Mr.N.R Murthy’s returns to take charge as Infosys’s woes mount

Murthy’s returns to take charge as Infosys’s woes mount
When Nagavara Ramarao Narayana Murthy retired from Infosys Ltd in August 2011 at the age of 60, it was difficult for insiders and those tracking the firm from outside to believe that the company’s iconic founder would actually manage to step aside completely. Murthy always described Infosys as his third child and chose to take a non-executive title of chairman emeritus, retaining the umbilical cord.
In the seven years since Murthy stepped down from all executive roles at Infosys, the so-called “heritage building”, a two-decade-old red-brick block that served as the original corporate headquarters of the firm in 1994, continued to host visitors from within Infosys and outside. Murthy’s office at this building received everybody from mid level to senior Infosys executives who came for advice and others from different walks of life.
In many ways, his office at the heritage building never logged out of Infosys, and with the Saturday announcement of Murthy’s comeback, it won’t for another five years at least.
“Standing here today is very unusual for me. When I walked out of Infosys on August 20, 2011, I did not in my wildest dreams imagine that I’d be back here in an executive capacity,” he said on Saturday at a hurriedly called press conference called by Infosys at noon.
Since Infosys was founded in 1981, Murthy managed each of the leadership transitions that saw four of its founders run the firms one after the other, even amid questions about whether the last two (S. Gopalakrishnan and incumbent S.D. Shibulal) deserved the chance.
When he announced nearly two years ago that K.V. Kamath and Gopalakrishnan would become non-executive chairman and executive co-chairman, respectively, he surely didn’t imagine that he would need to return after a nightmarish run during which the company missed revenue guidance and profit warnings. All this cost Infosys its status as the industry’s bellwether, something that Murthy always took pride in.
Even as Shibulal tried his best to explain his new Infosys 3.0 strategy to investors and customers, Murthy kept hoping and waiting for a turnaround.
“You can take Murthy out of Infosys but not Infosys out of Murthy,” is what one of the co-founders of the company had said when he had stepped down.
Earlier this year, at an internal strategy meet, Infosys invited Murthy to give a talk. At least two people who attended the session said it was more than just a pep talk.
“It was an intense discussion where he pointed out several tactics and questioned Infosys’s lagging performance,” said one of the persons.
Founded in 1981 by Murthy and six others, including Nandan Nilekani, Gopalakrishnan and Shibulal, Infosys held its own as India’s most high-profile IT company—although rival Tata Consultancy Services Ltd was always bigger—until three years ago. In the past two years, the company has missed its revenue and profit growth forecasts several times and has been overtaken by Cognizant Technology Solutions Corp. in annual revenue.
It also pursued a so-called 3.0 strategy doggedly in an environment when outsourcing customers were only looking to save costs. The 3.0 strategy was aimed at increasing Infosys’s revenue from newer technologies and business models such as cloud computing and software platforms and products.
Last year, Infosys missed the lower end of its revenue forecast at least twice and stopped giving quarterly forecasts. The sluggish growth rates and increasingly impatient investors prompted Infosys to re-examine its strategy and it started cutting prices for select clients. The company also entered into revenue-sharing agreements with companies such as IPsoft Inc. to drive up business volumes, even at the cost of margins.
In an interview with Mint on 7 May, Murthy had denied any plans to come back to Infosys, but added that it’s “difficult to predict what will happen tomorrow”. Murthy served as chief executive officer from 1981 to 2002 and as chairman from 2002 to 2011.
“At this stage, looking at the data that I have, I wouldn’t say that. So, who knows what happens in the future, I am not gone, cannot say what I will do tomorrow, I may not be there tomorrow morning. So, it is not possible for me to predict what will happen tomorrow,” Murthy had said.
To be sure, Murthy is not the first founder to return and try restoring the glory of a company. But to make the comeback, Murthy had to break two of the rules he established—that the founders should retire at 60 and that their children wouldn’t work at Infosys.
Not only has the comeback disrupted the succession plan set in place by him and his co-founders, it will also involve the recruitment of Murthy’s son, Rohan, the first time that a second-generation family member of one of the company’s founders has gotten involved at such a level. Murty will be a member of the chairman’s office that his father is setting up.
“Post-retirement, I have been working with a small team of people…and one of them happens to be my son Rohan. He has no leadership role. The only role that Rohan has is to make me more effective. That’s it,” Murthy said on Saturday.
Investors are welcoming Murthy’s comeback recollecting the lost glory days when Infosys stood for predictability and was a bellwether for the entire industry.
“Infosys has been facing a huge credibility deficit among its stakeholders of late but Murthy commands respect of all: employees, customers and shareholders.
This step should lift the morale of junior employees while keeping senior managers on their toes. Improvement in communication with investors should bridge the trust deficit developed over past 12-18 months,” said Nimish Joshi of CLSA India in a note after the announcement.
In many ways, Infosys lost momentum because of its obsession with ensuring high profit margins, a strategy articulated by Murthy over the years. That strategy allowed newer rivals such as Cognizant to displace Infosys from its No. 2 position in the Indian IT, and even saw bigger rival TCS widen its revenue lead. TCS also managed to equal Infosys on profit margins.
Moreover, the competitive landscape has changed. Customers are no more just wooed by lavish workplaces, beautiful campuses and infrastructure, showcased to world leaders by Murthy until a few years ago.
Some experts tracking the company are equating Murthy’s comeback with how Apple Inc. founder Steve Jobs and Starbucks founder Howard Schultz came back to turn their companies around.
“While the stock will instantly react positively, expecting Murthy to deliver immediate success is unreasonable. Investors will now be willing to give Infosys a longer rope and the stock could move beyond being just a trade to a potential longer-term portfolio holding,” Joshi of CLSA said in his note.
For Murthy though, more insightful lessons could come from Yahoo Inc.’s Jerry Yang and Dell Inc.’s Michael Dell who failed to hire suitable successors and struggled with their comebacks to save these firms.
“If Murthy really wants to save Infosys, he will get a global leader who can steer Infosys through this turnaround. If he again makes it a personal battle and an emotional effort to save ‘his child’, then Infosys will suffer,” said the chief executive of one of the top four India-based software firms who competes with Infosys for business. He requested anonymity because he did not want to be seen as making public comments on Infosys’s troubles.
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