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At 53, N.R. Narayana Murthy, chairman and CEO, Infosys Technologies (1998-99 sales: Rs 513 crore), heads Indiaís most successful Silicon Valley style start-up. Established in 1981 by seven professionals who pooled in their savings of Rs 10,000 (borrowed from their wives), Infosys has set all kinds of records. It was the first company to institute a company wide, performance based Employee Stock Option Plan that cut right across the hierarchy. This year, it was the first India-registered company to list on an American stock exchange (Nasdaq). On measures of transparency and corporate governance, Infosys is the epitome of the upright corporate citizen.

To Murthy goes the credit for first having the vision to see the opportunity in software, pick the right team and more significantly keep it together. The Infosys success is striking since all of its founders come from middle class backgrounds, had no backing of any business house but simply leveraged their brainpower and sweat equity. This is a model for the new generation of Indian enterprises in the coming millennium.

The fifth born of eight children, Murthyís father was a modest school teacher in Mysore who could not afford to send his son to iit. Today, his 7.7% stake in Infosys makes Murthy a very wealthy man, with an estimated networth of Rs 2,500 crore. Yet he continues to cling to his roots, staying in a house in the middle class area of Jayanagar in Bangalore with his engineer wife Sudha and their two children, Akshata and Rohan. He was interviewed by Naazneen Karmali in Bangalore.

 

What made you initially choose engineering as a career?

My uncle was a civil servant and my father was very keen that I take that up as a career but somehow it didnít appeal to me. Those were the days when engineering was considered the in thing along with medicine. People didnít think that being an economist or a social scientist could be a productive career.

I had got admission to the iit by passing the entrance exam with a fairly high rank and a scholarship. But the scholarship was to be disbursed at the end of the year. I remember talking to my father who said that there was no way he could afford to pay since he was earning Rs 250 per month. He said: If youíre smart you can go to any college and be able to do something worthwhile. So I joined the local engineering college.

 

Did you have any role models who inspired you in your career?

Those days our role models were our teachers, both in school and university. They taught us to be inquisitive and articulate. You have to imagine a lower middle class family in a district headquarters in the í60s. My father used to tell us about the importance of putting public good before private good; mother would talk about sacrifice and truth. Beyond the basic values of life they didnít discuss too much about our careers.

My dream was to become a junior engineer in a hydroelectric power plant, Nehruís temples of modern India. What appealed to me was that they were non-polluting and set in pristine surroundings. Also, being an electrical engineer, there was this macho thing about building a big generator. But as a top-ranking student, people advised me to do my masters. It was not easy for people like us from a certain section of society that was considered already advantaged to get a job in Karnataka because of the reservation system and so I postponed the career decision for two years by doing my masters.

 

So you finally made it to IIT; what was that experience like?

IIT Kanpur was in its halcyon days. We had so many young professors who had done their Ph.Ds in the US and had come back to India. They were all in their 20s and 30s and full of energy and optimism. Also, under the Kanpur Indo-American programme, iit had links with eight American universities like MIT, Berkeley, Purdue. What that meant was that when MIT got an IBM computer they sent one to Kanpur. We were introduced to computers Ė that wonder machine Ė and I was hooked.

 

What prompted you to opt for the unconventional job offer from IIM?

The phase I enjoyed the most was my time at iim Ahmedabad where I took up a job as chief systems programmer. In those days there were few computer science graduates so we got five job offers each. I had offers from hmt, ecil, Telco, Air India. The salary in those places was much higher than at the iim. But Prof. Krishnayya of iim who came to iit Kanpur talked to me for an hour about this great, modern mini- computer that he was going to install and that iim would be the third business school in the world to install a time-sharing system after Harvard and Stanford. He also said that the atmosphere was collegial, weíd work 20 hours a day and learn a lot. Taking this job at a salary of Rs 800 a month was the best decision of my life.

I learnt so many things from Krishnayya. He is probably the person who influenced me the most. He taught us how important it is to aspire. We used to work 20 hours a day; go home at 3 a.m. sometimes and be back at 7 a.m. There was so much opportunity to learn. We designed and implemented a basic interpreter for ecil. I learnt what it is to be an engineer. It isnít theory but application of the theory to solve problems and make a difference to society.

