INFOSYS CASE STUDY - ‘Narayana Murthy and Infosys'

The case study ‘Narayana Murthy and Infosys' describes how Narayana Murthy, set up
India's leading software company - Infosys. Narayana Murthy turned a small software
development venture that he had set up with his friends in 1981, into one of the leading
companies of the country. Infosys grew rapidly throughout the 1990s Narayana Murthy
distributed the company's profits among the employees through a stock-option program,
and adopted the best corporate governance practices. All this earned him praise and
respect. In 1999, the company became the first Indian firm to be listed on the Nasdaq
Stock Market. In 2000, Infosys was poised to become a true global company.By 2000,
Infosys' market capitalization reached Rs.11 billion and by 2001, Infosys was one of the
biggest exporters of software from India. Narayana Murthy had built an organization that
was respected across the country, with very strong systems, high ethical values and a
nurturing working atmosphere.In February 2001, Infosys Technologies Ltd. (Infosys) was
voted as the Best Managed Company in Asia in the Information Technology sector, in
leading financial magazine Euromoney's Fifth Annual Survey of Best Managed
Companies in Asia.

KEY SUCCESS FACTORS

With his sound management skills, Narayana Murthy seemed to have taken Infosys to the
pinnacle of success with the following key success factors :

1. Leadership team : The leadership team needs to balance vision with practical
experience. In most cases, a technology start-up will have a visionary and/or a technical
genius (most often, these are the founders) in place from day one. However, all to often,
the leadership team is not rounded out by people who actually know how to run a
business and how to drive sales. Building a strong balanced team can be one of the
trickier aspects of creating a successful start-up because it necessarily requires the
visionary and the technical genius (founders) to admit their practical shortcomings and
give up some of the control of the business. The idea behind a start-up is often
somebody's "baby" and, quite naturally, they want to control every aspect of its
development. Once you move these people away from micromanaging the business, the
start-up begins to have a chance.

2. Well-conceived business plan : This is an area where the practical experience of a

well-rounded leadership team gives the start-up a leg up. The business plan needs to be
practical and detailed. The business plan provides the blueprint for the growth of the
company. Perhaps more importantly, the business plan is how you demonstrate the
viability of the business to third party investors.

3. A strong product : It is a given that the product needs to be special – something that
will differentiate itself from the universe of competing products - but there are other
important factors. Ideally, the product will be one that can be protected by patent. If the
products cannot be protected by a patent, then the start-up has to be positioned to
capitalize on being the first to market. Absent patent protection, being the first to market
and capturing as much market share as you can before the copy-cats arrive is the next
best thing. The product needs to have a ready market meaning that there is a market for it
and that either there is no real competition or that the product allows the company to
differentiate itself from the competition.

4. Scalability : The scalability of the business may not be critical to the success of every
business, but it is critical to drive a start-up to a large scale business. In other words, if
the goal is to become a large, valuable company, scalability is key. However, if the goal
is a little less lofty, then scalability is a little less important.

5. Adequate capital :. Without adequate capital, the business will struggle. Perhaps the
business will have phenomenal sales, but be unable to deliver the product. Or, the
business may build the product, but lack the cash to adequately market it. Or the business
will be unable to attract the leadership team it needs and the team it has is diluted to
ineffectiveness. Or, the business is unable to capitalize on its "first-to-market" status.
While it is true that the management team for a start-up has to be versatile and willing to
wear different hats, a capital-starved start-up can force the dilution of the management
team to the point of everything being done poorly. Quite obviously, in many cases, the
luxury of having adequate capital does not exist from day one. Finding the capital in a
timely way can be very difficult. The more that can be done to address the other four
points, the easier it will be to find capital.

Launch of Infosys

Narayana Murthy obtained his Bachelor's degree in Electrical Engineering from

University of Mysore in 1967 and his Master's degree in Technology from Indian
Institute of Technology, Kanpur in 1969. He started his career as head of the computer
centre at IIM, Ahmedabad.In 1972, he went to Paris where he was part of the team that
designed a 400-terminal, real-time operating system for handling air cargo for Charles De
Gaulle airport. Narayana Murthy was a left-wing activist and mingled with French
communists during his stay in Paris but his outlook changed while traveling around
Europe. He believed that the only way to pull India out of poverty was to create more
jobs, by setting up new companies.In 1975, he returned to India and joined Systems
Research Institute, Pune,(Maharashtra). He then headed Patni Computer Systems Pvt.
Ltd., Mumbai, (Maharashtra) before founding Infosys in 1981, along with six other
professionals.

The Strategist

From the beginning, Narayana Murthy focused on the world's most challenging market -
the US. He had two reasons for this. First, there was no market for software in India at
the time. He believed that Indian software companies should export products in which
they had a competitive advantage.In 1987, Infosys entered into a joint venture with Kurt
Salmon Associates (KSA), a leading global management consultancy firm. KSA-Infosys
was the first Indo-American joint venture in the US.

