:19 am
6/3/2013 09:10:12 am
6/3/2013 09:56:33 am
Very well reasoned out. Infy should have had a Global Indian based out of the US a decade ago.
6/3/2013 10:53:16 am
Superb In-depth Analysis Sir !!.. Let us see how the things shape up .
6/3/2013 11:34:03 am
Very well articulate and to the point. I agree 100% that this move may have short term benefits, on the long term unless some fundamentals are changed things will not improve.
6/3/2013 11:58:11 am
No doubt, Mr. Murthy's comeback is going to boost the employee morale.... But will NRN 2.0 provide the needed boost to the company's bleak future, is something which only time can tell!!!
6/3/2013 01:58:16 pm
One of the best analysis I've seen about current state of Infy. Very well articulated.
6/3/2013 03:17:37 pm
" From his public pronouncements, it appears that he believes there is little that is fundamentally wrong with the company." - not sure where you got this idea.... from what i read he refused to talk about the problems... he said he will need time to understand the issues....
6/4/2013 12:12:43 am
Please see this link: http://www.thehindu.com/business/Industry/it-is-important-for-me-to-not-pass-judgments-narayana-murthy/article4772803.ece
6/4/2013 12:34:51 am
ok, i see you... in the same para "Right now, it has been less than five hours since the board decided, so it is important for me not to pass judgments and come up with ideas without studying the whole issue. " is in complete contrast to "Nothing really needs to change here. Moreover, the company is at a unique juncture: we have earned a place at the high table by pioneering this global services model, and now we have to do everything to make it work."
6/3/2013 03:18:49 pm
First, I completely agree with Mr. Ganapathy's views. Infy board had made some mistakes of granting board member positions to some senior folks who were recruited by Infy as a gesture of "thanks giving" for supporting Infy during its inception. Infy must learn that business success is different from offering gratitude. Second, but most important point, Infy should come out of its conservative shell, be it empowering the CXOs to take decisions or be it strategic acquisitions or be it adding right members to Executive Council. At this stage where Infy needs fresh air to breath, i am not sure how Mr. Murthy's return will help who inturn created a conservative, shareholder delight kind of Company.
6/3/2013 03:53:53 pm
Great analysis Guns. My intuition says positive changes will be seen, thats because I've have seen common man or even an experts rationale failing during NRN days, call it his decision making or luck...yes, the markets are different today. Entry of solid brains and experience is required in client facing departments, and I'm sure NRN will have such people in, and ensure thatinternal politics will let the new comers perform. Good luck to NRN and Infosys.
6/3/2013 03:56:29 pm
From his public pronouncements, it appears that he believes there is little that is fundamentally wrong with the company. I therefore wonder whether he will use his tenure to launch an aggressive search for fresh outside blood to come in and transform the company.
6/3/2013 05:18:23 pm
A very good write and a sincere effort. I understand your feeling.You Sir has just lifted the mirror and shown it. Hope INFY & the top people see the correct picture and do the needful to bring the company back on track.
6/3/2013 11:11:07 pm
Well written. Couldn't have agreed more.
6/4/2013 12:31:42 am
PRG, nice article. For many of us, Infosys is still our alma mater and holds a very special place in our minds. Anything that happens here is important to us.
6/4/2013 01:06:15 am
The biggest challenge is bureaucracy. How will NRN get back the competent people who were forced to move out because somebody wanted his best friend or relative promoted. That I think is a major problem this firm has to tackle. It still exists.
6/4/2013 02:22:03 am
Somehow, in the years that I was there, I didn't see any evidence of someone's best friend or relative getting an undeserved promotion. Things may have changed after I left (2005) but I would be quite surprised.
6/4/2013 02:34:13 am
Surprised you haven't seen any evidence. May be at exec level it wasnt true that time. It may still be not. Think mid to senior management. Like you, I guess even the current management does not have a true picture of how a case is build for promotions. There is a surprise in store if skeletons are dug on this. Its hard work, but it would be worthwhile to do a controlled clean up than a natural demolition.