 

You worked overseas early in your career. What did you learn from your stint abroad?

My years in Paris were the most influential years of my life. I observed how in a western country even the socialists understood that wealth has to be first created before it can be distributed. That there could only be a few leaders to create wealth. And that itís the job of the government to create an environment where itís possible for people to create wealth. I realised that all this talk of socialism as practised in India was not meaningful. Our country treated communism as an ism that was completely disassociated from the reality of the context. You cannot distribute poverty.

My father always told us that India had a lot to learn from the West. Also, he was a great fan of classical music. On Sundays, air used to play music for an hour. One day I asked him: why should I listen to this alien music? He said: What appeals to me is that in a symphony there are over 100 people, each of whom is a maestro, but they come together as a team to play according to a script under this conductor and produce something divine. They prove that one plus one can be more than two. Itís a great example of teamwork.

 

What prompted your change of heart from being a staunch leftist?

After my Paris stay, I donated my earnings and with $450 in my pocket decided to return home overland. I came to Nis, a border town between the then Yugoslavia and Bulgaria to take the Sofia Express. I struck up conversation with a girl in the compartment. After about 45 minutes the train stopped, the police took the girl away, ransacked my backpack, and put me in a room that had no mattress and a window 10 ft high. They kept me there for 60 hours after which they freed me saying that since I was from a friendly country they were letting me go. I felt that if this system treats friends this way then I did not want anything to do with it. This experience really shook me.

 

So the socialist in you became a committed capitalist?

I am a 100% free marketeer but I call myself a compassionate capitalist. While Iím very conservative in economic matters Iím very liberal about social matters. But I have no illusions about socialism. In a country like India, when we have to make capitalism an attractive alternative to people, it is extremely important for us to show tremendous compassion to the less fortunate. That doesnít mean that you should give jobs to people who donít deserve them or that you should make less profits but wherever you can show compassion you should.

 

What was the initial business plan of Infosys based on?

We were very clear that we wanted to be in India. There were many opportunities to settle outside but we wanted to create an institution in India. We knew there was hardly a market here, so we had to look at the export market from day one. At that time we had no idea how far it would go but our satisfaction comes mainly from working with bright, smart and hard-working young men and women.

Our first contract was from Databasics in New York. We had worked with them at Patni Computer Systems but they wanted to set up on their own software group in India. We convinced them that we could do as good a job. My colleagues left for the US to work on-site on the project. I stayed back to set up the infrastructure. We decided to import a computer so that we could add value from India.

 

How easy or difficult was it in those days to get a business like yours off the ground?

In those days it would take anywhere between 15 to 24 months to get a computer. We started in 1981 but our first computer was installed only in February 1984. Getting a loan was very difficult. We had worked out a time-sharing deal with mico on the basis of which anz did a project report. But anz refused to give us the loan. Several other banks also turned us down. It was just by chance on a flight that I happened to be sitting next to K.S.N. Murthy of the Karnataka State Industrial Investment and Development Corporation, and we got our break. They redid the entire project report over 14 hours a day for a week and got it sanctioned in 15 days.

Right from day one our idea was to add value from India. To do that we needed certain factor conditions Ė computers, telephone lines. It took us a year to get a phone in Bangalaore. There was a rule then that higher priority was to be given to retired government servants than businesses. We had a contract for $3,50,000; in addition we would get an ibm compatible machine on loan from our customer. All that they insisted was that we have a telephone so that they could contact us. The customer said: Look I understand that you are a group of competent people, but if you want to do it from India you must convince us that you can establish a line of communication. So, much against our desire, we had to ship the team out.

One has to go through all these experiences because it makes you understand your own frailties and also helps you develop respect for God. Iíve been extraordinarily lucky in life. Iíve received much more from society than Iíve given. I have many friends who are much smarter, much more accomplished, but somehow life has dealt me so many good cards that I canít ascribe it to anything other than Godís grace.

