Can Narayana Murthy Save the Sinking Infosys Ship?

By Rakesh Raman

Ramayana and Mahabharata are the two most respected epics for nearly one billion Indians. Among many of their valuable preachings, they depict how greed and infatuation can bring ruin to even prosperous kingdoms.

Queen Kaikeyi’s blind love for her son Bharata in Ramayana and King Dhritarashtra’s extravagant affection for his son Duryodhana and their cunning pursuits to get them the royal benefits that the sons didn’t deserve ultimately brought catastrophic devastation for both the empires.

In all probability, N. R. Narayana Murthy, who has again managed to become the top boss (executive chairman) of India’s tech (IT) services company Infosys, knows about these mythological tales. But undeterred by their horrific outcomes, he has just begun to repeat the first chapter of Ramayana and Mahabharata at Infosys.

His reappointment was announced earlier this month, on June 1, to be formalized in company’s Annual General Meeting (AGM) held on Saturday, June 15.

Flouting all corporate norms of Infosys, Narayana Murthy – one of the founders of Infosys – has suddenly brought his son Rohan Murthy by his side to run Infosys’ affairs that are aimed to stop the downslide of the company.

Although Rohan’s academic qualifications look good, they are unlikely to be useful for Infosys which has been going through rough trots during the past couple of years and is now looking for a quick turnaround.

Rohan’s Harvard and MIT stints are no exception, as kids of most rich Indian politicians and businessmen have been flaunting their foreign degrees that could not do any good to India’s social or economic plight that has always been deteriorating.

It’s also believed that most of these degrees are not real and rich parents buy these degrees for their kids by paying hefty money to the foreign educational institutes that issue them.

But that’s beside the point. Let’s come back to Infosys. Strangely, Infosys couldn’t find even a single person from its 150,000-strong workforce to run the company and roped in retired Narayana Murthy.

And more strangely, Narayana Murthy couldn’t select even a single person from the company who could support him in his second stint and brought in his son. This move tells the story of debacle at Infosys that always worked in an unprofessional, centralized, tightly controlled environment. Many believe that the father-son duo has come to write the final epitaph for the ailing tech company.

How and why?

Formed in the year 1981, Infosys has been providing low-end custom software and operational services to big client companies abroad – mainly USA, as over 70% of Indian software services are exported to the U.S. only.

When Infosys started its operations, USA was a rich country and enjoyed comprehensive corporate prosperity. As it was difficult for the U.S. companies to hire local talent to work on cheap rates, they looked toward poor nations.

Many software companies from India, China, Philippines, Korea, etc. started offering software programmers like cheap laborers who would do petty code-writing jobs or operate software systems developed by big tech companies like Oracle, IBM, SAP, and Microsoft.

As Americans were hiring unskilled or semi-skilled workers like plumbers, gardeners, cooks, sweepers, etc., they also hired Indian software workers. They would work for almost peanuts but the Rupee-Dollar conversion rate was the major attraction for them. Infosys was part of this herd and sent thousands of software workers to do onsite cheap jobs for the rich in the U.S.

Moreover, these Indian software companies provided their services on less profitable, client-dictated fixed-priced payment models as compared to lucrative Time & Material (T&M) options. As software companies were deploying thousands of cheap laborers for run-of-the-mill software jobs, their revenues were relatively high – beyond their expectations – because more pairs of hands would bring more money for them.

And since most Indian workers came from poor or middle-class families, they were ready to work on fraction of the amount that companies like Infosys got from their foreign clients. During the late 1980s and 1990s, they were generally charging at the rate of around $50 per person per hour.

So, if a worker has worked for 200 hours in a month, Infosys, say, would earn $10,000 in a month. But it will pay just about $2,500 to the worker and pocket the juicy profit for itself. It was a win-win arrangement for U.S. clients and Infosys-type companies. But as entry barriers to this kind of simple business were low, many more players from India and other developing countries jumped into the fray.

Since these so-called software companies were not supposed to have any high-end professional skills and were just supplying human bodies, even travel agencies that had experience of transporting people entered the body-shopping business making it a cutthroat market for traditional players like Infosys. New players from countries like Mexico, Brazil, Argentina, Chile, and Guatemala further made life difficult for traditional companies like Infosys.

But Infosys’ pains started aggravating during the past few years, as U.S. came under the grip of recession. Clients showed reluctance to buy services from Infosys and others. Some used arm-twisting tactics to get services at reduced rates.

As there were hardly any other export options for Indian companies and domestic market could never take off, they succumbed to pressure exerted by U.S. clients and started offering their services at one-tenth of the rates that they used to charge in the 1990s. Infosys is part of this lot that got affected by the slowdown in the U.S.

Thus, its troubles have been increasing partly because of increasing competition and partly because of its own weaknesses to perform in the changing software market. If Infosys were really a good software company, it should have operated at the higher-end of the market to develop enterprise software products like Oracle, IBM, SAP, and Microsoft do.

