Rebuilding a ‘desirable’ Infosys will take 36 months: Narayana Murthy – India

15  june 2013

Bangalore: Recalled to ride out the bad times for Infosys, its chairman N R Narayana Murthy said on Saturday that the “daunting” task of rebuilding a “desirable Infosys” would take at least three years and there would be some tough decisions resulting in “pain”.

IT industry’s favourite poster boy Mr Murthy has begun his second innings as Infosys chief two weeks ago as the country’s second largest software services exporter had been losing ground to smaller rivals and had disappointed investors with poor earnings in the last nine quarters.

“The challenge is daunting and the task is tough, therefore the task of rebuilding a desirable Infosys will take at least 36 months, even with a high quality team and full dedication of every Infosian.

“In the process there will be some tough decisions that we have to take and that will result in pain as we move forward,” Mr Murthy said in a candid address to shareholders at the 32nd Annual General Meeting in Bangalore.

Mr Murthy, who had shed executive role seven years ago and finally retired as head of Infosys in August 2011, has been appointed executive chairman, replacing K V Kamath during whose tenure the company shares slumped 15 per cent.

He said that the need of the hour is to focus on employees and take speedy decisions with clarity.

“The need of the day is to focus on our employees, take quick, tough and firm decisions, communicate these decisions with clarity and speed, execute these decisions with speed, imagination and excellence and exceed the expectations of our customers and investors,” he added.

Addressing shareholders, Infosys CEO S D Shibulal said that the company’s performance has been below expectation.

“FY13 has been a year of muted growth. Our performance was below expectations, both our own and the industry. While the operating environment was volatile, several of our challenges were Infosys specific,” he said.

Explaining Infosys’ strategy, Mr Murthy told shareholders that the strategy aims at market opportunities in focusing on opportunities from consulting-led end-to-end business solutions leveraging technology for higher margins.

Besides, developing intellectual property-based solutions to delink revenues from effort and to win highly competitive large revenue yielding outsourcing projects involving applications software development, maintenance, testing business process management and infrastructure management, he added.

“Historically, Infosys has relied primarily on this third stream, this stream has become commoditised in recent years. Our desire has been to ensure revenue growth while maintaining these end margins, hence given the current market reality, the company adopted these three revenue streams strategy two years ago,” Mr Murthy said.

He further said that the first two streams are necessary for a better future and the firm should continue to focus on these two streams.

“During the last two years, our focus on the third stream was blurred, we have to therefore refocus on this stream, which is our bread and butter business in the short term, while also ensuring that we accelerate our progress on the first two streams in the medium to long term,” he added.

He said the short term is a period of 6-12 months and the medium to long term is a period of 3-5 years.

He outlined a series of steps with speed, clarity and dedication to make our strategy yield the desired results.

“First, we will enhance the confidence, hope, trust and enthusiasm of our employees. This initiative will require better communications with Infosians and also spending a few percentage points of our revenue on their welfare and compensation.

“Second, we will strive to enhance a respect for cooperation from our stakeholders, that is, our customers, our employees, our investors, our partners, governments of the land and the society in every one of our decisions,” he said.

Infosys will focus on cost optimisation and elimination of wasteful expenditure and will divert the same funds towards some of the productive investments needed to make the firm the market leader, he added.

“We will make our sales force more effective by improving the quality of the sales talent and by providing them with incentives and every resource needed. We will adopt a flexible pricing policy, where absolutely necessary, to enhance our growth rate,” Mr Murthy said.

The firm will innovate to improve quality and productivity of its software development teams to deliver better value to the clients and will use such innovations to improve margins even in the most competitive and commoditized businesses.

Commenting on the earnings forecast, Mr Murthy said the predictability of earnings forecast has weakened during the last couple of years, which has resulted in Infosys’ inability to provide earnings guidance to the market.

“We will refocus on building a more predictable earnings model in the medium term,” he assured the shareholders.

Mr Murthy said that during the course of rebuilding Infosys, he may have to change some of his long held beliefs.

“Executing this strategy may require me to change some of my long held beliefs in the interest of the larger good. But then, I too believe in Sir Winston Churchill’s words that improvements require change and the quest for perfection requires to change as often as necessary,” he added.

Mr Shibulal, who is also one of the seven co-founders of the IT giant, added that corrective measures have been taken and the firm is committed to taking them in future as and when required.

“We are confident that our strategy ‘building tomorrow’s enterprise’ is the right strategy. It will enable us to achieve our aspiration of long-term sustainable high-quality growth,” he said.

In his speech, Mr Kamath said Mr Murthy would provide strategic direction to the company on return as executive chairman.

“Murthy, who has consented to be executive chairman again, will guide the company when the industry is facing challenges of an inflexion point in the technology business and provide strategic direction at this point of time,” he said.

He said Mr Murthy’s entrepreneurial and leadership record coupled with his long experience as a technology pioneer made him eminently qualified to lead Infosys again.

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