The End of an Era…



March 31, 2002, in many ways and for many people, is the end of an era and
the beginning of a new one. On that day, Narayana NR Murthy, who has guided one
of India’s best-known software companies through its birth, adolescence and
maturity, stepped aside and Nandan Nilekani took over as chief executive officer
of Infosys Technologies, a company he co-founded as a youngster in 1981.

"I have not moved out," Murthy said three months ago, when he made
clear his decision to step down at the end of the financial year. "I have
just moved aside for younger people to take over when they still have the energy
and the ambition left in them." Murthy now becomes ‘Chief Mentor’ of
the company, much in the style of Bill Gates at Microsoft, and hopes to play a
similar ambassadorial role. Nilekani, meanwhile, moves up from the position of
chief operating officer, to CEO.

PASSING
THE BATON:
Murthy moves on to his new role as
‘Chief Mentor’

It has been an amazing relationship. It began in 1978 when a young Nilekani
passed out of IIT, Bombay with a degree in electrical engineering and joined
Patni Computer Systems. Narayana Murthy was the head of the company’s software
group at that time. Within three years, the two left Patni, and along with five
others, set up a small company of their own in July, 1981. Their seed capital–a
princely Rs 10,000. "We realized very quickly," says Nilekani,
"that there was a need for a very high-quality software company that was
very employee-focussed." And Infosys was born…

Today, almost 21 years later, that relationship has held firm and strong, and
the company has grown from its seven promoters in 1981 to 10,663 people and Rs
2,300 crore in turnover. But notwithstanding Nilekani’s matter of fact
rendering of this history, it hasn’t been an easy journey.

The early days
When Nilekani passed out of IIT Bombay, IBM had just left the country,
though a whole crop of new companies were making their first foray into India–including
the likes of DEC (Digital Equipment Corporation as it was then known) and
Datageneral. There were few domestic software companies, and the few that were
there, weren’t the behemoths they we know of today.

It was a different age. Liberalization hadn’t yet happened; India’s soul
was still socialist; technology hadn’t come to be so pervasive; and money
making was yet to become a virtue. "The only companies of significance at
the time," says Nilekani, "were either MNCs, large family-run
businesses or public sector units. When we set up Infosys, entrepreneurship was
not very hot. And there weren’t very many role models. In fact, the concept of
first-generation entrepreneurs did not exist." For the first few years,
says Nilekani, "All of us were abroad. Only Murthy was here." They had
bagged an order from Databasics Coporation and Nilekani and others were on the
clients’ site. Databasics had a solution for the apparel industry and Infy’s
first project involved the development, implementation and maintenance of that
solution.

Nilekani came back to India in 1987 and the company slowly branched off with
orders from General Electric and Reebok. In the late eighties, when the Indian
software exports industry was still very small, Jack Welch and team had come to
India to identify a few Indian software companies to work with. They looked at
TCS, Wipro, Patni, and finally settled on Infosys. This was a big win for the
company and the relationship lasted for a long time–GE remained one of Infosys’
top clients for years after that.

For a brief while, Infosys also entered into a joint venture with management
consultancy firm Kurt Salmon Associates and formed KSA-Infosys. That didn’t
last long though, as Infy realized that what it needed was a strong marketing
and brand-building thrust of its own.

The big leap
By the time Dr Manmohan Singh presented his landmark budget in 1991, Infosys
had grown to 162 people, but was still not growing the way the promoters had
hoped. Things weren’t bad, but they weren’t exactly booming either. This was
the time of the company’s first major introspection at a cusp in the Indian
economy. "That was when we realized that we had to do things
differently," says Nilekani. "Liberalization was happening, large MNCs
were coming into the software development sector and, suddenly, recruiting was
becoming more difficult–with all IT companies fighting for the same talent
pool."