But it didn’t have any experience in the real software industry and operated like travel agents for the body-shopping business. Today, the software business is undergoing a seismic shift, as even the software products definition has changed. Companies and individual software sellers are using cloud platforms and mobile stores to sell their software products to enterprises and millions of consumers across the world.

Infosys is clueless about the new software development and distribution models. Its people are not competent enough to handle advanced jobs because there is no tech educational institute in India that can produce manpower for the modern tech markets.

Even Narayana Murthy himself doesn’t seem to be aware of new software business environment because he has always been working as a general manager without possessing any real software or management skills. Even a housewife who can handle a domestic ceremony skillfully can manage the work that Narayana Murthy has been doing at Infosys.

He is, in fact, a media creation. It all began in 1990s when Indian software industry body NASSCOM was creating hype around Indian software / IT companies by circulating exaggerated, misleading, and almost false information among the media people.

As most Indian journalists are not quite qualified to handle high-tech subjects like software, they have been doing quote-based journalism. That means, they would write exactly what NASSCOM or others will tell them without applying their own editorial or subject skills – that anyways they never had.

As NASSCOM created hoopla with its public relations (PR) and media campaigns, Infosys and a few other software players leveraged it to their advantage. Thus, Narayana Murthy came under the spotlight, though he was an ordinary trader.

Consequently, he got a flurry of awards, which were more driven by media hype than any substance. People, who don’t understand tech markets, thought Narayana Murthy is some kind of software genius. But he knew that he was riding a bubble.

When he realized that Infosys’ future was uncertain under his leadership, he even tried to jump the ship by showing his desire to grab a government job as Indian Ambassador to the U.S. But the government didn’t find him fit for the job.

His colleague Nandan Nilekani, co-founder of Infosys, also knew about the mounting troubles at Infosys and made a similar attempt. In 2009, he found a government job for himself at Unique Identification Authority of India (UIDAI) and moved while leaving Infosys in the lurch.

Let alone Infosys, even the whole Indian IT industry doesn’t even exist in the global markets. Leading technology market research firm Gartner says that the worldwide IT spending is projected to reach $3.8 trillion in 2013. And according to estimates, the Indian IT industry (including call center services) revenues are expected to reach $100 billion by that time. Even then the Indian share in the global market will be negligibly small – around 2.5%.

Then what will Infosys do and what will Narayana Murthy do for Infosys? Infosys is so small that it does not even appear in this fast-paced global race. Narayana Murthy manipulated to come back to Infosys primarily to secure his son’s career by building a family fiefdom in the company.

And it’s also believed that he will be able to extort some money as an IT services supplier from his old friend and Infosys co-founder Nandan Nilekani, who is now splurging billions worth of public money as the chairman of a wasteful government outfit Unique Identification Authority of India (UIDAI). Infosys, under Narayana Murthy, would like to benefit from this loot.

Otherwise, Infosys does not enjoy a good reputation even in the domestic market. For example, India’s major mobile services company Bharti Airtel ignored all local companies including Infosys and preferred to hire IBM for its IT operations. So, Infosys does not have anything worthwhile to demonstrate from its local and global operations to impress the buyers and stay viable in the cutthroat software market.

It’s not only the lack of software skills among its people, but Infosys is also facing myriad other challenges. Being a monolithic, vertically structured organization, it doesn’t have its management processes in place. For example, most Infosys employees have gone out of control and exist like inefficient sarkari babus (government clerks). In the absence of true productivity measurement processes, inefficiency is rampant at Infosys.

That’s why in the last three decades of its existence, Infosys couldn’t identify and nurture talent and couldn’t create a second line of management. And finally it had to depend on a single man – Narayana Murthy who runs Infosys as his personal shop, making it a one-man show. He could never build Infosys a world-class professionally driven organization.

If Infosys believes in lean management principles and Narayana Murthy understands them, today the company can work with one-tenth of its workforce. This human resource (HR) rightsizing can save enormous operating costs for the company.

But Narayana Murthy is a cunning man. Instead of making HR corrections, he has tried to please the employees by giving them undue salary increments immediately after taking charge a couple of days ago. This move is supposed to buy their silence, as he was fearing opposition from employees on his decision to hand-drop his son in the company.

Now Narayana Murthy or no Narayana Murthy, it’s almost impossible for Infosys to recover from its sickness, though the boss has asked for three years to achieve recovery. With persisting recession, ordinary workers, archaic organizational systems, and resistance to change, Narayana Murthy is facing the dead end.

Now only a miracle can save Infosys, and all of us know miracles don’t happen in the real world. Obviously, under the father-son team Infosys is headed for the second chapter of Mahabharata. And that is – disaster. Keep watching. The show is on.

By Rakesh Raman, the managing editor of RMN Digital.

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