People Management

Analysts felt that one factor which helped Infosys to grow at a faster pace than others was
the low employee turnover.The turnover rate at Infosys was around 11% as opposed to
industry average for software companies' of over 25% during the 1990s.Infosys' retention
capability was a function both of its rigorous selection procedures as well as proactive
HRD practices. About 80% of the middle and senior level executives were promoted
from within the organization...

Corporate Governance and Infosys

Analysts felt that Infosys became one of the most respected companies in India, through
its corporate governance practices, which were better than those of many other
companies in India. Narayana Murthy's move to adhere to the best global practices was
driven by his vision to become a global player. Infosys adopted the stringent US
Generally Accepted Accounting Practices (GAAP) many years before other companies in
India did...

Leaders in the Making

Narayana Murthy set up a Leadership Institute in Mysore, India, to manage the future
growth of Infosys. The institute aimed at preparing Infosys employees to face the
complexities of a rapidly changing marketplace and to bring about a change in work
culture by instilling leadership qualities.

I would like to end with a comment from Sri Narayana Murthy: He said, “It is our
vision at Infosys, to create world-class leaders who will be at the forefront of
business and technology in today's competitive marketplace...

This has been at the forefront of their corporate culture !!!

Leaders in the Making

In August 2001, Narayana Murthy set up a Leadership Institute in Mysore, India, to
manage the future growth of Infosys. The institute aimed at preparing Infosys employees
to face the complexities of a rapidly changing marketplace and to bring about a change in
work culture by instilling leadership qualities.

Commenting on the institute, Narayana Murthy said, “It is our vision at Infosys, to create
world-class leaders who will be at the forefront of business and technology in today's
competitive marketplace...
 N. R. Narayana Murthy
Chairman and Managing Director
Infosys Technologies Limited
Bangalore, India

On Entrepreneurship
I am indeed honoured by this generosity on part of the MMA and the eminent judges that
chose me for this prestigious award. Mr. Vaghul has been a hero in corporate circles and
it is the dream of every CEO to be blessed by him. I am really grateful to him for
considering me worthy of this recognition. 1 am also very grateful to other members of
the jury, to the MMA, and to members of the Sri. Anantharamakrishnan family.

It is only recently that there is some acceptance, in India, of the idea that creation of
wealth is the only way to solve the debilitating problem of poverty. Mahatma Gandhi's
dream was to wipe the tears of every poor person in the country. In my opinion, fulfilling
this dream requires a consensus among all political parties on the following tenets:

a. The only way we can solve the problem of poverty is by creating new wealth legally
and ethically; not by redistributing existing wealth.

b. There are only a few people who can lead the task of creation of wealth, just as there
are only a few good surgeons, professors, and lawyers.

c. These people are human beings and they need incentives to create wealth.

d. The job of the government is not to create wealth but to create an environment where
these leaders are enthused to create more and more wealth.

There are two kinds of wealth creators - those that add to existing wealth passed on to
them by the previous generation of wealth creators; and those that create wealth from
scratch. I belong to the latter category and have very little idea of the former. Hence, I
will talk a little bit about creating wealth from scratch. Entrepreneurship refers to such a
creation of corporate wealth by leveraging sweat equity. In general, entrepreneurship
translates to leadership and innovation. Lack of adequate finance forces an entrepreneur
to take a path hitherto untrodden and create a niche for himself. A necessary but not a
sufficient condition for entry of entrepreneurs into an industry is that it must afford
opportunities for innovation executed with sweat equity at least in the initial stages of the
enterprise. The software industry world-wide is full of successful entrepreneurs. Rapid
advances in technology and the consequent productivity gains have opened great market
opportunities for innovation and, thus, ensured a steady stream of entrepreneurs in the
American software industry. Whether it is Bill Gates of Microsoft or Larry Ellison of
ORACLE, the common factors are: sweat equity, innovation, a brilliant vision, a well
thought out strategy and flawless execution.
I have studied entrepreneurship in the Indian software industry for over 20 years and have
come to some conclusions. During 1979 - 1981, ten to twelve entrepreneurs
(professionals) started software companies for operating in the domestic and export
markets. As of today, only one or two of them have survived, succeeded and been
consistently among the top five Indian software export houses. A case study of these ten
to twelve companies is a great education. We can draw certain conclusions from these
case studies and can define some criteria for success.