 

Did you ever at any point feel like giving up?

There came a time in 1990 when we were floundering. We had offers to buy us out which my colleagues thought we should consider since we werenít making too much headway. We had a 4-5 hour discussion and I could feel the sense of despondency. So I pulled a fast one. I said guys donít worry, Iíll buy you out. I know itís going to be tough in this country but I have no doubt that weíll see light. In minutes, they all said that weíre with you. From now onwards we will never discuss the issue of closing down, getting tired or giving up. This marathon will be restarted.

Leadership is about making what seems impossible, possible; about changing the perception of what reality is. The reality in India is dirty roads, pollution, bad traffic, etc. Reality is what we make it; it is for us to change. If you give confidence to people they can achieve tremendous things. We have run this company as professionally as any other corporation in the world in terms of the principles of corporate governance, in not using corporate resources for personal conveniences, with respect for the professional.

 

What was the turning point for Infosys?

Chance favours the prepared mind. Just as we got determined to run the marathon with much greater gusto, liberalisation happened. If there is one company that symbolises all the good that came out of liberalisation, it is Infosys. It did four things for us: It enhanced the velocity of decision-making in government. It used to take 8 to 12 months to get a computer and the decision depended on the babu in Delhi. After 1991, it wasnít necessary to go to Delhi for approvals. We could walk across to the Software Technology Park here and get licenses in half a day for $1 million.

Second, equity became a viable financing option. Abolishing the Controller of Capital Issues had a multiplier effect on Indian enterprises. Prior to 1991, an officer was charged with the authority to decide at what premium a company went public and generally he always looked at the past. But capital markets are about the future. With low premiums, new entrepreneurs were reluctant to approach the capital markets. Once the company and lead manager were allowed to decide the premium, that set us free.

The government also liberalised the rbi rules for current account transactions. This meant that it was easy to travel abroad, establish offices and get consultants. Prior to 1991, we had to make an application to rbi which could take 5 to 10 days. Today I can travel in the next 6 hours. So itís a big change.

The most important thing is that government reversed the policy of foreign investment and allowed 100% ownership for mncs. This is the main reason why Infosys came up. At the time many hi-tech companies came in and that created competition, not in the marketplace but for our human resources. People told me that Murthy your game is up, all your people will leave.

We could react in three ways: that this is our karma. Weíll grow but not much Ė the Hindu philosophy. The second alternative was to lobby the government not to permit 100% ownership by mncs. As president of Nasscom, I could have kept all these guys out. But that was against my fundamental philosophy. The third was to find out why our youngsters would want to leave us and see if we could create those conditions in Infosys.

A successful corporation is one that introspects about internal transformation first before blaming the context, competition or external circumstances. Everyone bought into this philosophy and how we could bring about a fundamental transformation. We increased our salaries, we introduced a stock option plan so that our people would have much more money than any other Indian mnc. We also decided to make it a fun place to work because our assets walk out of the door every evening mentally and physically tired. We must make sure that they come back with a zest to work.

I am a firm believer that this country has a lot to learn from the West. We have to be open-minded, learn all the good things from them, and become stronger. For me a democracy is one where people put public good before private good; where responsibilities come before the rights.

 

What has kept the Infosys team together through all these years?

How do we stay together? We have unwritten rules. Everybody knows that if we want to work as a team we have to be transaction based. We start every transaction on a zero base. It is perfectly feasible for us to disagree on a transaction but we start the next transaction without any bias. Only an argument that has merit wins; it has nothing to do with hierarchy. Disagreeing is in the nature of things. When you bring a set of people who have respect for each othersí competence in certain areas and youíre transaction-oriented then it can work as it has in our case.

Our value system was like the British Constitution Ė it was all unwritten but extremely well practiced. If I were to have another opportunity to found another company, I would never ask for anyone else Ė these are truly remarkable people. Our value system is the true strength of Infosys. Besides, we have complementary skills. For example, I have an eye for detail and am comfortable with balance sheets and numbers. Then I can also get into the big picture. Nandan has a great ability to communicate and get himself connected to networks; his thinking is very strategic. Raghavan is a good people manager. Gopal is the best among us in technology. Shibulal and Dinesh are great on projects Ė so thereís a complementarity of skills

 

What do you think was your best business decision?

