To understand what N.R. Narayana Murthy must do, now that he has returned to help the company he co-founded, we must look to the past. Infosys and Murthy arrived in the public consciousness sometime in 1994-95, not long after an initial share sale had almost failed before being rescued by underwriter Vallabh Bhansali.

The context was Murthy’s articulated intent of creating 200 millionaires from the company’s employees, through the issue of stock options. The idea fired everyone’s imagination in a newly liberalized India, especially in a business environment where promoters were reluctant to share wealth with the people who created it. For almost a decade and half after that, the company was the darling of the stock markets and the media, turning in quarter after quarter of superior financial performance, and being written about positively for everything from its campus to its HR policies.

With the turn of the millennium came a minor blip—the slowdown in IT spending after the dotcom bubble burst—and a change in CEOs. Murthy was replaced by COO Nandan Nilekani, another co-founder, but stayed on as a “very" executive chairman. And the Infosys story, as far as the markets and media were concerned, continued. Customers saw the value of what the company called the global delivery model; employees, mostly happy, were proud of what they were doing; shareholders and analysts seemed happy with the predictability of Infosys’ financial results and even more happy that the company wasn’t taking undue risks despite the amount of cash on its books; and both Murthy and Nilekani became champions for larger causes—on issues that concerned the IT industry; all businesses; their city; even the country.

With the benefit of hindsight, it is easy to see what Infosys and Murthy got right in the years between 1994 and 2007. The company had the right business model. Its people were, by and large, happy and motivated. And its financial performance was exceptional, stable, and predictable.

It wasn’t until 2007-08 that things threatened to turn sour for Infosys as it struggled to find a new business model. By then Infosys had seen another change, with Nilekani leaving the company for the government and S. Gopalakrishnan (yet another co-founder) having taken over as CEO (Murthy remained chairman, although, this became a non-executive position in 2006 when he turned 60; he retired from the post five years later; Gopalakrishnan was later replaced by S.D. Shibulal, also a co-founder, as CEO).

Things finally came to head in 2008. The financial crisis and the economic slowdown that followed hit the company (and its peers) hard. The business model, already under some pressure, started coming apart. Employees, no longer the recipients of rewards, tangible and intangible, that they’d become used to, turned restive. Performance took a hit. And the stock, once the bellwether of the industry, suffered, as did the company’s image.

As things turned bad, the focus, both internal and external, moved to leadership. A nervous Gopalakrishnan tried to make an expensive acquisition, the UK’s Axon, but both he and Infosys shareholders must have heaved a sigh of relief when HCL Technologies eventually outbid the Bangalore company. The man who replaced him, Shibulal, announced a new strategy that would facilitate a move to more profitable businesses, such as consulting, but that doesn’t seem to have worked. If it had, maybe people wouldn’t have targeted the CEO and the board and the latter’s willingness to give co-founders, in turn, a shot at the top job.

Slowing growth, the need for a new business model, employee morale, investor sentiment, image, and leadership—these, then, are some of the issues Murthy will have to address in his second inning. His iconic stature should help on the image and morale fronts. And, widely seen as a God of small things in the company (he pretty much invented the term excellence in execution), he will ensure that things are ship shape.

The larger challenge remains strategic in nature—to find a new business model that works as well as the old one did. Only that can ensure predictable and stable financial performance—that thing Infosys did which made it the darling of stock markets.

Can N.R. Narayana Murthy set things right at Infosys? Tell us at views@livemint.com

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