Return of an icon : Can Murthy turnaround Infosys?

Return of an icon : Can Murthy turnaround Infosys?

Bangalore-based Infosys, once the bellwether of India's information technology industry, has recently had its confidence shaken by shrinking revenues, ...

Bangalore-based Infosys, once the bellwether of India's information technology industry, has recently had its confidence shaken by shrinking revenues, rising employee attrition and sinking morale. The return of its co-founder NR Narayana Murthy as its Executive Chairman has stunned industry and investors. And industry observers say turning the company around could be a huge challenge even for a leader with Murthy's track record
Saritha Rai murthyJust over a decade after he relinquished executive control, NR Narayana Murthy, the charismatic billionaire co-founder of one of India's largest outsourcing firms Infosys, has stunned the industry and investors by returning as its executive chairman. Murthy, 66, described it as a move he himself had not anticipated in his "wildest dreams". With his re-entry, he has cast himself as a saviour of the floundering Infosys even as it slid to third spot in the industry rankings, overtaken by a relative upstart, Cognizant Technologies. Bangalore-based Infosys, once the bellwether of India's information technology industry, has recently had its confidence shaken by shrinking revenues, rising employee attrition and sinking morale. The stock price plummeted 20% to its lowest price in a decade just after its quarterly results were announced in April. Infosys went from being the first Indian company to list on the tech-heavy Nasdaq stock exchange to the first to be served a subpoena on a worker visa issue by a grand jury in the US. Industry observers say turning the company around could be a huge challenge even for a leader with Murthy's track record. "After being in the doldrums in the past few years, Infosys has lost a tremendous amount of momentum, credibility and cachet in the marketplace," said Partha Iyengar, country manager of research at consulting firm, Gartner. "Even with Murthy back at the helm, it will be hard to recover from that," he added. In making Infosys successful, Murthy achieved iconic status as one of India's greatest entrepreneurs. The son of a school teacher, he rose from a modest middle-class background and co-founded Infosys with six other engineers with a paltry investment of $250 (�163). After building it into a multi-billion dollar firm, Murthy became the face of the industry that heralded India as a global technology power. His reign at Infosys coincided with the golden era of Indian outsourcing. The industry grew at 30-40% annual rates to cross $100bn in revenues (2012 revenues $108bn). Thousands of newly-minted engineers were guaranteed employment as companies hired massively. In 2002, when Murthy quit his executive role, Infosys was growing at an annual rate of 37%. Recently, however, it has been quarter upon quarter of disappointing news. Infosys chased a much-hyped strategy focusing on products and platforms and dubbed "Infosys 3.0" by SD Shibulal, its co-founder and chief executive. The company was steered towards higher-value consulting projects at the cost of the lower-margin, labour-intensive services it had built its reputation on. The changed strategy, however, did not yield the desired results. In the last three years, Infosys has seen those double-digit growth figures decline, and for the October 2012 - September 2013 financial year it expects growth of 6.6%. Worse still, in the fiscal year 2014, the $7bn, 156,000-employee company is expected to underperform the industry.
"Focus on work"
infosis murthyWith his dramatic comeback after the Infosys board requested his return, Murthy has a lot to prove. In a country where politics, sport and cinema are rife with examples of geriatric leaders clinging on to their positions, Murthy has chosen to come back at an age when most Indian corporate leaders retire. To stir up the firm in the challenging market conditions and deliver magical results to impatient investors will not be easy. Last year, after twice missing its revenue forecast, Infosys stopped giving out quarterly sales and earnings guidance. Four days after his comeback announcement, Murthy told the BBC he would rather "focus on my work" than make forecasts. Murthy faces a tough scenario. "What Infosys needs now is inspirational leadership to focus on sales and make the company work as one team," said former Infosys chief financial officer Mohandas Pai who quit in a huff a few years ago after he was overlooked for the chief executive's role in favour of co-founder Mr Shibulal. Indian IT itself appears to be struggling - consultancy firm Gartner says the "growth rate of India-based providers has been slowing for some years, but in 2012 this trend was more pronounced".