Well, I think the best business decision was to introspect. We will press on the pedal. We will compete with the best of the multinationals in terms of retaining people, in terms of creating a brand equity. I think if you ask me what distinguishes Infosys from many other companies, it is the following: We have a very strong value system. In fact, when I address new hires the main thing I talk to them about is the value system. I tell them that even in the most fierce competitive situation they must never talk ill of customers. For heavenís sake donít short change anybody. Never ever violate any law of the land. It is better to lose a billion dollars than a good nightís sleep. It is a true meritocracy. Raghavanís two children are engineers but they did not come here to ask for a job. They worked elsewhere before they went to the US to do their mba. It is our responsibility to maintain the dignity of professionals here.

The second thing thatís unique about Infosys is that we have accepted that speed and imagination are the only two context-invariant and time-invariant parameters for success. We donít think that we have any extraordinary legacy/strength that will carry us through the years. If we continue to innovate and to adapt then we will survive or else weíll disappear like dew on a summer morning. So thereís a sense of paranoia and a certain fear that tomorrow we may not get food on the table if we donít satisfy our customers. We donít think anything is given to us. Weíre as good as our last quarterly result. If we donít do well in the next quarter, weíll be wiped out.

 

So far Infosys has grown organically. Are you looking at acquisitions as a future growth strategy?

Indeed. Adding 50% to $500 million is so much more difficult than adding 50% to $100 million. We are looking at acquisitions though we havenít identified any company yet. We want to look at a group/company that will add to the top line immediately but will also add to the bottomline in the medium term. Ideally it should be a small company, so that the cross-cultural issues can be handled more easily. Third, it must have an intellectual property right, either in the form of a methodology or a tool or processes which can be scaled up across Infosys for improving productivity in an emerging area like e-commerce, crm etc. Finally, it could also be an aged technology product which has fallen on bad days but one that has a captive customer base. We can take that and enhance it technologically because we have the strength here to do that. And because thereís a captive customer base itís much easier to sell. In any product, selling to the first 20 customers is the hardest.

 

Many feel that software companies are riding the boom in demand for y2k remedial work. What will be Infosysí life after y2k?

We will continue be a software services company because as technology changes rapidly, companies will want to leverage the internet for gaining competitive advantage. There will be tremendous opportunities for companies like Infosys to re-engineer existing systems, enhance functionality. But the fundamental strength will have to be learnability of experience. That is, how quickly you understand a new paradigm, a new technology and apply it to bring business benefit to customers. As long as learnability is alive and kicking at Infosys, we will have no problems about our future.

 

What are the big challenges facing you?

We have to put in systems, processes and tools to leverage technology to enhance the quality and productivity of our people. If today we take 100 hours to do something, then next year we should take 95 hours. Second, we must learn to manage growth. Inspite of recruiting larger numbers we should operate as a small, close knit, nimble company. Thatís the task of this management.

My vision is to make Infosys a globally respected software corporation, delivering best of breed solutions employing best in class professionals. Thatís different from an mnc which generally has subsidiaries in different countries, manufactures and sells there. As a corollary to that, I want it to be a place where people of different nationalities, religions and races will come together and compete in an environment of harmony and meritocracy. We believe that the local people are the best people in a given environment.

 

What are the challenges that the software sector faces in the new millennium?

One, we have to create corporate brand equity and product/services brand equity outside India. Indian industryís record of doing this has been pathetic. We have to become multicultural as local people are most effective in a local environment. And we have to learn to operate in a multicultural environment. We have few examples of Indian companies successfully doing so.

The most difficult challenge is recruiting, enabling, empowering and retaining the best and brightest talent. Enhancing per capita revenue productivity and moving up the value chain is the next big challenge because our costs are going up in India. Unless we do this, our success wonít survive in the long run.