The physiology of successful companies and pathology of unsuccessful companies bring

out the following criteria for success:

1. Shared vision:
The founders of the company must articulate a clear vision of what they want
their company to be in the long run. This vision must be something that provides
for a clearly definable synergy between corporate objectives of the enterprise and
personal aspirations of the entrepreneurs and the professionals working for the
enterprise.
2. A marketable idea:
Unless you have a good idea that adds value to a customer, there is no Point in
proceeding further. Your product or service must provide one or more of the
following benefits - reduce cost, reduce cycle time, improve productivity or
improve free time - for users of the product. Most failures are due to negligence of
this cardinal principle.
3. A sound strategy and an implementable action plan:
Strategy is about making oneself unique in the marketplace. A strategic plan that
clearly brings out the competitive advantages of the idea of the entrepreneurs, that
masks the weaknesses of the entrepreneurs, that. is realistic, and that ensures
sustainability is needed. A realistic action plan that has the required resources is
needed to put this strategy in to action.
4. A layer of competent management:
The bane of most entrepreneurs is that they are primarily technocrats and hardly
understand managerial issues in building an enterprise. Indeed, 1 have come
across entrepreneurs who cannot read a balance sheet and hardly distinguish
between term loans and working capital! They have a healthy contempt for
anything other than technical challenges! Such an attitude is a sure recipe for
unmitigated disaster. A successful enterprise will bring together complementary
skills in technology and management. Surely, success in an enterprise requires a
good understanding of human motivation, finance, leadership, technology,
quality, and a host of other skills.
5. A shared value system:
A value system for a group of entrepreneurs is like the rudder for a ship. The
temptation to bend your own set of Do's and Don'ts is very compelling but the
ability to stand firm in the face of an adverse situation is what separates men from
boys. 1 have seen many an enterprise flounder because the entrepreneurs could
not come out with a shared value system.
6. Professionalism:
I have seen several budding entrepreneurs criticise their employers and do exactly
what they criticised when they start their company. Professionalism is drawing a
line between personal needs and company resources, treating all your colleagues
with respect and dignity, being issue-based and not personality-based,
establishing and following person-independent rules and procedures in the
company and showing integrity and honesty in all transactions with your
customers, colleagues, vendor-partners, government and the society.
7. Divorcing control from management:
Indeed, if there is one critical issue in succeeding in entrepreneurship, it is the
ability to divorce control from management. In the US, any entrepreneur will
know that his venture capitalist will put in a management structure independent of
his shareholding in the company. You, as the entrepreneur, will be asked to
perform the role best suited to the organisation's needs. We all know the story of
Steve Jobs and how he himself brought in John Sculley to head Apple when he
realised the need for professional leadership. You must recognise your strengths
and contribute to the organisation only in that role.
8. Spirit of sacrifice:
Nothing can ever be built unless there is some sacrifice at least in the initial
period. Most entrepreneurs fall prey to the trappings of the so-called "Industrialist
syndrome" and end up jeopardising the interests of the enterprise.
9. Pride in creation of wealth:
I have met several entrepreneurs who are very apologetic about creation of
wealth. For heaven's sake, there is absolutely nothing wrong in creating wealth
by legal and ethical means. Do not ever confuse creation of wealth with charity.
First, you create wealth efficiently and only then can you donate your share of the
profit to any charity.
10. Ideology, intellectual arrogance and the enterprise:
I have seen several instances where my entrepreneur friends have destroyed their
enterprise just because they went on an ill-founded ideology trip. For example,
one of my good friends felt that his company must produce compilers and word
processors in India and compete with Microsoft's and Borland's even though it
was clear to everybody but him that such a strategy was absolutely unwise and
disastrous. His whole argument was that we Indians are second to none and that
we will prove to the world that we can produce system software better than
anybody else. Obviously, he did not succeed as much as his superb intellect
should have enabled him to.
11. R and D and the bread-and-butter stream:
It is a truism in any business that the bread-and-butter stream of your enterprise
pays for all costs includingR and D. A smart enterprise derives its revenues from
a bread-and--butter stream, pays for the operational costs and uses a small
percentage of this revenue (usually 5% to 10%) to conduct R and D in promising
new streams. Some of these new streams will, in the future, become bread-and-
butter streams for the enterprise. 1 have known a couple of entrepreneurs who
tried to derive a large part of their revenues from R and D and, I am sad to say,
they are in serious trouble.
 12. Leadership-by-example:
In enterprises dominated by white collar and knowledge professionals, you must
lead by example. Today's professional has global level skills and opportunities
and he is aware of it! Any discrepancy between what you preach and what you
practise will be easily analysed by your younger colleagues and articulated well
enough to create a dissonance, After all, Mahatma Gandhi was not wrong!

Let me close by saying that speed and imagination are the two hallmarks of any
successful entrepreneur. Those who leverage these two attributes will survive and
succeed in the coming millennium of intense competition. I have no doubt that the
dynamic members of the Madras Management Association will use speed and
imagination very effectively to become the leading wealth creators for this nation.
Thanks for your generosity in listening to me.

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