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Aug 27, 2021

On August 24, 2021 Infosys joined the ranks of companies in the $100 billion  plus (market capitalization) club. While Infosys took 20 years to reach $50 billion, in next one year it hit the century mark. Credit goes to the leadership. In 1994 the valuation stood at $100 million. It has been a fabled journey for the company started by 7 friends, including Narayan Murthy, in 1981. It has grown from the foundation of good governance, value and ethics, hard work, and vision of the founders. However, the initial years witnessed not such spectacular growth, some would say, because of the middle class background of the first among the equals, NRN. In the formative years and even thereafter his vision would guide the working of the company. All the founding members were confident, hardworking, with good values and ethics, but limited aspirations (or what the admirers would put it as, absence of spirit of misadventure). The company believed in profit making over sales growth. The story of Infosys is the story of NRN, in more ways than one. He continues to influence the working even now. So how did he shape it? Let’s see. 

A second innings is never easy, specially after a path breaking first one.  Steve Jobs could do it because he built the company around unique products. Infosys was merely a service organization. Jobs was innovative to the core. But Murthy did not believe in shaking up the status quo. The big risk was that in an environment that was completely charged, both externally and internally, the old warhorse could not try the same old business tricks that he knew. And with a conservative board to boot any radical surgery was not on the agenda. But a mere cosmetic procedure however could not have transformed an ageing beauty.

Infosys was seeded in 1981 with initial capital of merely Rs.10,000. By 2012-13 the revenue had grown to Rs. 36,765 crore and profits to Rs.9,116 crore. It had cash reserves of Rs. 24,000 crores. On the flip side Cognizant had outcompeted it to occupy second position. Since 2011, Infosys shareholders had lost Rs.47,600 crore in notional wealth. And star players like Mohandas Pai, Subhash Dhar and Amitabh Chaudhary had opted out. The external environment was not benign either: Earlier TCS was considered a stodgy foe while Infosys was a ‘cool’ entity- visiting heads of states would put its campus on their itinerary; not anymore. Chinese headman preferred TCS over Infosys for a stopover. Cognizant bared its fangs and unseated Infosys from being a second ranker. Issues like slackened U.S. and European economies, rupee volatility, severe competition, rising wages, high staff turnover and management shake ups- all of them and more –hampered growth. The company missed expectations for quite a few years.

Part of the reason for Infosys success in initial three decades could be traced to the fact that all the top team members had been playing complementary roles. Murthy was the brilliant strategist and Nandan a networker; Phaneesh was a star salesman while Gopalkrishnan and Shibulal took good care of operations. Alas, by early 2010’s the mojo had worn off.

The collective effort of the founders helped in steering the company in top gear. Due to unique model adopted by Infosys all of them got a shot at the CEO position in succession with only a 16% control over company’s outstanding shares. And yet none was ever in doubt that Murthy was always the supremo, the soul of the company, the main driving force. An admirer of JRD Tata, Bill Gates, Hewlett, Packard, and (later one came to know) Sachin Tendulkar, Murthy is an iconic figure leading a very normal middle-class existence. Despite enjoying a net worth of several thousand crores of rupees, he followed a frugal, egalitarian workstyle, remained accessible to the lowest employee, and ran the organization with a certain value system. Primarily it was Murthy’s vision and business acumen that had enabled Infosys attain the exalted position. Not only during good times, Murthy was able to hold the company together during times of crisis too, such as when its IPO almost devolved, Phaneesh had to be sacked, Nandan had to be promoted ahead of Kris, or when the company faced the dotcom crash. His tenacity, hard work, and extraordinary caliber steered the company to the second position among the IT service exporters.

He was able to build an organization where every employee seemed to have unconditional trust in top management. Everyone was suffused with a quite pride in the company and its achievements. This was Murthy, the maven. But then there also existed all this while Murthy, the mediocre. Murthy was certainly a catalyst, but a slow acting one. Let us rest our case.

While in the earlier years he took calculated risk, as soon as he stepped down as the CEO the company got into risk averse mould. Perhaps he thought that Infosys had succeeded so much that it had hit upon a recipe that could not be perfected any further. Or maybe he felt that others who followed him in the top seat did not quite have the same appetite for risk. So, he discouraged them from venturing out. Steve Jobs always dreamt of leading the industry through innovation and design. But Infosys started as an outsourcing company doing application development and maintenance. It relied on Indian frugality. While Jobs was in a hurry for just about any venture he undertook, taking large and risky bets, Infosys had always been rather circumspect, trying to ensure that every bet that it took should not fail. It never believed in aggressive growth, focusing rather on profit margins. It always fought shy of inorganic growth. For most part of its existence Infosys remained a generic delivery outfit where the scope to dictate an asking price was rather limited.

Remember, cost is a nonissue only for a client when a vendor justifies higher charges through unique value addition to a client’s business. Infosys never believed in springing surprises about how it set its business targets and delivered profits. A very small part of the revenue, less than 10% came from products and platforms. Always being very slow and brooding its global delivery model took 6-7 years to get there. The application and maintenance took 11 years to come down to 30% from 90%. During 1981-2003 Infosys did not file a single patent. One dare say that Murthy, being the chief henchman, led Infosys by transporting his own style on to the enterprise. But this also meant lack of ambition, softness of style, and absence of aggression, creativity and drive. This infact quite matched a classic profile of the typical entrepreneur with a middle class background who believed in hard work but shied away from paying big and risky hands. But then an old pony hardly learns new tricks. 

Postscript: Do you see important lessons in leadership in this caselet? Do analyze it from your own perspective.