 

Will Infosys move up the value chain to become a pro-duct company in the future?

Our profitability and margins are the best in the services industry. Compare us with anybody on Nasdaq. The net income margin of Infosys is as good as any product company with the exception of Microsoft. Itís not necessary to transform ourselves into a product company. In fact, in the Net economy it is services companies like Amazon.com, Priceline, eBay that have been growing. Iím not worried about traditional thinking that one must have a product. Infosys has enhanced its per capita productivity at least 10% in last five years. We are positioned to continue to be profitable.

 

Does government have a role to play in the it sector? One view is that it has grown because the government has been hands-off and now that an it ministry has been set up it could pose a roadblock. What is your view?

The government has a role in creating a context for Indian entrepreneurs to succeed. They should concentrate on a policy regime and not a case-by-case syndrome. If decisions of corporations are not taken in boardrooms but in some government office then we wonít go anywhere. Our company has been at the leading edge in pushing the policy regime. When we got listed on Nasdaq we required a policy regime. We need the cooperation of government as we move forward.

 

What opportunity does the growing power of the Internet pose for your company?

Internet is a great phenomenon particularly for a country like India because it has meant the death of distance. It has brought the anywhere, anytime paradigm. In a large resource scarce country like India, it is going to play a crucial role in ensuring that both business to business and business to customer benefits accrue much faster to both industry and consumers.

Thanks to the emergence of companies like Amazon, the traditional companies have realised that they have to shape up or ship out. So thereís a tremendous emphasis on leveraging the power of the internet. We understand online transaction processing very well Ė we have done it for 18 years. E-commerce requires the ability to mount a robust and secure an online transaction processing engine, a certain application layer. The only difference is that you have to create a user-friendly web front end which skill weíve developed in the last 2-3 years. We have a big advantage of over new e-commerce companies because the design and implementation of a high performance engine is something weíve been doing for years. US corporations are in a hurry to get on to the e-comerce bandwagon and this is a clear opportunity for us.

 

The stockmarket seems to have discovered the worth of it and infotech stocks are seeing ever rising valuations. How do you react to this?

I tell my colleagues not to look at the stockmarket. What we should worry about day after day is to provide quality products on time, within budget to our customers. We must show transparency to investors, not violate any law of the land, and be in harmony with society. Thatís our main charter and we should stick to it. The stockmarket may or may not reward us even if we do that. This is ephemeral. We should not be too ecstatic about it today or get despondent if it falls tomorrow.

 

People say that the intellectual elite of India is now in Silicon Valley. What is your view?

Twenty years ago if someone had asked me whether Indians should go abroad, I would have said No. Today I have a completely different view. The need of the country today is to create a good brand equity of the country. That will be created by high quality Indians in some numbers establishing themselves abroad. I donít feel bad about it. If some people go we should cheer them, applaud them, make them feel welcome, and give them emotional support. Because they are doing a great job of enhancing the equity of India.

Itís very easy to sit in India and say Mera Bharat Mahaan. Economic power is the only thing that counts in todayís word. We have to create an image in the minds of foreigners that Indians can do it. In fact, that has already happened in the Valley. If an Indian is involved in a venture, then the venture capitalist will look positively at it. We have to convert this country so that we not only retain people here but also attract some of them back.

 

What advice would you give to the next generation of entrepreneurs?

Early to bed and early to rise and work like hell. Those people who have entrepreneurial strengths need to get a marketable idea and understand the window of opportunity for it. They have to bring together a team that has mutually exclusive, but collectively exhaustive skills and work out a value system. Entrepreneurship is about running a marathon, not a 100 metre dash.

 

What does money mean to you?

Beyond a certain level of comfort I think oneís wealth should be seen as an opportunity to make a difference to society. My colleagues think so too. The power of money is the power to give. Obviously it will have to be done in a gradual manner over the years, but thereís no doubt that a majority of what we have will be given to public causes.

 

What drives you then if not money?

Thereís a saying in America that the reward for winning a pinball game is to get a chance to play the next one. In most situations, the pleasure comes from the journey, not the destination.

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