BackNarayana Murthy seeks three years to turn around Infosys
Firm won’t hesitate to change traditional strategies and take tough decisions, Infosys chief tells investors
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Bangalore: In an address at his first annual general meeting after returning in an executive role at Infosys Ltd on Saturday, co-founder and executive chairman N.R. Narayana Murthy asked shareholders for at least three years to turn around the fortunes of India’s second largest software exporter and said the company would not hesitate to change its traditional strategies and take tough decisions if necessary.
After shareholders unanimously approved and ratified his appointment at a vocal and noisy conference, Murthy said the company would follow a flexible pricing strategy to win fresh business, even though it might mean sacrificing margins.
In April, Mint had reported that the company had started cutting prices for select clients and partnering with niche firms to drive business volumes, even though it meant squeezing profit margins.
“The challenge is daunting and the task is tough. Therefore, the task of rebuilding a desirable Infosys will take at least 36 months," Murthy told shareholders. “In the process, there will be some tough decisions resulting in pain as we move forward."
For the first time, the company also conceded it had lost focus on its traditional “bread and butter"—outsourcing business—and would refocus its core strategy towards winning more deals in that area, though it would not abandon co-founder and chief executive officer S.D. Shibulal’s controversial and under fire 3.0 strategy that focuses on newer streams such as cloud computing and software products and platforms.
“During the last two years, our focus on the third stream (traditional outsourcing projects) was blurred," the 67-year-old Murthy said. “We have to refocus on this (our bread and butter business) in the short term…the entire company is committed to refocusing on the third stream to enhance our win ratio in large outsourcing deals."
“We will adopt a flexible policy, where absolutely necessary, to enhance our growth rate," said Murthy, adding that the renewed focus on winning commoditized outsourcing projects to revive revenue growth would reduce margins—a marked departure from the strategy he articulated over the years of focusing on and ensuring high profit margins.
Murthy, the man often credited for building Infosys in the first place and making it the poster child of India’s $108-billion information technology industry, came back out of retirement two weeks ago, seven years after he stepped down from all executive roles. He also requested to appoint his son Rohan Murthy as his executive assistant.
Not only did that disrupt succession planning set in place by Murthy and the other co-founders, but it also broke two fundamental principles that Murthy himself had put in his place during his 21-year tenure as chief executive of the company—that the founders should retire at 60 and that their children would never work at the company.
“Executing this strategy may require me to change some of my long-held beliefs. But then, I, too, believe in Sir Winston Churchill’s words that improvements require change and the quest for perfection requires us to change as often as necessary," Murthy said on Saturday.
While shareholders, for the most part, welcomed the board’s decision to bring Murthy back from retirement, in a move that drew parallels with late Apple Inc. founder Steve Jobs’ comeback at the company, some raised concerns over Infosys’s succession planning for newer leaders and also demanded answers from the board for the company’s poor performance over the last two years.
“It is time to build a second rung of leadership that will take the company forward in the next few years," said one shareholder.
“After five years, if the company performs poorly, will you again ask Narayana Murthy to come back?" asked another shareholder.
One shareholder also demanded why the company had not taken any action against current CEO and co-founder Shibulal for its poor performance over the last two years when it lost significant market share to Tata Consultancy Services Ltd (TCS) and Cognizant Technology Solutions Corp.
“It is a sorry state if the CEO of the company has to sell the company’s value to shareholders," said Nirmal Banerjee, another Infosys shareholder. Yet another shareholder also questioned why Murthy had recruited his son. Some others also raised concerns on the impact of the current proposals in the immigration Bill on the company’s performance, but the company said it would wait till the Bill is passed in the US Senate before assessing the impact on performance.
“In the current form, the Bill will have a larger impact on the industry. We will wait for the final version to see whether it impacts us or not," said V. Balakrishnan, former chief financial officer of Infosys and current board member and head of the company’s back-office and India businesses.
Founded in 1981 by Murthy and six others, including Nandan Nilekani, S. Gopalakrishnan and Shibulal, Infosys held its own as India’s most high-profile IT company—although rival TCS 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 in annual revenue.
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.
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