NR Narayana Murthy's formula for speedy recovery at Infosys Ltd

P P Thimmaya Posted online: Monday, Mar 10, 2014 at 0000 hrs
Bangalore : Statements made by Infosys chairman NR Narayana Murthy during investor calls late last month are being viewed in industry circles as a wake up call for the company’s top management. While some employees may clearly be surprised about Murthy’s points of view, for those who know him well this was just what the doctor ordered

The lustre had gone away from Infosys, once the bellwether of the Indian IT industry, having run itself almost aground with indifferent performances over the last two-and-half-years. It needed somebody of the stature of NR Narayana Murthy to set the house in order for the $8 billion company with some bold and courageous decisions.

Murthy’s return to Infosys in June, 2013, as the executive chairman gave renewed hopes for the company as some huge questions marks lay before it. The company was steadily slipping on all counts be it, growth, profitability or customer connect.

However, given the size of Infosys with over 150,000 employees, doubts still remained whether Murthy would be able to undertake the mammoth task of reviving the company. The core of any IT services company always revolves around

its employees as they are its biggest asset and any such changes is certain bring about the tremors.

Transparency and admission of mistakes have been hallmarks of Murthy’s stint at Infosys. In a recent analyst call, Murthy said, “I must admit that we are not happy with our performance over the last 2-2.5 years. In the financial year 2012-13, our growth plummeted to 5.8% which is almost half the Indian software industry growth rate which was proclaimed to be about 11%.”

He further went onto to say, “Next year, that is the financial year 2014, as we have already forecast our growth is expected to between 11.5-12% compared to about 13% growth that Nasscom has articulated....But even this is slightly short of the average industry growth rate as enunciated by Nasscom and therefore we are not happy with it.”

The questions remains how did things come to such a pass? The decline was gathering moss over the last three years with a culture not based on achieving certain performance standards but more aligned to managing the diktats of the superiors. People familiar with the working of the company said that in the last few years, a culture of complacency had set in, which saw many of the high performers leaving Infosys and joining rivals such as Tata Consultancy Services, Wipro, Cognizant to name a few.

This also saw many senior level executives creating their own circle of influence within the company while the top level leadership was more focused on articulating a strategy which did not have much of a resonance either with the market or customers. Many industry observers have questioned the role of the Board in the entire saga. The key question was whether the Board was effective in questioning the performance of the company, sources said.

The trigger for the changes came with certain key investors based out of Singapore writing a letter to the board expressing their disappointment with the performance of Infosys. This resulted in then chairman, KV Kamath along with V Balakrishnan, another former board member paving the path for the return of Narayana Murthy to the helm of affairs.

Murthy has said, “When the board of directors invited me to come back and add value to the organisation, I had to create an office consisting of extremely highly qualified people.” The Infosys chairman has gone about weeding those executives especially at the mid-management level and above who were not making their contribution.

This saw at least eight key executives leaving the company in the span of six months, leading to questions whether there was instability in the management, an argument countered by Murthy who said, “There is absolutely no turmoil...barring exceptions, the rest of the people who had to leave unfortunately were people who were deriving very high salaries and we were not getting value from them.”

It was also surprising revelation that the mid & senior level employees of Infosys had not received any salary increase over the last two years and Murthy’s first task was to ensure that there is a compensation increase by 8%. Employees also recount the instance where Murthy enquired even with the lowest level of employees whether they have got the salary increase.

It is very doubtful that whether anybody else within Infosys would be able to take these decisions to ensure that there is a tight controls of costs while making improvements on their sales and delivery functions. The cost structure of Infosys had been bloated and was higher than its peers in the industry. Murthy ensured that these were downsized to manageable level by targetting the highly paid executives who did not bring in the commensurate returns.

Infosys has also gone about putting the right resources in its sales function to ensure better connect with the markets while changing the entire parameter of measuring the employees productivity.

TV Mohandas Pai, chairman, Manipal Global Learning and former Infosys board member said, “Narayana Murthy is an

extraordinary leader who understands Infosys well. Performance is the only reality for him and he is doing everything to regain the past glory of the company.”

The results of these efforts by Murthy is expected to take another three years, though there is early recognition that Infosys could return back as the well oiled business machine.

Prabhudas Lilladher, a brokerage house in its recent report titled ‘Infosys—Meritocracy drive = Improving clients satisfaction’ said, The company continues to strive for meritocracy and has set tone for no tolerance for mediocrity. According to our sources, the restructuring process initiated at the top of the pyramid has now percolated down to the middle. This will not only improve the service delivery, but will also right-size the pyramid.”

Sudin Apte, CEO, Offshore Insights, an IT research firm, felt that Infosys under Narayana Murthy has made progress with moderate to average success.