Narayana Murthy 2.0

Written by Saritha Rai | Updated: Jan 26 2014, 13:18pm hrs
Narayana MurthyNarayana Murthy
His fellow pioneers from Indias stunning software services revolution have eased away from executive roles in their companies and have moved on to loftier causes. Fellow Bangalorean Azim Premji of Wipro has set up an education university as a philanthropic goal. HCL founder Shiv Nadar has immersed himself in several altruistic social and educational projects. Co-founder Nandan Nilekani transitioned smoothly from the company to set up the gigantic Unique Identification Authority of India (UIDAI) programme for the country and is now poised to reinvent himself yet again by entering electoral politics.

At 67, an age when he, too, should have been chasing his own exalted dreams and playing industry godfather, Infosys co-founder NR Narayana Murthy shockingly returned to what he did for over two decadessteering and directing the company he co-founded in 1981, and then elevated to global standards. Months after his return to launch Operation Resurrect Infosys, investors and employees are doggedly posing the question: when will Murthys comeback restore Infosys to its past glory

Facing scepticism

Earlier this month, it was an overwhelming feeling of deja vu, as Murthy spent the morning unveiling quarterly numbersand taking hard-hitting questions about customers and margins, the controversial recent top-level exits at Infosys, as also his son Rohan Murtys role at the firm. Ironically, many reporters asking the questions were likely contemporaries of Murthys 30-year-old son, Rohan. Murthy said he wants to take Infosys back to its days of industry leading growth and margins; when we will get there depends on how well we execute the various initiatives we have started.

In disclosing impressive numbers for the much-awaited third quarter, Murthy had jumped a critical hurdle six months into his new old job. Beating all analyst prophecies, Infosys was growing robustlya 21% rise in quarterly profits, 54 new customers and a raised revenue growth forecast of 12%. Still, the market reaction was restrained. On the day the company announced its beyond-expectations numbers, its stock moved up by a mere 3%. It was obvious that not everyone was buying into Murthys plan to completely shake up and reorganise Infosys. Investors want to see more and consistent proof that Murthy can restore the pale company to its former brilliance, said an executive from a medium-sized rival, who did not want to be quoted.

The markets guarded response was understandable. After all, Infosys had floundered badly in the last couple of years and a single quarterly result could not undo all that. Indias IT industry as a whole strained to perform amidst a global slowdown, but Infosys itself had seen a long phase of spectacularly drab performances. There had been a slow eroding of its killer instinct. As Infosys floundered, its rivals grew bigger.

The slow, painful drift was disconcerting even to its competitors. In June 2012, Infosys yielded its position as number two among India-centric IT firms to Cognizant. In its core specialitybanking, financial services and insurance (BFSI)it has dropped to number three. In the North American territory, too, it has fallen back one place to reach the third place. In its heyday, Infosys defined the industry rules and others followed meekly. The company that prided itself on commanding the highest margins among its peer group had been beaten down in the market.

Tackling exits

The drift in the company showed up in another telling statistic. The attrition rate at Infosys during the last couple of years has been much higher than at its top-tier competitors. In the quarter ending September 2013, for instance, Infosys attrition rate was 17.3% compared with 10.9% at rival TCS. When growth slowed in the industry, attrition rates had fallen industry-wide. So Infosys attrition was not even in the context of the job-hopping good times.

In this backdrop, it has been a tough and painful return for Murthy. His critics have questioned Murthys suitability for the job and his ability to respond to its quickened pace. His loyalists understand. How could he sit back and watch his own baby going down one senior colleague, who quit a few years ago, asked.

So Murthy has found himself back in the same corner office at the shiny, glass-facaded building at Infosys headquarters, surrounded by a handpicked team of assistants, including son Rohan. Around him, though, the company has been gripped by a series of convulsions. For instance, in October 2013, months after his return, Murthy expanded the companys exalted decision-making body, the Executive Council, inducting 12 new members. But two months later, Murthy had completely disbanded it.

The most talked about development in the two quarters since Murthys return has been the high-level exodus at Infosys. As many as eight top executives, including chief financial officer V Balakrishnan, head of global sales Basab Pradhan, North America head for financial services Sudhir Chaturvedi and head of the consulting business Stephen Pratt have exited. Former US operations head Ashok Vemuri left to join the smaller-sized rival, iGate. Infosys appears to have lost its entire top-rung leaders within a span of months.

In an industry where momentum is key, some say the news of so many high-level departures is distracting employees. As brokerage firm UBS said in its report, management stability is necessary for a sustainable turnaround. Murthy responded quickly by elevating two of the last remaining old guard, BG Srinivas and UB Pravin Rao, to president and positioned the duo as internal frontrunners for the CEOs job, which is up for grabs when SD Shibulal retires in 2015. But the industry is shocked at the rapidity of customer facing executive exits in an industry where feet on the ground is critical.

Restrategising

The defining decision of Murthys second innings is his resolve to scrap Infosys much-touted 3.0 strategy, long criticised for pushing the company to calamity. The 3.0 strategy, devised to improve the companys portfolio by offering high-value, profitable consultancy services to take on global industry rivals such as IBM and Accenture, had failed to gain traction in the market. Now, Murthy has effectively relegated it to the sidelines. The businesses under 3.0 would be hived off into a separately-managed unit with its own chief.

The return to decision-making is providential for Infosys, which had endured a leadership vacuum for several years. Neither current CEO Shibulal nor his predecessor Kris Gopalakrishnan, the last of the co-founder-CEOs at Infosys, had the gumption to take tough decisions, which could have steered the company through a turbulent phase in the industry. Now, Murthy is going at the operations with gustoruthlessly cost-cutting at one level, while contemplating a pay hike for employees. If the salary hikes come through as expected in April, it will be the second bonanza for Infosys 1.58 lakh employees in less than a year.

In the period between Murthys exit and his return, technology shifts and changing client demands have made the IT services industry a hyper-competitive landscape. It is a sector where top Indian firms compete with the best in the world every single day, sitting across the table with global customers and outbidding and outdoing multinational rivals on projects.

Murthy is back in charge and displaying control in his own inimitable style. Junking the much-ballyhooed Infosys 3.0 strategy, he made a direction change at Infosys to turn it back to the traditionally-profitable IT exports model. The company is now playing to its old strengthsleveraging the cost advantages of doing work offshore to do projects such as developing and maintaining applications, business process outsourcing and product engineering. Its sales teams are chasing after large deals, even at the cost of dropping its once-sacrosanct margins.

The company was stressed out and required an anchor like Murthy to bring about stability and comfort. With all the steps he is taking, it should turn around, said the recently departed CFO V Balakrishnan. Infosys share price has hovered around R3,500, shooting up by nearly 50% since Murthys comeback in June last year.

The company still has what it takeshigh-calibre talent and a brand long respected in the marketplace. Serendipitously for Murthy, the IT sector is itself headed out of a downturn. The company that once defined the rules for others to follow is trying to win back the trust of its employees, investors and customers.

Murthy is looking younger and displays the energy and passion of a younger Murthy circa 1995. His brain is still razor-sharp. If the man who is famous for bathing with half-a-bucket of water, cleaning his own toilet, eating and living simply can help Infosys reimbibe the value of hard work and singular focus, then its rivals better watch out.