Infosys:
Milestones
1981Establishment
in India
1987First
international office in US
1992IPO
in India
1993– 
Successfully listed in India
–  ISO 9001/TickIT certification
1995– 
Best Annual Report Award from ICAI (every year from ’95)
–  Set up development centers across cities in India
1996– 
Infosys Foundation to focus on contributing back to the society
–  l Set up first office in Europe in Milton Keynes, UK
–  e-business practice (Infosys Internet Consulting Practice)
1997
 Set up office in Toronto, Canada
–  Assessed at CMM Level 4
–  Set up engineering services practice
1998– 
First in "Award for Corporate Excellence" Economic Times
India
–  Enterprise solutions practice (packaged applications)
1999– 
$100 Million in annual revenue
–  Listed on NASDAQ (first India-registered company to list)
–  Assessed at CMM Level 5
–  Infosys Business Consulting Services
–  Reorganization for competence building DCG, SETLABS, CAPS
1998– 
First in "Award for Corporate Excellence" Economic Times
India
–  Enterprise solutions practice (packaged applications)
1999– 
$100 Million in annual revenue
–  Listed on NASDAQ (first India-registered company to list)
–  Assessed at CMM Level 5
–  Infosys Business Consulting Services
–  Reorganization for competence building DCG, SETLABS, CAPS
2000– 
Awarded the "National Award for Excellence in Corporate
Governance" by the Government of India
–  $200 Million in annual revenue
–  Global development center in Canada and UK; Three
development centers in US
–  Combined the e-business practice with rest of the
organization
2001– 
Rated Best Employer of India by Business Today-Hewitt Associates
–  Touched $400 Million in annual revenue
–  Opened new offices in Singapore, UAE and Argentina

So far, Infosys had survived by ploughing its profits back into the company.
"But we knew then," says Nilekani, "that our bootstrapping days
were over. We needed a certain physical infrastructure and a new way of doing
business." Recruiting wasn’t the only problem. The promoters realized
that unless they built a top-tier brand name, they wouldn’t be able to compete
with their bigger competitors in the market. And compete they would have to,
they knew. The days of demanding protection from the government were over.
"Besides," says Nilekani, "in the software sector, we always
believed in competition. We believed it was good for us."

To meet this new threat and tap the new market, the company went public in
1993. The rest, as they say, is history.

The challenges ahead
For Nilekani, the challenges ahead are significant (see interview). While
Narayana NR Murthy guided the company through its difficult formative years,
there’s a completely different challenge in keeping a behemoth going,
especially so in a sector littered with the remains of upstarts who made it big
really quickly, shined bright for a few years and then simply fizzled out.

Managing growth, however, is not the big issue for either Nilekani or Infosys.
Continuing to grow in a completely changed business environment, at a time when
the ‘sunrise’ years of Indian software are well nigh over, is. However, the
company has grown to where it is today precisely because it has always had a
finger on the pulse of the market. For instance, long before the slowdown was
being considered a threat, Nilekani had spoken to Dataquest about how 2001 would
be more about volumes than value, of how billing and margin pressures would
become more and more important. It is with this foresight and legacy of turning
a dream into a dream company that Nilekani has entered the CEO’s chamber.

Sarita Rani in Bangalore

"It’s a Big Challenge, and Very Exciting…"

 Is
this a big moment for you?

Clearly, this is a very big challenge, and a very exciting moment, for me–both
in terms of taking over this position and the time at which this is happening.
We had a couple of years of really tumultuous growth in 1999-2000. The last one
year, on the other hand, has been a new paradigm. The environment has been much
more competitive, and we’ve had to work hard for every order. These are
exciting times.

