CAN MURTHY RE­BOOT IN­FOSYS?

Now No. 3 among In­dia’s IT be­he­moths, In­fosys hopes N. R. Narayana Murthy’s re­turn af­ter a seven- year gap will re­vive its fal­ter­ing for­tunes

India Today - - NATION - By M. G. Arun

When Kun­da­pur Va­man Ka­math took over as chair­man of In­fosys Tech­nolo­gies from N. R. Narayana Murthy in April 2011, it was widely ex­pected that his im­pec­ca­ble rep­u­ta­tion as a banker would bring a whiff of change while his for­mi­da­ble list of con­tacts would help rope in new clients. But crit­ics then warned that the IT busi­ness was a dif­fer­ent an­i­mal, and may not sway to an out­sider’s tune. Ka­math, then 63, was more guarded. “I ac­cept this po­si­tion with great hu­mil­ity. No­body can re­place Murthy,” he said. Two tu­mul­tuous years later, his words rang true and re­al­i­sa­tion dawned— if any­one could re­vive the once bell­wether com­pany, it was Murthy. Iron­i­cally, the task of con­vinc­ing Murthy to re­turn in an ex­ec­u­tive ca­pac­ity af­ter seven years was en­trusted to Ka­math.

Ka­math did not have to try too hard to con­vince Murthy. In­fosys was in dire straits. The com­pany, which grew from a start- up with seven men in 1981 to a Rs 40,000- crore en­ter­prise with over 150,000 peo­ple, had slipped be­hind its peers. Ri­val Tata Con­sul­tancy Ser­vices ( TCS) widened its rev­enue lead over In­fosys by more than Rs 22,000 crore in fis­cal 2012- 13. While S. D. Shibu­lal, In­fosys MD & CEO, blamed “global eco­nomic un­cer­tain­ties” for its lower than ex­pected re­sults for fis­cal 2012- 13 and a bleak out­look for the cur­rent fis­cal, TCS MD & CEO N. Chandrasekaran was op­ti­mistic and said in April that they were chas­ing larger deals this year and ex­pected fis­cal 2014 to be a bet­ter year. New­com­ers like the Nas­daq- listed Cog­nizant, founded in 1994, got ahead in the race too, post­ing rev­enues of Rs 10,024 crore in the April- June quar­ter to over­take In­fosys as In­dia’s sec­ond- largest soft­ware com­pany be­hind TCS. “I think the ma­jor is­sue was that In­fosys had nei­ther the busi­ness ag­gres­sion of HCL or Cog­nizant, nor the lead­er­ship of a Murthy or a Nan­dan ( Nilekani, one of the founders who later be­came CEO),” says Ganesh Natara­jan, for­mer chair­man of in­dus­try body Nass­com and vice- chair­man and MD of Zen­sar Tech­nolo­gies.

On June 1, In­fosys an­nounced big changes at its top deck. Ka­math would step down to bring Murthy back as

chair­man. Co- chair­man S. Gopalakr­ish­nan was re­des­ig­nated vicechair­man and would fo­cus on key client re­la­tion­ships, while S. D. Shibu­lal re­tained his po­si­tion. Murthy’s son Ro­han was also brought in as his ex­ec­u­tive as­sis­tant. All the top man­age­ment, in­clud­ing Ro­han, were to take to­ken an­nual salaries of Re 1. The board also raised the re­tire­ment age for di­rec­tors to 75, ef­fec­tively giv­ing Murthy, who will turn 67 in Au­gust, enough room to script a turn­around in the com­pany.