S K Ramanathan
6/4/2013 09:11:18 am
Hi Mr Ganapathy. Nice piece. Will you discuss this with the media. You have my mail id. So if you write me your number I will call you?
6/4/2013 10:01:21 am
Well,post event even a novice is considered wise.Speaking retrospectively about the failures the organisation dabbled in,is like back stabbing.The promoters at that point of time,have done what is deemed right.Revealing internal issues in public after venturing outof the firm is quite indigestible.Moreover you were part of the game.So,what have you done or suggested?Would like to hear from you..
6/4/2013 10:25:49 am
Provocative words, Sandeep. Let me do you courtesy of a reply.
6/5/2013 08:53:36 pm
if the company has failed to deliver to investors, investors have the option to throw them out or sell the stock and quit (as evidenced by the share price drop). Whoever bought can be assumed to believe the current strategy delivering long term results. stock price cannot be taken as public vote of management quality at all - for every seller, there is a buyer.
6/4/2013 11:18:20 am
Nice article guns !!
6/4/2013 06:35:45 pm
Nice Analysis, but seems incomplete. There are multiple challenges if you compare it with 98-2005 era. HR broken, sales broken, outsourcing market matured, still IT services remained people business, infy prefered punishment mechanism over reward creating severe lack of ownership and trust. Trust deficit is key challenge to fix and extremely diificult
6/5/2013 03:46:14 pm
Well ! Its is interesting that Sachin and NRN have so much in common. The entire world has an opinion on what Sachin/ NRN should do or should not do. For Sachin, that he should have retired like his peers, that he has been out of form for long, slowing reflexes and most ironically age 40 ! Even, Ian Chappell, one of the most influential voice in cricket suggested him to quit in 2008 and records show that Sachin played his near best cricket just after that. If Sachin is the God of cricket, NRN is the Mahatma of IT industry. These people may make mistakes which goes on to prove that they are mere mortals like you and me and we NEVER EVER doubted their single minded focus, dedication and passion to their craft and ability to instill fear in the minds of the opposition every single time they ventured into the middle. Lastly, we all know Sachin's presence in the dressing room is enough motivation for the team to perform and I am 100% sure that NRN's presence itself in the boardroom will lift the morale and inject fresh energy ! NRN is IN FO Good as the latest Amul ad rightly highlighted.
6/5/2013 06:08:15 pm
Very nice analysis, Manoj your comments are good " infy prefered punishment mechanism over reward creating severe lack of ownership and trust. Trust deficit is key challenge to fix and extremely diificult"
6/7/2013 04:28:29 am
The problem seems that Infosys lacks innovation. I have heard in speeches NRN talking about quality of IIT students and need for innovation in IT.Looks like the innovation is not happening and hurting out IT cos.The work done by our IT sector is no rocket science but still they recruit engineer.This show there is need for rapid innovation in business model of infy.All the best nrn.
6/19/2013 12:55:37 pm
The problem that Infosys faced is the same problem all succesful companies face - let's call it 'how to fix what's not broken'. As an investment analyst I have observed Infosys with outsider-in perspective for a decade and half. Any and every analyst knew that offshore companies cannot sustain 30% ebit margin for a long time doing what they were doing, when everybody else also can set up ODCs and hire talent. One has heard phrases like moving up the value chain so often without any commitment to pay the price because doing anything to build a sustainable model would involve short-term sacrifices for long-term sustainability. Such painful choices can only be made by a strong leader because if a weaker follower-in-footsteps were to make that choice, everybody would criticize him/her for breaking what's doing fine. In AGM, murthy has acknowledged that painful choices are ahead, one only wishes they do not fight the inevitable but instead embrace a more sustainable model.He is the only one who can make these choices - at least now they don't have to worry about worrying about the counterfactual i.e., couldn't we have done more of the same and lived happily. Now we know, that's probably never a choice.
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Executive, entrepreneur, investor and mentor to social entrepreneurs, golf and squash addict, author of thrillers... In short, an amateur dabbler in new experiences, and provoker of thoughts.