scorecardresearch
Why Narayana Murthy should not stay beyond 2 years at Infosys

Why Narayana Murthy should not stay beyond 2 years at Infosys

Despite the thumbs up from investors to Murthy's return, some analysts are sceptical about his forthcoming five-year term. They feel he should give himself just two years to galvanise the company and then hand it over to a younger executive who can connect better with young workers.

A file photo of N.R. Narayana Murthy A file photo of N.R. Narayana Murthy
During his first stint as Infosys's chief, N.R. Narayana Murthy, while meeting potential clients or showing them around the Bangalore campus, rarely spoke about his company directly. He had no need to - everyone knew. In those days, Infosys was the Indian stock markets' darling. Investors loved it because it always beat its earnings targets. Murthy himself was the poster boy of the country's software industry.

N.R. Narayana Murthy
N.R. Narayana Murthy Photo: Nilotpal Baruah/www.indiatodayimages.com
"Murthy was keen on talking about India, and how Infosys was helping the country move forward," says Al-Noor Ramji, former Chief Information Officer (CIO) of the BT Group, Britain's communications' services giant, talking about his 2005 visit. "He never talked about Infosys by itself."

Today, however, back in Infosys as Executive Chairman, Murthy will have to be a lot more down to earth. He will need to dwell at length on Infosys's current activities and achievements. For the company's financial fortunes have been fading. Its market share has slipped and competition is snapping at its heels. The question on everybody's lips is: can Murthy's return revive the Infosys magic?

It certainly won't be easy to turn around the company Murthy co-founded with six others in 1981. The $7.4-billion software giant is growing at a slower pace than the industry: Infosys grew at 6.6 per cent in dollar terms in 2012 compared with an average 13.3 per cent clocked by India's top five vendors, according to research company Gartner. It has also lost its No. 2 position in the infotech industry - after TCS, which was always No. 1 - to Cognizant Technology Solutions. Infosys blames the slowdown in its key US and European markets, but industry experts say the company's culture is also a key reason for its decline.

"The culture has changed at Infosys from wanting to be the best to possibly focusing too much on margins. Usually, you saw them at the top in quality terms. In recent years they were quite often second or third," says Ramji. BT, once Infosys's largest customer, has reduced its business with the company.


Markets were delighted with Murthy's return. The company's stock - which fell to its lowest in a decade in April - leapt up as much as nine per cent soon after the announcement. Former employees say the 67-year-old founder will function as a defacto CEO from now on, dictate board proceedings and make strategic moves.

Murthy was first CEO until 2002, when fellow founder Nandan Nilekani took up the job, and then Chairman until 2011 when he stepped down from the board and became Chairman Emeritus. Sources say Murthy considered a co-CEO model when Infosys approached him to come out of retirement early in May.

Eventually, CEO S.D. Shibulal retained his position in the restructuring. Kris Gopalakrishnan was demoted to Vice Chairman from Executive Chairman while Non-executive Chairman K.V. Kamath stepped down to become Lead Independent Director. Murthy is setting up a team to assist him, which includes his 30-year-old son, Rohan Murty, who has joined the company as his father's Executive Assistant. Rohan Murty is a fellow at Harvard University.

Despite the thumbs up from investors, some analysts are sceptical about Murthy's forthcoming five-year term. They feel he should give himself just two years to galvanise the company and then hand it over to a younger executive who can connect better with young workers. Many CIOs are way younger than Murthy - the average age of an Infosys employee is 28. "Murthy may find it difficult to connect with the new CIOs who work in small agile teams, who think of in-sourcing and not outsourcing," says Ramji.

Infosys has three CEO aspirants to succeed Shibulal - Ashok Vemuri, who heads manufacturing and engineering services, B.G. Srinivas, who runs banking and financial services, and V. Balakrishnan, the former Chief Financial Officer whose business responsibilities are rising. "If you have a powerful figure like Murthy for five years, it means no one else has a chance at the top job," says Peter Schumacher, founder of Value Leadership Group, a management consulting firm. "Infosys has already lost a lot of leaders. What happens to the careers of other CEO aspirants? I'll be surprised if it stands even a chance of getting a foreign CEO into the company."

{mosimage}
In its February 17, 2013, cover story 'Missing Murthy, BT asked Murthy if he would ever return to lead Infosys. He replied: "I don't think so, but who knows? I don't want to say never
Many experts say Infosys should scout for more talent overseas because the predominance of Indians on its executive council and board suggests it lacks diversity and global vision. Cognizant is far ahead of Infosys in terms of both non-Indian senior executives as well as board representation. "The game changer will be to move Infosys from being an India-centric business to one that is globally synergistic and inclusive. That is the only way you can get the top talent that you need in Europe and the US, the only way to capture the imagination of customers, the only way to compete with Accenture, Cognizant and IBM," says Schumacher.

Analysts say Murthy's immediate task will be to lift staff morale. "Infosys staff morale is low and the quality of the middle management needs strengthening," says Phil Fersht of HfS Research, a Boston-based IT advisory.

"The company has to redefine what it means to be an Infosys employee and incorporate staff development programmes to recreate a culture that can compete effectively. Bring in some external talent to drive this approach. Globalise the management team." As a first step, after Murthy's return, Infosys has already announced an eight per cent salary hike for its Indian employees and a three per cent rise for those overseas.


Pradeep Mukherji, who heads management consulting company Avasant's Asia operations, says there is no rule that stops Murthy from handing over the reins without completing his five year stint. "Murthy's role would be course-corrective. He knows the company. For him, it is easiest to carry out the corrections and then hand over the reins to someone else," he adds. Course corrections would include instilling discipline in the top management. In its February 17 cover story 'Missing Murthy', Business Today reported that V. Balakrishnan did not see eye-to-eye with CEO Shibulal; Vemuri and B.G. Srinivas did not get along well either. The company's 16-member board may also have to be pared.

Experts say Infosys does not have the luxury of time. Markets will judge whether Murthy is a success in just three quarters

More members mean more opinions and more time spent in aligning their ideas. Experts say Infosys hardly has the luxury of time. Schumacher of Value Leadership Group estimates TCS could be a $20 to 25 billion company and Cognizant could touch $15 billion in five years, while Infosys will lag its rivals if it does not lift its performance soon. How long will investors wait for a turnaround? "The markets will judge whether Murthy is a success or failure in three quarters," says a former senior Infosys employee who does not want to be named. That is all the time he may have to correct previous mistakes. Or else when the history of Infosys is written, Murthy could well be blamed for backing co-founders who took the firm on a downward spiral.