An­a­lysts say the com­pany’s In­fosys 3.0 strat­egy un­veiled in 2010— which fo­cused on new tech­nolo­gies and plat­forms such as cloud com­put­ing and mo­bil­ity, and grouped its ver­ti­cals un­der four heads: Fi­nan­cial ser­vices & in­sur­ance; man­u­fac­tur- ing; en­ergy, util­i­ties, com­mu­ni­ca­tions and ser­vices; and re­tail, lo­gis­tics and life science— was ill- timed. “There was noth­ing wrong with the strat­egy, but the tim­ing was wrong,” says Arup Roy, re­search di­rec­tor at Gart­ner. “While cus­tomers were fo­cus­ing on costs, In­fosys was fo­cus­ing on growth.” At a time when other IT com­pa­nies were pitch­ing for clients with smaller bud­gets to sus­tain in the down­turn, In­fosys was hold­ing on to prices. It is ex­pected that Murthy will re­view the strat­egy. “I don’t think any­body should look at any strat­egy as hav­ing failed or suc­ceeded. I think what is im­por­tant is how open we are to im­prove upon what we have been do­ing,” he told the me­dia on June 1.

Poor client ad­di­tion is also a

cause for worry. For the fourth quar­ter of fis­cal 2013, In­fosys added only 56 new clients, a steep de­cline from the 89 it did in the pre­vi­ous quar­ter. More­over, there was no ad­di­tion in clients con­tribut­ing above $ 100 mil­lion ( Rs 540 crore) in rev­enues. Its to­tal ac­tive clients now num­ber 798.

An­other prob­lem, ac­cord­ing to Mo­han­das Pai, for­mer di­rec­tor of hu­man re­sources at In­fosys and now chair­man of Ma­ni­pal Global Ed­u­ca­tion, is a flawed man­age­ment struc­ture. “The is­sue with In­fosys is that they put a CEO from the found­ing team, and that has not worked,” Pai, who quit In­fosys in April 2011 af­ter a 17- year stint fol­low­ing the as­cen­sion of Shibu­lal to the CEO’s post, told IN­DIA TO­DAY. Ac­cord­ing to him, ear­lier, the com­pany fol­lowed a pol­icy where the CEO was al­ways sup­ported by a chief op­er­at­ing of­fi­cer ( COO).

When Murthy was chair­man and CEO, he had Nilekani as COO. In 2001, when Nilekani be­came CEO, Kris Gopalakr­ish­nan was COO. When Gopalakr­ish­nan be­came CEO, Shibu­lal stepped in as COO. On Shibu­lal’s as­cen­sion, In­fosys did not ap­point a COO, so the en­tire bur­den of op­er­a­tions fell on him, says Pai. Asked whether he would be will­ing to join In­fosys if Murthy wanted him to, Pai says, “I’m not open to re­turn­ing for the sim­ple rea­son that we’ve had our place in the sun. New peo­ple should come. The prob­lem with In­fosys has been that there is no fresh­ness of tal­ent.”

A freeze on salaries in April 2012 has irked the staff. Job ap­pli­ca­tions re­port­edly fell 40 per cent in fis­cal 2013 and the at­tri­tion rate rose to around 16.3 per cent from 14.7 per cent a year ago. Murthy has ac­knowl­edged that his task is tough. In a let­ter to the top man­age­ment, he said, “Our com­pany has gone through chal­leng­ing times. We should all be op­ti­mists. We have over­come tougher and big­ger chal­lenges be­fore. But we have much to do.” Ro­han, he says, will take a sab­bat­i­cal from Har­vard Univer­sity, where he is a sci­en­tist, and will not aspire to be­come CEO.

Murthy’s re­turn is a short- term feel- good fac­tor, says Gart­ner’s Roy. Some say Murthy’s re­turn erodes In­fosys’s cor­po­rate gov­er­nance cre­den­tials. But the com­pany has few op­tions. “It is un­for­tu­nate that Murthy has to be brought back from re­tire­ment,” says Natara­jan. “But he is In­fosys’s best bet to­day.”

RO­HAN MURTY( LEFT) WILL­TAKE ABREAK FROM HAR­VARD UNIVER­SITY TO AS­SIST FA­THER N. R. NARAYANAMURTHY AT IN­FOSYS

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