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
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