What do you see as your key challenges as the new CEO?
I see six basic challenges. First would be spending a lot of time in the
market with customers, understanding their needs, the services they require, and
tailoring our solutions to meet those needs. Second, in the last one year, we’ve
internally done a lot of work on reducing costs and streamlining our activities.
The challenge is to continue that process and align each and every one to it.
The third challenge is in creating a performance work ethic, setting and
identifying high performance standards and making sure that these are adhered
to. More importantly, we have to make sure that those who perform well are
rewarded. Fourth, working on things that are required for building and cementing
our brand as well as client relationships. I see that becoming increasingly
important as we compete with global players in the global market. The strength
of our client relationships and brand enhancement–both in breadth and depth–will
be a key priority. Fifth, the importance of making Infosys more multi-cultural.
We already have people from 26 different nationalities–I myself was surprised
when I learnt that. But as we go into the next phase of our evolution, we need
to do this even more. The challenge will be in getting the organization geared
up to this. It is already happening, mind you. We only need to accelerate the
process. And finally, getting everybody to be more customer focussed. That is
already there, but re-emphasizing that will be important.

What do you see as your mandate–a mandate for change, continuity, growth…?
We have a long-term strategy, a direction of the company that the entire
senior management team has already bought into over the years. In that sense,
that part of it is certainly a mandate for continuity. There, however, are
things I can do to help the company achieve the goals that it has set for
itself.

Do you and Narayana NR Murthy have significantly different management
styles? Would one expect to see a change on that front?
You should ask an outsider that. But yes, everybody’s styles are very
different. Whatever be the management, however, being effective, leading the
change and demanding performance, all the outputs remain the same, no matter how
different the styles.

Would one see you performing a lot more customer-contact functions than
you have in the past few years?
Yes. External interaction–with customers, investors… the content part of
it should go up. It is already happening, of course, but it will probably go up
further.

Against the background of the slowdown, are there any directional or
strategy changes in your first two years as CEO? Do you think the economic
environment will bounce back and, if not, are there new areas that Infosys would
be focussing on?
The environment continues to be challenging. Clearly, the set of conditions
that existed in 1999-2000 are not going to be repeated. At the time, there was a
coalition of things that happened–the Internet boom, the technology boom, the
VC boom–all these happened together. To that extent, the environment is very
different today. Mind you, it is not that corporations don’t want to spend on
technology anymore. Its just that they want more bang for their buck. They want
more value for the money they’re spending. As for Infosys, we’ll be doing
something more in the areas of business process outsourcing and focussing on
systems integration and IT outsourcing.

That is in the immediate term. In the medium term–five years or so–what
will the company’s vision be?
We have defined our agenda, and that is to assist our customers in
transforming their businesses through technology. Our clients’ business models
are changing, however, and they are looking for better and more efficient
spending on technology. Obviously, we want to be one of the premier
organizations in that area. Our focus too has shifted to ‘Excellence in
Execution’. To that extent, the current changes in the market, with greater
emphasis on value for money and excellence in execution, works towards people
like us. But going forward, I think you are going to see us becoming more
multicultural. In a lot of ways, we are already very globalized, specially in
terms of customers and investors. We have 300 clients around the world and
30-35% of our holdings are by foreign investors. Most of our employees still
come from India (except 150 or so). That needs to be globalized. We’ve been
consistently rated the ‘Best Employer’ in India, by Dataquest and other
publications, and we need to find out how to take this forward globally. We
already have some development centers overseas, like the one in Canada, but we
need to build more capabilities close to the customer. We also need to enlarge
the range of our services and put this entire range together to create an
end-to-end solution. Finally, we need to build a deeper and broader client
relationship.

Does this mean that Infosys will remain largely export-oriented in the
years to come… that you have no plans at looking at the domestic market in any
significant way?
We will be where the opportunity is. In the domestic banking sector, where
we’ve chosen to be, we’re clearly the market leader. We certainly plan to
enter different segments, but only as and when the market opportunity arises.

This might be a little premature, but at the end of the day, what is it
that you want to do that’ll make you say–"This was work well done…"?
You should ask me this question five years from now. But there’s an
opportunity here to make a difference. If some of the things I spoke about
earlier are done and when they are executed, we would have made a difference.

SARITA RANI

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