Some see it as a "middle-age crisis", an industry governed by a greying upper layer of executives who are too conservative to keep up with the mercurial changes in the industry, but still will not relinquish leadership control to younger talent. In this background, Murthy is required to be the Renaissance Man. In tow is his Cornell and Harvard-educated son Rohan Murty, 30, a PhD in computer science and among the largest individual shareholders of the company, who has been named his executive assistant. However, a lot has changed in the industry since Murthy took his hands off the steering wheel at Infosys. Also, any major turnaround will take time. Mr Iyenger of Gartner likened the agility needed in the IT industry to changing the tyres on a car moving at 100 miles per hour. "The challenge at Infosys, however, equals replacing the engine of the car in the middle of an F1 track when everyone else is going at 100 miles per hour," he said. "Infosys has already been lapped a few times over, can they recover in time and catch up? It's a tough task." - BBC News India
Herculean task ahead
PRN R Narayana Murthy returning to Infosys is the talk of the town. Debates are going on how he would change the fortunes of Infosys, which has seen a slump during the past couple of years. PR Ganapathy, Narayana Murthy's first executive assistant, shares his views on Murthy's comeback and management crisis at Infosys. Ganapathy who joined Infosys in 1998, worked closely with Narayana Murthy preparing for the Nasdaq listing in 1999. Besides being the head of corporate planning, Ganapathy was also in charge of Investor Relations for four years, interacting with Murthy and the other founders. He, however, quit Infosys in 2005. Ganapathy tells's Vicky Nanjappa that unless Murthy launches an aggressive search for a significant infusion of new blood, he will find it difficult to implement the dramatic changes at Infosys that everyone is expecting.
What are your thoughts on Narayana Murthy returning to Infosys as its executive chairman?
While Narayana Murthy will inspire confidence in some employees and investors, I think we need to understand the challenges facing Infosys. For the last 10 years, Infosys needed to take its game to the next orbit and become a consulting-led technology solutions provider to compete against companies like IBM and Accenture. Doing that requires a team at the helm that knows how to execute that sort of strategy, including making strategic acquisitions, investing in senior talent and developing industry solutions. The senior team at Infosys have been there for at least 16 years; they have seen the company grow from $68 million to $7 billion. They know that Infosys needs to make this transition, but have been unable to do it. I therefore feel that unless he launches an aggressive search for a significant infusion of new blood, Murthy will find it difficult to turn around Infosys' fortunes.
There appears to be a management crisis at the Infosys since the past two years. Can Murthy sort this out?
Infosys has always had talented management, but I think it needs more than just talent - it needs management with the right sort of experience and relationships - that will help them connect with boards of Fortune 500 companies and drive business the way IBM and Accenture do. If Murthy uses his tenure to launch a search for fresh blood with that sort of experience and connections, he may be able to sort it out. It also remains to be seen whether the rest of the organisation, especially the next line of managers (who are eyeing the top slots), allow new people to come in or not.
Now with Murthy back, how do you see the future of Infosys change?
From Murthy's comments it doesn't appear that he feels the company needs major changes. I therefore don't know if we should expect too much to change. Infosys had a policy of co-founders not bringing in their family members into the company. Do you think a bad precedent has been set in by bringing in Rohan? I don't think his son coming in is such a big deal. The executive assistant position, which I held, is one that helps the boss become more effective by supporting him with analysis, managing his meetings and calendar, diligently following up action etc. If Murthy feels that Rohan will be an effective executive assistant and will help him do his job better, I don't think there's anything wrong with it.
Murthy says that Rohan is there for a fixed term. Do you believe that or is it a way of consolidating his son's position in the company?
Infosys has always had a very professional culture and Rohan will have to earn his spurs like everyone else. Knowing Murthy I doubt he will later thrust Rohan into positions of responsibility against the wishes of other senior managers. I think on this particular aspect there is no smoke or fire.
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